UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended September 30, 1997
------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
--------------- ---------------
Commission File Number: 1-12306
--------------------
INTEGRATED HEALTH SERVICES, INC.
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-2428312
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10065 Red Run Boulevard, Owings Mills, MD 21117
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(410) 998-8400
--------------------------------------------
(Registrant's telephone, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ X ] Yes [ ] No
Number of shares of common stock of the registrant outstanding as of October 20,
1997: 27,400,896 shares.
<PAGE>
INTEGRATED HEALTH SERVICES, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page
Item 1. - Condensed Financial Statements - (Unaudited)
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Earnings
for the three and nine months ended
September 30, 1997 and 1996 4
Consolidated Statement of Changes in
Stockholders' Equity for the nine
months ended September 30, 1997 5
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1997
and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
PART II: OTHER INFORMATION
Item 2. Changes in Securities 32
Item 6. Exhibits and Reports on Form 8-K 32
Page 2 of 35
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------------- ---------------------
(UNAUDITED)
<S> <C> <C>
Assets
------
Current Assets:
Cash and cash equivalents $ 58,915 39,028
Temporary investments 821,965 2,044
Patient accounts and third-party payor settlements
receivable, less allowance for doubtful receivables
of $47,223 at September 30, 1997 and $41,527 at
December 31, 1996 377,546 326,883
Inventories, prepaid expenses and other current
assets 36,457 26,243
Income tax receivable 25,630 20,992
--------------- ----------------
Total current assets 1,320,513 415,190
--------------- ----------------
Property, plant and equipment, net 948,120 864,335
Assets held for sale (Note 12) 12,109 --
Intangible assets 836,804 572,159
Investments in and advances to affiliates 31,437 76,047
Other assets 79,097 65,376
--------------- ----------------
Total assets $ 3,228,080 1,993,107
=============== ================
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
Current maturities of long-term debt $ 6,782 16,547
Accounts payable and accrued expenses 332,813 341,094
--------------- ----------------
Total current liabilities 339,595 357,641
--------------- ----------------
Long-term Debt:
Convertible subordinated debentures 258,750 258,750
Other long-term debt less current maturities 1,933,233 779,450
--------------- ----------------
Total long-term debt 2,191,983 1,038,200
--------------- ----------------
Other long-term liabilities 36,114 33,851
Deferred income taxes 27,501 22,283
Deferred gain on sale-leaseback transactions 5,463 6,267
Stockholders' equity:
Preferred stock, authorized 15,000,000 shares; no shares
issued and outstanding -- --
Common stock, $0.001 par value. Authorized 150,000,000
shares; outstanding 27,081,463 at September 30, 1997 and
23,628,250 at December 31, 1996 (including 324,800
treasury shares at September 30, 1997) 27 24
Additional paid-in capital 531,500 445,667
Retained earnings 108,221 79,814
Unrealized gain on available for sale securities 0 9,360
Treasury stock at cost (324,800 shares at September 30, 1997) (12,324) 0
--------------- ----------------
Net stockholders' equity 627,424 534,865
--------------- ----------------
Total liabilities and stockholders' equity $ 3,228,080 1,993,107
=============== ================
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
Page 3 of 35
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED HEALTH SERVICES, INC.
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ------------------------------
1997 1996 1997 1996
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Net revenues:
Basic medical services $ 91,458 $ 101,189 $ 268,268 $ 296,468
Specialty medical services 370,769 211,904 1,093,571 658,297
Management services and other 10,694 12,572 29,998 33,953
----------- ----------- ------------- -----------
Total revenues 472,921 325,665 1,391,837 988,718
----------- ----------- ------------- -----------
Costs and expenses:
Operating expenses 348,470 241,177 1,039,618 745,346
Corporate administrative and general 19,917 14,943 56,068 44,890
Depreciation and amortization 16,974 9,130 47,818 25,909
Rent 25,527 18,445 75,322 53,980
Interest, net 27,346 15,931 71,991 46,033
Non-recurring charges (income), net (Note 7) 0 (34,298) 20,047 (34,298)
----------- ----------- ------------- -----------
Total costs and expenses 438,234 265,328 1,310,864 881,860
----------- ----------- ------------- -----------
Earnings before equity in earnings
(loss) of affiliates, income taxes
and extraordinary items 34,687 60,337 80,973 106,858
Equity in earnings (loss) of affiliates (811) 323 (713) 1,083
----------- ----------- ------------- -----------
Earnings before income taxes
and extraordinary items 33,876 60,660 80,260 107,941
Federal and state income taxes 13,212 44,149 31,301 62,352
----------- ----------- ------------- -----------
Earnings before extraordinary items 20,664 16,511 48,959 45,589
Extraordinary items (Note 8) 2,384 0 20,552 1,431
----------- ----------- ------------- -----------
Net earnings $ 18,280 $ 16,511 $ 28,407 $ 44,158
=========== =========== ============= ===========
Per Common Share - primary
Earnings before extraordinary item $ 0.73 $ 0.69 $ 1.78 $ 1.95
Net earnings 0.65 0.69 1.03 1.89
=========== =========== =============== ===========
Per Common Share - fully diluted
Earnings before extraordinary items $ 0.65 $ 0.58 $ 1.57 $ 1.68
Net earnings 0.59 0.58 1.00 1.64
=========== =========== =============== ===========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
Page 4 of 35
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(DOLLARS IN THOUSANDS)
UNREALIZED
GAIN ON
ADDITIONAL AVAILABLE
COMMON PAID-IN RETAINED FOR SALE TREASURY
STOCK CAPITAL EARNINGS SECURITIES STOCK TOTAL
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 24 445,667 79,814 9,360 -- 534,865
Issuance of 976,504 shares of common
stock in payment of earn-out in
connection with prior acquisition (Note 3) 1 26,438 -- -- -- 26,439
Issuance of 1,394,817 shares of
common stock in connection with 1997
acquisitions (Note 3) 1 44,753 -- -- -- 44,754
Issuance of 81,434 shares of common
stock in connection with employee
stock purchase plan -- 1,757 -- -- -- 1,757
Exercise of employee stock options
for 1,325,258 shares of common stock 1 12,885 -- -- -- 12,886
Repurchase of 324,800 shares of treasury
stock (Note 9) -- -- -- -- (12,324) (12,324)
Realized gain on available for sale
securities (Note 7) -- -- -- (9,360) -- (9,360)
Net earnings -- -- 28,407 -- -- 28,407
----------------------------------------------------------------------------------
Balance at September 30, 1997 $ 27 531,500 108,221 0 (12,324) 627,424
==================================================================================
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
Page 5 of 35
<PAGE>
INTEGRATED HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 28,407 44,158
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Extraordinary item (Note 8) 33,690 2,327
Non-recurring charges (income), net (Note 7) 20,047 (34,298)
Undistributed results of joint ventures 958 (348)
Depreciation and amortization 47,818 25,909
Deferred income taxes and other non-cash items 6,781 3,162
Amortization of gain on sale-leaseback transactions (804) (749)
Increase in patient accounts and third-party
payor settlements receivable, net (28,379) (21,724)
Increase in supplies inventory, prepaid
expenses and other current assets (4,047) (979)
Decrease in accounts payable and accrued expenses (73,127) (26,591)
(Increase) decrease in income taxes receivable (4,638) 23,479
-------------- -------------
Net cash provided by operating activities 26,706 14,346
-------------- -------------
Cash flows from financing activities:
Proceeds from issuance of capital stock, net 14,643 3,150
Proceeds from long-term borrowings 2,544,918 832,653
Repayment of long-term debt (1,419,179) (766,450)
Payment of pre-payment premiums and fees on debt
extinguishment (Note 8) (23,598) --
Deferred financing costs (33,085) (8,128)
Dividends paid (471) (435)
Purchase of treasury stock (12,324) 0
-------------- -------------
Net cash provided by financing activities 1,070,904 60,790
-------------- -------------
Cash flows from investing activities:
Sale of pharmacy division (Note 7) -- 125,000
Sale of temporary investments 639 5,086
Purchase of temporary investments (820,560) (4,595)
Business acquisitions (Note 3) (166,822) (46,106)
Payment of termination fees and other costs of
terminated merger (Note 7) (27,555) --
Purchase of property, plant and equipment (86,656) (104,647)
Sale of investments in affiliates 54,137 --
Other assets (30,906) (47,664)
-------------- -------------
Net cash used by investing activities (1,077,723) (72,926)
-------------- -------------
Increase in cash and cash equivalents 19,887 2,210
Cash and cash equivalents, beginning of period 39,028 38,917
-------------- -------------
Cash and cash equivalents, end of period $ 58,915 41,127
============== =============
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
Page 6 of 35
<PAGE>
NOTES
TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements included herein do not contain all
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principals. For
further information, such as the significant accounting policies followed by
Integrated Health Services, Inc. ("IHS" or "Company"), refer to the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1996. In the opinion of management,
the consolidated financial statements include all necessary adjustments
(consisting of only normal recurring accruals) for a fair presentation of the
financial position and results of operations for the interim periods presented.
The results of operations for the interim periods presented are not necessarily
indicative of the results that may be expected for the full year.
NOTE 2: EARNINGS PER SHARE
Primary earnings per share is computed based on the weighted average number of
common and common equivalent shares outstanding during the periods. Common stock
equivalents include options and warrants to purchase common stock, assumed to be
exercised using the treasury stock method. Fully diluted earnings per share is
computed as described above, except that the weighted average number of common
equivalent shares is determined assuming the dilution resulting from the
issuance of the aforementioned options and warrants at the higher of the
end-of-period price per share or the weighted average price for the period, and
the issuance of common shares upon the assumed conversion of the convertible
subordinated debentures. Additionally, interest expense and amortization of
underwriting costs related to such debentures are added, net of tax, to income
for the purpose of calculating fully diluted earnings per share. Such amounts
and the resulting net earnings for fully diluted earnings per share purposes are
summarized as follows for the nine months ended September 30, 1997 and 1996,
respectively:
1997 1996
------- ------
(in 000's)
Net earnings $28,407 $44,158
Adjustment for interest and underwriting
costs on convertible debentures 7,356 7,416
------- ------
Net earnings for fully diluted EPS $35,763 $51,574
======= =======
Weighted average shares-Primary 27,512 23,393
Weighted average shares-Fully Diluted 35,803 31,477
======= =======
Page 7 of 35
<PAGE>
NOTE 3: NEW ACQUISITIONS
ACQUISITIONS DURING THE NINE MONTHS ENDED SEPTEMBER 30, 1997
Acquisitions for the nine months ended September 30,1997 and the manner
of payment are summarized as follows:
COMMON
TOTAL STOCK ACCRUED CASH
MONTH TRANSACTION DESCRIPTION COST ISSUED LIABILITIES PAID
- ----- ----------------------- ---- ------ ----------- ----
(in 000's)
January Stock of In-Home Health
Care, Inc. $3,450 $---- $ 250 $3,200
February Assets of Professional
Health Services, Inc. 350 ---- 100 250
February Assets of Portable X-Ray
Labs, Inc. 6,200 ---- 1,300 4,900
March Assets of Laboratory
Corporation of America 35 ---- ---- 35
March Assets of Doctor's Home
Health Agency, Inc. 445 ---- 95 350
March Payment of earnout in
connection with Achieve-
ment Rehab acquisition
in December 1993 26,439 26,439 ---- ----
April Assets of Coastal
Rehabilitation, Inc. 1,450 ---- 200 1,250
April Assets of Mobile
Diagnostics, Inc. 225 ---- 75 150
June Stock of Health Care
Industries, Inc. 2,325 ---- 500 1,825
June Assets of The Nursing
Connection, Inc. 330 ---- ---- 330
June Assets of Rehab Dynamics,
Inc. and Restorative
Therapy, Ltd. 22,163 11,460 2,500 8,203
Page 8 of 35
<PAGE>
COMMON
TOTAL STOCK ACCRUED CASH
MONTH TRANSACTION DESCRIPTION COST ISSUED LIABILITIES PAID
- ----- ----------------------- ---- ------ ----------- ----
July Assets of Darkroom
Engineering 300 ---- 125 175
August Assets of Healthcare
Personnel, Inc. 785 ---- 110 675
August Assets of Portable
Radiology Services 1,200 ---- 600 600
August Stock of Ambulatory
Pharmaceutical Services,
Inc. & APS American,
Inc. 36,200 16,125 1,950 18,125
August Stock of Arcadia
Services, Inc. 30,016 17,169 3,000 9,847
September Stock and assets of
Barton Creek Healthcare,
Inc. 5,137 ---- 280 4,857
September Stock of Community Care
of America, Inc. 103,900 ---- 5,900 98,000
Various Cash payments of
acquisition costs
accrued ---- ---- (14,050) 14,050
------ ------ -------- ------
$240,950 $71,193 $2,935 $166,822
======== ======= ======= ========
Page 9 of 35
<PAGE>
The allocation of the total cost of the 1997 acquisitions to the assets acquired
and liabilities assumed is summarized as follows:
<TABLE>
<CAPTION>
ASSETS
PROPERTY, HELD
CURRENT PLANT & FOR OTHER INTANGIBLE CURRENT LONG-TERM TOTAL
TRANSACTION ASSETS EQUIPMENT SALE ASSETS ASSETS LIABILITIES LIABILITIES COSTS
- ----------- ------- --------- ---- ------ ------ ----------- ----------- -----
(in 000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
In-Home Health
Care, Inc. $ 989 $ 229 $ -- $ 7 $ 3,856 ($ 797) ($ 834) $ 3,450
Professional
Health Services,
Inc. -- 20 -- 9 321 -- -- 350
Portable X-Ray
Labs, Inc. 1,309 -- -- 11 5,653 (297) (476) 6,200
Laboratory Corp.
of America -- 10 -- -- 25 -- -- 35
Doctor's Home
Health Agency,
Inc. -- 6 -- -- 439 -- -- 445
Achievement
Rehab -- -- -- -- 26,439 -- -- 26,439
Coastal
Rehabilitation,
Inc. 257 85 -- -- 1,764 (576) (80) 1,450
Mobile
Diagnostics,
Inc. -- 38 -- -- 187 -- -- 225
Health Care
Industries,
Inc. 805 204 -- 41 2,505 (1,080) (150) 2,325
The Nursing
Connection,
Inc. 14 62 -- -- 254 -- -- 330
Rehab Dynamics,
Inc. & Restorative
Therapy, Ltd. 4,140 954 -- 107 21,478 (3,204) (1,312) 22,163
Darkroom
Engineering -- 45 -- -- 255 -- -- 300
Healthcare
Personnel, Inc. 6 2 -- 25 752 -- -- 785
Portable Radiology
Services -- 90 -- -- 1,110 -- -- 1,200
Ambulatory
Pharmaceutical
Services, Inc. &
APS America, Inc. 1,987 48 -- 8 39,624 (5,467) -- 36,200
Arcadia Services,
Inc. 3,980 348 -- 2,464 39,233 (16,009) -- 30,016
Barton Creek
Healthcare, Inc. 884 96 -- -- 7,293 (3,136) -- 5,137
Community Care of
America, Inc. 12,342 36,090 12,109 870 97,009 (27,520) (27,000) 103,900
------- ------ ------ ------- -------- -------- -------- -------
$26,713 $38,327 $12,109 $ 3,542 $248,197 $(58,086) $(29,852) $240,950
======= ====== ====== ======= ======== ======== ======== =======
</TABLE>
Page 10 of 35
<PAGE>
NOTE 4: 9-1/2% SENIOR SUBORDINATED NOTES DUE 2007
In May 1997, the Company issued $450 million aggregate principal
amount of its 9-1/2% Senior Subordinated Notes due 2007 (the "9-
1/2% Senior Notes"). Interest on the 9-1/2% Senior Notes is
payable semiannually on March 15 and September 15, commencing
September 15, 1997. The 9-1/2% Senior Notes are redeemable for
cash at any time on or after September 15, 2002, at the option of
the Company, in whole or in part, initially at the redemption
price equal to 104.75% of principal amount, declining to 100% of
principal amount on September 15, 2005, plus accrued interest
thereon to the date fixed for redemption. In addition, IHS may
redeem up to $150 million aggregate principal amount of the 9-1/2%
Senior Notes at any time and from time to time prior to September
15, 2000, at a redemption price equal to 108.50% of the aggregate
principal amount thereof, plus accrued interest thereon, out of
the net cash proceeds of one or more Public Equity Offerings (as
defined in the indenture under which the 9-1/2% Senior Notes were
issued (the "9-1/2% Senior Notes Indenture")), provided that at
least $300 million in aggregate principal amount of the 9-1/2%
Senior Notes remain outstanding after such redemption. In the
event of a change in control of IHS (as defined in the 9-1/2%
Senior Notes Indenture), each holder of 9-1/2% Senior Notes may
require IHS to repurchase such holder's 9-1/2% Senior Notes, in
whole or in part, at 101% of the principal amount thereof, plus
accrued interest to the repurchase date. The 9-1/2% Senior Notes
Indenture contains covenants, including but not limited to,
covenants with respect to the following matters: (1) limitations
on additional indebtedness unless certain coverage ratios are met;
(2) limitations on other subordinated debt; (3) limitations on
liens; (4) limitations on the issuance of preferred stock by the
Company's subsidiaries; (5) limitations on transactions with
affiliates; (6) limitations on restricted payments and
investments; (7) application of the proceeds of certain asset
sales; (8) limitations on restrictions on subsidiary dividends;
and (9) restrictions on mergers, consolidations and the transfer
of all or substantially all of the assets of the Company to
another person. The Company used approximately $247.2 million of
the net proceeds from the sale of the 9-1/2% Senior Notes to
repurchase substantially all of its 9- 5/8% Senior Subordinated
Notes due 2002 and its 10-3/4% Senior Subordinated Notes due 2004
and to pay pre-payment premiums, consent fees and accrued interest
related to the repurchase; the remaining approximately $191.0
million was used to repay a portion of the $436.0 million then
outstanding under its revolving credit facility. In connection
with the repurchase, the Company recorded an extraordinary loss of
$18.2 million (net of tax). (See Note 8: Extraordinary Item)
NOTE 5: 9-1/4% SENIOR SUBORDINATED NOTES DUE 2008
In September 1997, the Company issued $500 million aggregate
principal amount of its 9-1/4% Senior Subordinated Notes due 2008
(the "9-1/4% Senior Notes"). Interest on the 9-1/4% Senior Notes is
payable semi-annually on January 15 and July 15, commencing January
15, 1998. The 9-1/4% Senior Notes are redeemable for cash
Page 11 of 35
<PAGE>
at any time on or after January 15, 2003, at the option of the
Company, in whole or in part, initially at a redemption price equal
to 104.625% of principal amount, declining to 100% of principal
amount on January 15, 2006, plus accrued interest thereon to the
date fixed for redemption. In addition, the Company may redeem up to
$166,667,000 aggregate principal amount of the 9-1/4% Senior Notes
at any time and from time to time prior to January 15, 2001, at a
redemption price equal to 109.25% of the aggregate principal amount
thereof, plus accrued interest thereon to the date fixed for
redemption, out of the net cash proceeds of one or more Public
Equity Offerings (as defined in the indenture under which the 9-1/4%
Senior Notes were issued (the "9-1/4% Senior Notes Indenture")),
provided that at least $333,333,000 in aggregate principal amount of
the 9-1/4% Senior Notes remain outstanding after such redemption. In
the event of a change in control of IHS (as defined in the 9-1/4%
Senior Notes Indenture), each holder of 9-1/4% Senior Notes may
require IHS to repurchase such holder's 9-1/4% Senior Notes, in
whole or in part, at 101% of the principal amount thereof, plus
accrued interest to the repurchase date. The 9-1/4% Senior Notes
Indenture contains covenants, including but not limited to,
covenants with respect to the following matters: (1) limitations on
additional indebtedness unless certain coverage ratios are met; (2)
limitations on other subordinated debt; (3) limitations on liens;
(4) limitations on the issuance of preferred stock by the Company's
subsidiaries; (5) limitations on transactions with affiliates; (6)
limitations on restricted payments and investments; (7) application
of the proceeds of certain asset sales; (8) limitations on
restrictions on subsidiary dividends; and (9) restrictions on
mergers, consolidations and the transfer of all or substantially all
of the assets of the Company to another person. The Company used the
proceeds from the sale of the 9-1/4% Senior Notes to repay
outstanding indebtedness under the Company's revolving credit
facility and for general corporate purposes.
NOTE 6: REVOLVING CREDIT AND TERM LOAN FACILITY
On September 15, 1997, the Company entered into a $1.75 billion
revolving credit and term loan facility with Citibank, N.A., as
Administrative Agent, and certain other lenders (the "New Credit
Facility") to replace its existing $700 million revolving credit
facility. The New Credit Facility consists of a $750 million term
loan facility (the "Term Facility") and a $1 billion revolving
credit facility, including a $100 million letter of credit
subfacility and a $10 million swing line subfacility (the "Revolving
Facility"). The Term Facility, all of which was borrowed on
September 17, 1997, matures on September 30, 2004 and will be
amortized beginning December 31, 1998 as follows: 1998 - $7.5
million; each of 1999, 2000, 2001 and 2002 - $7.5 million (payable
in equal quarterly installments); 2003 - $337.5 million (payable in
equal quarterly installments); and 2004 - $375 million (payable in
equal quarterly installments). Any unpaid balance will be due on the
maturity date. The Term Facility will bear interest at a rate equal
to, at the option of the Company, either (i) in the case of
Eurodollar loans, the sum of (x) one and three-quarters percent or
two percent (depending on the ratio of IHS'
Page 12 of 35
<PAGE>
Debt (as defined in the New Credit Facility) to earnings before
interest, taxes, depreciation, amortization and rent, pro forma for
any acquisitions or divestitures during the measurement period (the
"Debt/EBITDAR Ratio")) and (y) the interest rate in the London
interbank market for loans in an amount substantially equal to the
amount of borrowing and for the period of borrowing selected by IHS
or (ii) the sum of (a) the higher of (1) Citibank, N.A.'s base rate
or (2) one percent plus the latest overnight federal funds rate plus
(b) a margin of one-half percent or three-quarters of one percent
(depending on the Debt/EBITDAR Ratio). The Term Facility can be
prepaid at any time in whole or in part without penalty.
The Revolving Facility will reduce to $800 million on September 30,
2001 and $500 million on September 30, 2002, with a final maturity
on September 15, 2004; however, the $100 million letter of credit
subfacility and $10 million swing line subfacility will remain at
$100 million and $10 million, respectively, until final maturity.
The Revolving Facility will bear interest at a rate equal to, at the
option of IHS, either (i) in the case of Eurodollar loans, the sum
of (x) between three-quarters of one percent and one and
three-quarters (depending on the Debt/EBITDAR Ratio) and (y) the
interest rate in the London interbank market for loans in an amount
substantially equal to the amount of borrowing and for the period of
borrowing selected by IHS or (ii) the sum of (a) the higher of (1)
Citibank, N.A.'s base rate or (2) one percent plus the latest
overnight federal funds rate plus (b) a margin of between zero
percent and one-half percent (depending on the Debt/EBITDAR Ratio).
Amounts repaid under the Revolving Facility may be reborrowed prior
to the maturity date.
The New Credit Facility limits the Company's ability to incur
indebtedness or contingent obligations, to make additional
acquisitions, to sell or dispose of assets, to create or incur liens
on assets, to pay dividends, to purchase or redeem IHS' stock and to
merge or consolidate with any other person. In addition, the New
Credit Facility requires that the Company meet certain financial
ratios, and provides the banks with the right to require the payment
of all amounts outstanding under the facility and to terminate all
commitments under the facility, if there is a change in control of
IHS or if any person other than Dr. Robert N. Elkins, IHS' Chairman
and Chief Executive Officer, or a group managed by Dr. Elkins, owns
more than 40% of IHS' stock. The New Credit Facility is guaranteed
by all of IHS' subsidiaries (other than inactive subsidiaries) and
secured by a pledge of all of the stock of substantially all of IHS'
subsidiaries.
The New Credit Facility replaced the Company's $700 million credit
facility ("Prior Credit Facility"). As a result, the Company
recorded an extraordinary loss on extinguishment of debt of $2.4
million (net of related tax benefit of approximately $1.5 million)
in the third quarter of 1997 resulting from the write-off of
deferred financing costs of $3.9 million related to the Prior Credit
Facility. (See Note 8: Extraordinary Item)
Page 13 of 35
<PAGE>
NOTE 7: NON-RECURRING CHARGES (INCOME)
PHARMACY GAIN:
In July 1996, the Company sold its pharmacy division to Capstone
Pharmacy, Inc. ("Capstone") for a purchase price of $150 million,
consisting of cash of $125 million, and shares of Capstone stock
having a value of $25 million. The Company recorded a pre-tax gain
related to the sale of $34.3 million during the three months ended
September 30, 1996 ($300,000 gain after tax). At the date of the
sale the Company's investment in the shares of Capstone's common
stock was recorded at its carryover cost of $14.7 million, which
represented less than 20% of the total Capstone shares. During the
first quarter 1997, the Company recorded the remaining gain of $7.6
million on its investment in the Capstone shares. Previously, such
gain was accounted for as an unrealized gain on available for sale
securities.
SETTLEMENT WITH CORAM:
On October 19, 1996, the Company and Coram Healthcare Corporation
("Coram") entered into a definitive agreement and plan of merger
(the "Merger Agreement") providing for the merger of a wholly-owned
subsidiary of IHS into Coram, with Coram becoming a wholly-owned
subsidiary of IHS. Under the terms of the Merger Agreement, holders
of Coram common stock were to receive for each share of Coram common
stock 0.2111 of a share of the Company's common stock, and IHS would
have assumed approximately $375 million of indebtedness. On April 4,
1997, IHS notified Coram that it had exercised its rights to
terminate the Merger Agreement. IHS also terminated the March 30,
1997 letter amendment, setting forth proposed revisions to the terms
of the merger (which included a reduction in the exchange ratio to
0.15 of a share of IHS common stock for each share of Coram common
stock), prior to the revisions becoming effective at the close of
business on April 4, 1997. On May 5, 1997, IHS and Coram entered
into a settlement agreement pursuant to which the Company paid Coram
$21 million in full settlement of all claims Coram might have
against IHS pursuant to the Merger Agreement, which the Company
recognized as a non-recurring charge in the second quarter. In
addition, during the first quarter of 1997 the Company incurred a
non-recurring charge of $6.6 million relating to accounting, legal
and other costs related to the merger.
SALE OF REMAINING INTEREST IN INTEGRATED LIVING COMMUNITIES, INC.
In July 1997, the Company sold its remaining 37.3% ownership
interest in Integrated Living Communities, Inc. ("ILC")
(representing 2,498,000 shares of ILC) to Living Centers of America,
Inc. for approximately $28.7 million. This sale resulted in a
non-recurring gain of approximately $4.6 million which the Company
recorded in the third quarter of 1997.
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<PAGE>
EXIT COSTS RELATED TO ROTECH MEDICAL CORPORATION
In September 1997, the Company recorded an approximately $4.6
million non-recurring charge resulting from the closure of certain
redundant activities in connection with its fourth quarter merger
with RoTech Medical Corporation.
NOTE 8: EXTRAORDINARY ITEM
In the second quarter 1997, the Company recorded a pre-tax loss of
$29.8 million representing (1) approximately $23.6 million of cash
payments for pre-payment premium and tender and consent fees
relating to the early extinguishment of debt resulting from the
Company's repurchase pursuant to cash tender offers of $99,893,000
principal amount of the Company's $100 million of outstanding 10-
3/4% Senior Subordinated Notes due 2004 and $114,975,000 principal
amount of the Company's 9-5/8% Senior Subordinated Notes due 2002
and (2) approximately $6.2 million relating to the write-off of
deferred financing costs. Such loss, reduced by the related income
tax effect of $11.6 million, is presented in the statement of
earnings as an extraordinary loss of $18.2 million.
In the third quarter of 1997, the Company replaced its $700 million
revolving credit facility with the $1.75 billion revolving credit
and term loan facility (See Note 6: Revolving Credit and Term Loan
Facility). This event has been accounted for as an extinguishment of
debt and the Company has recorded a loss on extinguishment of debt
of $3.9 million, relating primarily to the write-off of deferred
costs. Such loss, reduced by the related income tax effect of $1.5
million, is presented in the statement of earnings as an
extraordinary item of $2.4 million.
In the second quarter of 1996, the Company replaced its $500 million
revolving credit and term loan facility with a $700 million
revolving credit facility. This event has been accounted for as an
extinguishment of debt and the Company has recorded a loss on
extinguishment of debt of $2.3 million, relating primarily to the
write-off of deferred costs. Such loss, reduced by the related
income tax effect of $896,000, is presented in the statement of
earnings as an extraordinary item of $1.4 million.
NOTE 9: STOCK REPURCHASE
The Company's Board of Directors has authorized the repurchase in
the open market of up to $20 million of the Company's Common Stock.
The purpose of the repurchase program is to have available treasury
shares of Common Stock to (i) satisfy contingent earn-out payments
under prior business combinations accounted for by the purchase
method, (ii) issue in connection with acquisitions, and (iii) issue
upon exercise of outstanding options. The repurchases will be funded
from cash flow from operations and drawings under the Company's
revolving credit facility. During the nine months ended September
30, 1997, the Company repurchased 324,800 shares
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of Common Stock for an aggregate purchase price of approximately
$12.3 million.
NOTE 10: RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share," ("SFAS 128"), which
simplifies the standards for computing earnings per share ("EPS").
SFAS 128 is effective for the Company's fourth quarter and year
ending December 31, 1997. Early application is not permitted and
prior period EPS data will be restated.
Under SFAS 128, primary EPS will be replaced with basic EPS. Basic
EPS excludes the dilutive effect of common stock equivalents. Also,
under SFAS 128, fully-diluted EPS will be replaced by diluted EPS.
Diluted EPS is calculated similarly to fully-diluted EPS pursuant to
Accounting Principles Board Opinion 15.
The change in calculation method is not expected to have a material
impact on previously reported earnings per common share data.
NOTE 11: MERGER WITH COMMUNITY CARE OF AMERICA, INC.
On September 25, 1997, the Company acquired through a cash tender
offer and subsequent merger Community Care of America, Inc. ("CCA")
for a purchase price of approximately $34.3 million in cash ("CCA
Acquisition"). In addition, in connection with the CCA Acquisition
the Company repaid approximately $58.5 million of indebtedness
assumed in the CCA Acquisition with the proceeds from the term loans
under its new credit facility, assumed approximately $27.0 million
of indebtedness and incurred costs of the transaction of
approximately $5.2 million. CCA develops and operates skilled
nursing facilities in medically underserved rural communities. CCA
currently operates 54 licensed long-term care facilities with 4,450
licensed beds (of which 19 facilities are being held for sale), one
rural healthcare clinic, two outpatient rehabilitation centers, one
child day care center and 124 assisted living units within seven of
the facilities which CCA operates. CCA currently operates in
Alabama, Colorado, Florida, Georgia, Iowa, Kansas, Louisiana, Maine,
Missouri, Nebraska, Texas and Wyoming. According to CCA's filings
with the Securities and Exchange Commission, CCA had revenues of
$127.5 million, earnings before interest, taxes, depreciation and
amortization ("EBITDA") of $2.1 million and a net loss of $18.9
million for the year ended December 31, 1996 and revenues of $65.5
million, EBITDA of $4.0 million and a net loss of $2.4 million for
the six months ended June 30, 1997. Dr. Robert N. Elkins, Chairman
of the Board and Chief Executive Officer of IHS, beneficially owned
approximately 21.0% of CCA's outstanding common stock (excluding
warrants to purchase approximately 13.5% of CCA's common stock owned
by IHS).
In connection with the CCA Acquisition, IHS, CCA and Health and
Retirement Properties Trust ("HRPT"), CCA's principal landlord and a
significant lender to CCA, restructured the lease and loan
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<PAGE>
agreements between CCA and HRPT. Under the agreement, (i) CCA
purchased for $33.5 million 14 facilities, aggregating 1,238 beds,
previously owned by HRPT and leased to CCA, (ii) approximately $12.2
million principal amount of loans from HRPT to CCA was prepaid and
the collateral security released, (iii) three facilities mortgage
financed by HRPT were sold to HRPT and leased to CCA, and (iv) the
leases and mortgages were modified to reduce future rent and
mortgage interest rate increases and release cash security deposits.
IHS has guaranteed all lease and mortgage obligations to HRPT, which
received a $3.7 million modification fee.
NOTE 12: ASSETS HELD FOR SALE
Assets held for sale represent the assets of nineteen geriatric care
facilities acquired in connection with the acquisition of CCA which
are intended to be sold within one year. Such amounts are carried at
estimated net realizable value, less estimated carrying costs to be
incurred during the holding period.
NOTE 13: SUBSEQUENT EVENTS
MERGER WITH ROTECH MEDICAL CORPORATION
On October 21, 1997, the Company acquired RoTech Medical Corporation
("RoTech") through merger of a wholly-owned subsidiary of IHS into
RoTech (the "Merger"), with RoTech becoming a wholly-owned
subsidiary of IHS. RoTech provides home healthcare products and
services, with an emphasis on home respiratory, home medical
equipment and infusion therapy, primarily in non-urban areas. RoTech
currently operates 631 home health locations in 36 states and
approximately 26 primary care physicians practices. According to
RoTech's filings with the Securities and Exchange Commission, RoTech
had revenues of $422.7 million and net earnings of $30.8 million for
the year ended July 31, 1997.
Under the terms of the Merger, holders of RoTech Common Stock
received for each share of RoTech Common Stock 0.5806 of a share of
IHS Common Stock (the "Exchange Ratio"), having a market value of
$19.16 based on the $33.00 closing price of the IHS Common Stock on
October 21, 1997, the effective date of the Merger. Options to
purchase RoTech Common Stock (the "RoTech Options") were converted
at the closing date into options to purchase IHS Common Stock based
on the Exchange Ratio. IHS issued approximately 15,350,670 shares of
IHS Common Stock in the Merger, and reserved for issuance
approximately 1,841,700 shares of IHS Common Stock issuable upon
exercise of RoTech Options. In addition, RoTech's outstanding 5-1/4%
convertible subordinated debentures in the principal amount of $110
million become convertible into approximately 2,433,000 shares of
IHS Common Stock at a conversion price of $45.21 per share of IHS
Common Stock (the "RoTech Debentures"). The Merger consideration
aggregated approximately $514.8 million, substantially all of which
will be recorded as goodwill. The transaction will be treated as a
purchase for accounting and financial reporting
Page 17 of 35
<PAGE>
purposes. IHS repaid the $199.7 million of RoTech bank debt assumed
in the transaction with the proceeds of the term loan under its new
revolving credit and term loan facility. Pursuant to the terms of
the indenture under which the RoTech Debentures were issued, RoTech
has offered to repurchase all such debentures for a price of 100% of
the principal amount thereof.
PROPOSED ACQUISITION OF LONG-TERM FACILITIES AND OTHER ASSETS FROM
HEALTHSOUTH CORPORATION
On November 3, 1997, IHS signed a definitive purchase agreement
pursuant to which the Company will acquire 139 long-term care
facilities, 12 specialty hospitals, a contract therapy business
holding over 1,000 contracts and an institutional pharmacy business
serving approximately 38,000 beds from HEALTHSOUTH Corporation
("HEALTHSOUTH"). Under the terms of the agreement, IHS will pay
$1.15 billion in cash and assume approximately $100 million in debt.
The Company will fund the purchase price with available cash from
term loan borrowings under its $1.75 billion revolving credit and
term loan facility, the sale of its 9-1/4% Senior Subordinated Notes
due 2008 and borrowings under the revolving credit portion of its
new credit facility. Consummation of the transaction is subject to
certain regulatory approvals, bank approvals and satisfaction of
certain other conditions. IHS has deposited with HEALTHSOUTH $50
million, which amount will be credited against the purchase price at
the closing or retained by HEALTHSOUTH under certain circumstances
if the transaction is not consummated. There can be no assurance
that this transaction will be consummated on these terms, on
different terms, or at all.
ACQUISITION OF CORAM HEALTHCARE CORPORATION LITHOTRIPSY DIVISION
IHS acquired substantially all of the assets of Coram's Lithotripsy
Division, which operates 20 mobile lithotripsy units and 13
fixed-site machines in 180 locations in 18 states. The Coram
Lithotripsy Division also provides maintenance services to its own
and third-party equipment. Lithotripsy is a non-invasive technique
that utilizes shock waves to disintegrate kidney stones. The closing
occurred on October 2, 1997.
The Company paid approximately $131.0 million in cash for the Coram
Lithotripsy Division, and assumed $1.0 million of intercompany debt
to Coram. The Coram Lithotripsy Division had revenues of $49.0
million and earnings before interest, taxes, depreciation and
amortization ("EBITDA") of $28.8 million (before minority interest)
for the year ended December 31, 1996 and revenues of $23.9 million
and EBITDA of $14.3 million (before minority interest) for the six
months ended June 30, 1997.
The Company has assumed Coram's agreements with its lithotripsy
partners, which contemplate that IHS will acquire the remaining
interest in each partnership at a defined price in the event that
legislation is passed or regulations are adopted or interpreted that
would prevent the physician partners from owning an interest in the
partnership and using the partnership's lithotripsy equipment for
the treatment of his or her patients. Coram has represented to IHS
that its partnership arrangements with
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<PAGE>
physicians in its lithotripsy business are in compliance with
current law.
OTHER ACQUISITIONS
IHS has reached a definitive agreement to purchase a home infusion
company for approximately $15.6 million.
The Company has reached agreements in principle to purchase three
mobile diagnostic companies for approximately $8.2 million, four
home healthcare companies for approximately $48.3 million, a
rehabilitation company for approximately $11.1 million, and a
lithotripsy company for approximately $11.2 million. The Company has
also reached agreements in principle to lease three skilled nursing
facilities.
There can be no assurance that these acquisitions will be
consummated on these terms, on different terms, or at all.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Statements in this Quarterly Report on Form 10-Q concerning the Company's
business outlook or future economic performance anticipated profitability,
revenues, expenses or other financial items, and product line growth, together
with other statements that are not historical facts, are "forward looking
statements" as that term is defined under Federal Securities Laws.
Forward-looking statements are subject to risks, uncertainties and other factors
which could cause actual results to differ materially from those stated in such
statements. Such risks, uncertainties and factors include, but are not limited
to, the Company's substantial indebtedness, growth strategy, managed care
strategy, capital requirements and recent acquisitions, as well as competition,
government regulation, general economic conditions and other risks detailed in
the Company's filings with the Securities and Exchange Commission, including the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Net revenues for the three months ended September 30, 1997 increased $147.3
million, or 45%, to $472.9 million from the comparable period in 1996.
Approximately 82% of the increase is attributable to the acquisition of
companies providing rehabilitation, home health, mobile x-ray and
electrocardiogram services subsequent to September 30, 1996, partially offset by
a reduction in revenue resulting from the sale of the Company's pharmacy
division in July 1996 and the sale of a majority interest in its assisted living
services division in October 1996. Revenues in the three months ended September
30, 1996 included revenues of $9.1 million from the pharmacy division and
revenues of $5.8 million from its assisted living services division. The
remaining increase was due primarily to
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<PAGE>
facilities and ancillary companies acquired during the third quarter of 1996 and
increased revenues from facilities and ancillary companies in operation during
both periods. The Company derived approximately 49% and 17% of its patient
revenues from Medicare and Medicaid, respectively, in the three months ended
September 30, 1997, compared to 34% and 23%, respectively, in the comparable
period in 1996.
Basic medical services revenue decreased 10% from $101.2 million to $91.5
million. This decrease primarily resulted from the conversion by the Company of
certain skilled nursing beds to Medical Specialty Unit (MSU) beds after
September 30, 1996 and the sale of a majority interest in its assisted living
services division in October 1996.
Specialty medical services revenue increased 75% from $211.9 million to $370.8
million. Of the $158.9 million increase, $120.5 million, or 76%, was
attributable to revenue from acquisitions subsequent to September 30, 1996,
partially offset by a reduction in specialty medical services revenue as a
result of the sale of the Company's pharmacy division in July 1996. The
remaining increase was due to increased revenue from facilities and ancillary
companies in operation in both periods, ancillary companies acquired during the
third quarter of 1996, as well as skilled nursing beds being converted to MSU
beds after September 30, 1996.
Management services and other revenues decreased 15% from $12.6 million to $10.7
million.
Total expenses for the period increased 65% to $438.2 million from $265.3
million in the comparable period of 1996. Of the $172.9 million increase, $107.3
million, or 62%, resulted from an increase in operating expenses. A substantial
portion of the increase in operating expenses was due to acquisitions
consummated subsequent to September 30, 1996, partially offset by the disposal
of the Company's pharmacy division in July 1996 and the sale of a majority
interest in its assisted living services division in October 1996.
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<PAGE>
Corporate administrative and general expenses for the three months ended
September 30, 1997 increased by $5.0 million, or 33%, over the comparable period
in 1996. This increase primarily represents additional operations, information
systems, accounting, finance and other personnel to support the growth resulting
from the acquisition of ancillary businesses. Depreciation and amortization
increased to $17.0 million during the three months ended September 30, 1997, an
increase of 86% as compared to $9.1 million in the same period in 1996,
primarily as a result of increases in goodwill amortization and depreciation
related to ancillary company acquisitions consummated during 1996 and 1997. Rent
expense increased by $7.1 million, or 38%, over the comparable period in 1996,
primarily as a result of increases in contingent rentals, which are based on
gross revenues of certain leased facilities, increased equipment rentals and
rent at ancillary companies acquired subsequent to September 30, 1996, partially
offset by a reduction resulting from the sale of the pharmacy division and the
sale of a majority interest in its assisted living services division. Interest
expense, net, increased $11.4 million, or 72%, during the three months ended
September 30, 1997 to $27.3 million. The increase in interest expense was
primarily a result of $750 million of term loan borrowings under the Company's
new $1.75 billion revolving credit and term loan facility entered into in
September 1997, the Company's $500 million principal amount of 9-1/4% Senior
Subordinated Notes issued in September 1997, the Company's $450 million
principal amount of 9-1/2% Senior Subordinated Notes issued in May 1997, as well
as increased borrowings under the Company's prior $700 million revolving credit
facility, partially offset by a reduction in interest resulting from the
repurchase in May 1997 of substantially all of the Company's 9-5/8% and 10-3/4%
Senior Subordinated Notes, and the payoff of the Company's prior $700 million
revolving credit facility with the proceeds from the sale of the 9-1/4% Senior
Subordinated Notes.
Earnings before equity in earnings (loss) of affiliates, income taxes and
extraordinary items decreased by 43% to $34.7 million for the three months ended
September 30, 1997, as compared to $60.3 million for the comparable period in
the prior year. This decrease primarily resulted
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<PAGE>
from the gain the Company recognized from the sale of the pharmacy division
during the three months ended September 30, 1996 (See Note 7: Non-Recurring
Charges (Income)). Excluding non-recurring income in 1996, earnings before
equity in earnings (loss) of affiliates, income taxes and extraordinary items in
1997 increased $8.6 million, or 33%, over the comparable prior period in 1996.
Earnings before income taxes and extraordinary items decreased by 44% to $33.9
million for the three months ended September 30, 1997, as compared to $60.7
million for the comparable period in the prior year. This decrease resulted
primarily from the non-recurring income described above. Excluding the
non-recurring income in 1996, earnings before income taxes and extraordinary
items in 1997 increased $7.5 million, or 29%, over the comparable prior period
in 1996. The provision for federal and state income taxes was $13.2 million for
the three months ended September 30, 1997, and $44.1 million for the same period
in the prior year. Because the Company's investment in the common stock received
in the sale of the Company's pharmacy division had a very small tax basis, the
taxable gain on the sale significantly exceeded the gain for financial reporting
purposes, thereby resulting in a disproportionately higher income tax provision
related to the sale in 1996. During the three months ended September 30, 1997,
the Company incurred an extraordinary loss on the extinguishment of debt of $2.4
million (net of tax), or 6 cents per share (fully-diluted), representing the
write-off of deferred financing fees in connection with the replacement of its
$700 million revolving credit facility with its $1.75 billion revolving credit
and term loan facility as discussed in Note 8. Net earnings and fully-diluted
earnings per share for the quarter was $18.3 million in 1997, or 59 cents per
share, as compared to net earnings and fully diluted earnings per share of $16.5
million or 58 cents per share for the same period in 1996.
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<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Net revenues for the nine months ended September 30, 1997 increased $403.1
million, or 41%, to $1,391.8 million from the comparable period in 1996.
Approximately 83% of the increase is attributable to the acquisition of
companies providing rehabilitation, home health, mobile x-ray and
electrocardiogram services subsequent to September 30, 1996, partially offset by
a reduction in revenue resulting from the sale of the Company's pharmacy
division in July 1996 and the sale of a majority interest in its assisted living
services division in October 1996. Revenues in the nine months ended September
30, 1996 include revenues of $56.5 million for the pharmacy division and
revenues of $17.1 million from its assisted living services division. The
remaining increase was due primarily to facilities and ancillary companies
acquired during the nine months ended September 30, 1996 and increased revenues
from facilities and ancillary companies in operation during both periods. The
Company derived approximately 49% and 17% of its patient revenues from Medicare
and Medicaid, respectively, in the nine months ended September 30, 1997,
compared to 34% and 23%, respectively, in the comparable period in 1996.
Basic medical services revenue decreased 10% from $296.5 million to $268.3
million. This decrease primarily resulted from the conversion by the Company of
certain skilled nursing beds to Medical Specialty Unit (MSU) beds after
September 30, 1996 and the sale of a majority interest in its assisted living
services division in October 1996.
Specialty medical services revenue increased 66% from $658.3 million to $1,093.6
million. Of the $435.3 million increase, $335.2 million, or 77%, was
attributable to revenue from acquisitions subsequent to September 30, 1996
partially offset by a reduction in specialty medical services revenue as a
result of the sale of the Company's pharmacy division in July 1996. The
remaining increase was due to increased revenue from facilities in operation in
both periods and ancillary companies
Page 24 of 35
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acquired during the nine months ended September 30, 1996, as well as skilled
nursing beds being converted to MSU beds after September 30, 1996.
Management services and other revenues decreased 12% from $34.0 million to $30.0
million.
Total expenses for the period increased to $1,310.9 million from $881.9 million,
an increase of 49%. Of the $429.0 million increase, $294.3 million, or 69%, was
due to an increase in operating expenses. A substantial portion of the increase
in operating expenses was due to acquisitions consummated subsequent to
September 30, 1996, partially offset by the sale of the Company's pharmacy
division in July 1996 and the sale of a majority interest in its assisted living
services division in October 1996.
Corporate administrative and general expenses for the nine months ended
September 30, 1997 increased by $11.2 million, or 25%, over the comparable
period in 1996. This increase primarily represents additional operations,
information systems, accounting, finance and other personnel to support the
growth resulting from the acquisition of ancillary businesses. Depreciation and
amortization increased 85% to $47.8 million during the nine months ended
September 30, 1997 as compared to $25.9 million for the nine months ended
September 30, 1996. This increase is primarily the result of increased goodwill
amortization and depreciation related to ancillary company acquisitions
consummated during 1996 and 1997. Rent expense increased by $21.3 million, or
40%, over the comparable period in 1996, as a result of increases in contingent
rentals, which are based on gross revenues of certain leased facilities,
increased equipment rentals and rent at ancillary companies acquired subsequent
to September 30, 1996, partially offset by a reduction in rent resulting from
the sale of the pharmacy division and the sale of majority interest in the
Company's assisted living services division. Interest expense, net increased
$26.0 million, or 56%, during the nine months ended September 30, 1997 to $72.0
million. This increase in interest
Page 25 of 35
<PAGE>
expense was primarily a result of $750 million of term loan borrowings under the
Company's new $1.75 billion revolving credit and term loan facility, entered
into in September 1997, the Company's $500 million principal amount of 9-1/4%
Senior Subordinated Notes issued in September 1997, the Company's $450 million
principal amount of 9-1/2% Senior Subordinated Notes issued in May 1997, the
Company's $150 million principal amount of 10-1/4% Senior Subordinated Notes
issued in May 1996, as well as increased borrowings under the Company's prior
$700 million revolving credit facility, partially offset by a reduction in
interest resulting from the repurchase of substantially all of the Company's
9-5/8% and 10-3/4% Senior Subordinated Notes in May 1997, and the paydown on the
Company's prior $700 million revolving credit facility with the proceeds from
the sale of the 9-1/2% Senior Subordinated Notes and the 9-1/4% Senior
Subordinated Notes.
Earnings before equity in earnings (loss) of affiliates, income taxes and
extraordinary items decreased by 24% to $81.0 million for the nine months ended
September 30, 1997, as compared to $106.9 million for the comparable period in
the prior year. This decrease is primarily the result of non-recurring charges
which were incurred during the nine months ended September 30, 1997 and
non-recurring income the Company recognized during the nine months ended
September 30, 1996 (See Note 7: Non-Recurring Charges (Income)). Excluding the
non-recurring charges and income in both years, earnings before equity in
earnings (loss) of affiliates, income taxes and extraordinary items in 1997
increased $28.5 million, or 39%, over the comparable period in 1996.
Earnings before income taxes and extraordinary items decreased by 26% to $80.3
million for the nine months ended September 30, 1997, as compared to $107.9
million for the comparable period in the prior year. This decrease is primarily
the result of the non-recurring charges and income discussed above. Excluding
the non-recurring charges and income, earnings before income taxes and
extraordinary items in 1997 increased by $26.7 million, or 36%, over the
comparable prior period in 1996. The provision for federal and state income
taxes was $31.3 million for the nine months ended September 30, 1997, and $62.4
million for the same period in the prior year. Taxes in the 1996 period were
substantially higher because of the sale of the pharmacy division as discussed
above under the three month results of operations. During the nine months
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<PAGE>
ended September 30, 1997 and 1996, the Company incurred extraordinary losses of
$20.6 million (net of tax), or 57 cents per share (fully-diluted) and $1.4
million (net of tax), or 4 cents per share (fully-diluted), respectively,
representing in 1997 the payment of premium and consent fees and the write-off
of deferred financing costs in connection with the repurchase of substantially
all the Company's 9-5/8% and 10-3/4% Senior Subordinated Notes and the write-off
of deferred financing costs in connection with the replacement of its $700
million revolving credit facility with a $1.75 billion revolving credit and term
loan facility and in 1996 the write-off of deferred financing costs related to
replacement of the Company's $500 million revolving credit and term loan
facility with the $700 million revolving credit facility (See Note 8:
Extraordinary Item). Net earnings and fully diluted earnings per share for the
nine months were $28.4 million in 1997, or $1.00 per share, as compared to $44.2
million or $1.64 per share for the same period in 1996. Weighted average shares
(fully-diluted) increased by 14%, from 31,447,000 at September 30, 1996 to
35,803,000 at September 30, 1997.
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LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had working capital of $980.9 million, as
compared with $57.5 million at December 31, 1996. The increase in working
capital was a result of an increase in cash, as well as an increase in patient
accounts and third party payor settlements receivable and other current assets
and a decrease in accounts payable and accrued expenses. There were no material
commitments for capital expenditures as of September 30, 1997. Net patient
accounts and third-party payor settlements receivable increased $50.7 million to
$377.5 million at September 30, 1997, as compared to $326.9 million at December
31, 1996. Of the $50.7 million increase in accounts receivable, $22.9 million
was attributable to related service businesses acquired subsequent to December
31, 1996 and $27.8 million was due to increased accounts receivable at
facilities in operation and related service businesses owned at both December
31, 1996 and September 30, 1997. Gross patient accounts receivable were $398.6
million at September 30, 1997, as compared to $340.8 million at December 31,
1996. Net third-party payor settlements receivable from federal and state
governments (i.e., Medicare and Medicaid cost reports) was $26.1 million at
September 30, 1997, as compared to $27.6 million at December 31, 1996.
Approximately $11.8 million, or 45%, of the third-party payor settlements
receivable from federal and state governments at September 30, 1997 represent
the costs for its MSU patients which exceed regional reimbursement limits
established under Medicare.
The Company's cost of care for its MSU patients generally exceeds regional
reimbursement limits established under Medicare. The success of the Company's
MSU strategy will depend in part on its ability to obtain reimbursement for
those costs which exceed the Medicare established reimbursement limits by
obtaining waivers of these cost limitations. The Company has submitted waiver
requests for 325 cost reports, covering all cost report periods through December
31, 1996. To date, final action has been taken by the Health Care Financing
Administration ("HCFA") on 232 waiver requests covering cost report periods
through December 31, 1996. The Company's final rates as approved by HCFA
represent approximately 95% of the requested rates as submitted in the waiver
requests. There
Page 28 of 35
<PAGE>
can be no assurance, however, that the Company will be able to recover its
excess costs under any waiver requests which may be submitted in the future. The
Company's failure to recover substantially all these excess costs would
adversely affect its results of operations and could adversely affect its MSU
strategy.
As discussed in Note 4, in May 1997, the Company issued $450 million principal
amount of 9-1/2% Senior Subordinated Notes. The Company used the net proceeds to
repurchase substantially all of its 9- 5/8% Senior Subordinated Notes due 2002
and its 10-3/4% Senior Subordinated Notes due 2004, to pay pre-payment premiums,
consent fees and accrued interest related to the repurchase, as well as to repay
a portion of the $436.0 million then outstanding under its $700 million
revolving credit facility. In connection with the repurchase, the Company
recorded an extraordinary loss of $18.2 million (net of tax).
As discussed in Note 5, in September 1997, the Company issued $500 million
principal amount of 9-1/4% Senior Subordinated Notes. The Company used the
proceeds to repay outstanding indebtedness under the Company's $700 million
revolving credit facility and for general corporate purposes.
As discussed in Note 6, in September 1997, the Company replaced its $700 million
credit facility with a $1.75 billion revolving credit and term loan facility.
Upon the closing of the facility, the Company borrowed $750 million of term
loans. In connection with this transaction, the Company recorded an
extraordinary loss of $2.4 million (net of tax) on the extinguishment of debt
related to the prior credit facility.
The Company intends to use substantially all cash proceeds remaining from the
sale of the 9-1/4% Senior Subordinated Notes and term loan borrowings and
borrowings under its revolving credit facility to pay the $1.15 billion cash
purchase price for the assets which the Company has agreed to purchase from
HEALTHSOUTH. (See Note 13)
The other asset and liability increases were due to acquisitions and
Page 29 of 35
<PAGE>
normal growth in operations which was consistent with the growth in revenues of
such operations in 1997.
Net cash provided by operating activities for the nine months ended September
30, 1997, was $26.7 million as compared to $14.3 million for the comparable
period in 1996.
Net cash provided by financing activities was $1,070.9 million for the nine
month period in 1997 as compared to $60.8 million for the comparable period in
1996. In both periods, the Company received net proceeds from long-term
borrowings and made repayments on certain debt.
Net cash used by investing activities was $1,077.7 million for the nine month
period ended September 30, 1997 as compared to $72.9 million for the nine month
period ended September 30, 1996. Cash used for business acquisitions was $166.8
million in 1997 as compared to $46.1 million for 1996. Cash used for the
purchase of property, plant and equipment was $86.7 million in 1997 and $104.6
million in 1996. Cash used for the purchase of temporary investments was $820.6
million in 1997 compared to $4.6 million in 1996.
The Company's contingent liabilities (other than liabilities in respect of
litigation and the contingent payments in respect of the First American
acquisition) aggregated approximately $48.0 million as of September 30, 1997.
The Company is obligated to purchase its Greenbriar facility upon a change in
control of the Company. The net purchase price of the facility is approximately
$4.0 million. The Company has guaranteed approximately $6.6 million of the
lessor's indebtedness. The Company is required, upon certain defaults under the
lease, to purchase its Orange Hills facility at a purchase price equal to the
greater of $7.1 million or the facility's fair market value. The Company entered
into a guaranty agreement whereby the Company guaranteed approximately $4.0
million owed by the Tutera Group, Inc. and Sunset Plaza Limited Partnership, a
partnership affiliated with a partnership in which the Company has a 49%
interest, to Finova Capital Corporation. The Company has established several
irrevocable letters of credit with the Bank of Nova Scotia totaling $26.3
million at September 30, 1997 to secure
Page 30 of 35
<PAGE>
certain of the Company's workers' compensation, health benefits and other
obligations. The Company entered into a guaranty agreement whereby the Company
has guaranteed a maximum of $49,900 owed by Newco Management to First Union
National Bank of Florida. In addition, the Company has obligations under
operating leases aggregating approximately $200.3 million at September 30, 1997.
The Company is also obligated under certain circumstances to make contingent
payments of up to $155 million in respect of its acquisition of First American
of which $36.1 million was recorded on the balance sheet at September 30, 1997.
The Company is obligated to purchase the remaining interests in its lithotripsy
partnerships at a defined price in the event legislation is passed or
regulations adopted that would prevent the physician partners from owning an
interest in the partnership and using the partnership's lithotripsy equipment
for the treatment of his or her patients.
The liquidity of the Company will depend in large part on the timing of payments
by private, third-party and governmental payors, including payments in excess of
regional cost reimbursement limitations established under Medicare. Costs in
excess of the regional reimbursement limits relate primarily to the delivery of
services and patient care to the Company's MSU patients.
The Company anticipates that cash from operations and borrowings under revolving
credit facilities will be adequate to cover its scheduled debt payments and
future anticipated capital expenditure requirements throughout 1997 and 1998.
The Company expects to continue to be growth oriented in 1997 and 1998 through
the expansion of its existing operations, by the acquisition of additional
facilities and ancillary companies and the entry into agreements to manage
additional facilities.
Page 31 of 35
<PAGE>
PART II: OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES
(C) On August 29, 1997, the Company acquired substantially
all of the outstanding stock of Ambulatory
Pharmaceutical Services, Inc. ("APSI") and APS American,
Inc. ("APSA"), which provide blood factoring services.
The purchase price was approximately $34.3 million, of
which $18.1 million was paid in cash at closing and
$16.2 million was paid through the issuance of 532,240
shares of the Company's common stock to the stockholders
of APSI and APSA (based on the average closing price for
the thirty day trading period immediately preceding the
date which is two trading days before the closing date
of the acquisition).
On August 28, 1997, the Company acquired substantially
of the outstanding stock of Arcadia Services, Inc.
("Arcadia"), which provides home health services. The
purchase price was approximately $27.0 million, of which
$9.8 million was paid in cash at closing and $17.2
million was paid through the issuance of 531,198 shares
of the Company's common stock to the stockholder of
Arcadia (based on the average closing price for the
thirty day trading period immediately preceding the date
which is two trading days before the closing of the
acquisition).
The Common Stock issued by the Company in these
transactions was not registered under the Securities Act
of 1933, as amended, in reliance upon exemptions
contained in Section 4(2) thereof. Each of the
stockholders made representations to the effect that (i)
the shares were being acquired for its own account and
not with a view to, or for sale in connection with, any
distribution; (ii) acknowledging that the shares were
restricted securities under Rule 144; (iii) that it had
knowledge and experience in business matters, was
capable of evaluating the merits and risks of the
investment, and was able to bear the risk of loss; (iv)
had the opportunity to make inquiries of and obtain
information from IHS. The Company is obligated to
register the Common Stock for resale under the
Securities Act of 1993, as amended.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
4.1 Indenture, dated as of September 11, 1997, between
Integrated Health Services, Inc. And First Union
National Bank of Virginia, as Trustee, relating to
the Company's 9-1/4% Senior Subordinated Notes due
2008.
Page 32 of 35
<PAGE>
10.1 Credit Agreement, dated as of September 15, 1997,
by and among Integrated Health Services, Inc., the
lenders named therein, and Citibank, N.A., as
administrative agent (incorporated by reference
from the Company's Current Report on 8-K dated
September 15, as amended).
10.2 Purchase Agreement, dated September 8, 1997,
between Integrated Health Services, Inc. and Smith
Barney, Inc., Morgan Stanley & Co. Incorporated,
Donaldson, Lufkin & Jenrette Securities
Corporation and Citicorp Securities, Inc.,
relating to the Company's 9-1/4% Senior
Subordinated Notes due 2008.
10.3 Registration Rights Agreement, dated September 8,
1997, between Integrated Health Services, Inc.,
and Smith Barney, Inc., Morgan Stanley & Co.
Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation and Citicorp Securities,
Inc., relating to the Company's 9-1/4% Senior
Subordinated Notes due 2008.
10.4 Purchase and Sale Agreement, dated as of November
3, 1997, between Integrated Health Services, Inc.,
HEALTHSOUTH Corporation and Horizon/CMS Healthcare
Corporation (incorporated by reference from the
Company's Current Report on Form 8-K dated
November 3, 1997).
B. REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K dated July 6, 1997
reporting the execution of the Agreement and Plan of Merger among
the Company, IHS Acquisition XXIV, Inc., and RoTech Medical
Corporation ("RoTech") relating to the Company's proposed
acquisition of RoTech.
The Company filed a Current Report on Form 8-K dated September 9,
1997 relating to the private issuance of $500,000,000 aggregate
principal amount 9-1/4% Senior Subordinated Notes due 2008.
The Company filed a Current Report on Form 8-K dated September
15, 1997 reporting the agreement with Citibank, N.A. and certain
other lenders relating to the $1.75 billion revolving credit and
term loan facility.
The Company filed a Current Report on Form 8-K dated September
25, 1997 reporting the cash tender and subsequent merger of
Community Care of America, Inc and the acquisition of the
lithotripsy division of Coram Healthcare Corporation.
Page 33 of 35
<PAGE>
The Company filed a Current Report on Form 8-K dated October 21,
1997 reporting the completion of the RoTech Medical Corporation
acquisition.
The Company filed a Current Report on Form 8-K dated November 3,
1997, reporting the execution of an agreement to acquire certain
assets from HEALTHSOUTH Corporation.
Page 34 of 35
<PAGE>
- 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.
INTEGRATED HEALTH SERVICES, INC.
--------------------------------
By: /s/ Robert N. Elkins
-------------------------
Robert N. Elkins
Chief Executive Officer
By: /s/ W. Bradley Bennett
------------------------
W. Bradley Bennett
Senior Vice President and
Chief Accounting Officer
By: /s/ Eleanor C. Harding
------------------------
Eleanor C. Harding
Senior Vice President Finance
Dated: November 13, 1997
Page 35 of 35
================================================================================
INTEGRATED HEALTH SERVICES, INC.,
A DELAWARE CORPORATION,
AS ISSUER
TO
FIRST UNION NATIONAL BANK
AS TRUSTEE
--------------------
INDENTURE
Dated as of September 11,1997
------------------
$500,000,000
9 1/4% Senior Subordinated Notes due 2008
================================================================================
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
- ----------- -----------------
<S> <C>
310(a)(1) ............................................................... 7.9
(a)(2) ............................................................... 7.9
(a)(3) ............................................................... Not Applicable
(a)(4) ............................................................... Not Applicable
(a)(5) ............................................................... 7.9
(b) ............................................................... 7.9
(c) ............................................................... Not Applicable
311(a) ............................................................... **
(b) ............................................................... **
(c) ............................................................... Not Applicable
312 ............................................................... **
313(a) ............................................................... **
(b)(1) ............................................................... Not Applicable
(b)(2) ............................................................... **
(c) ............................................................... **
(d) ............................................................... **
314(a) ............................................................... 4.3,4.4
(b) ............................................................... Not Applicable
(c)(1) ............................................................... 11.3
(c)(2) ............................................................... 11.3
(c)(3) ............................................................... Not Applicable
(d) ............................................................... Not Applicable
(e) ............................................................... 11.4
(f) ............................................................... Not Applicable
315(a) ............................................................... 7.1(2)
(b) ............................................................... 7.5,11.2
(c) ............................................................... 7.1(1)
(d) ............................................................... 7.1(3)
(e) ............................................................... 6.11
316(a)(last sentence) ............................................................... 2.8
(a)(1)(A) ............................................................... 6.5
(a)(1)(B) ............................................................... 6.4
(a)(2) ............................................................... Not Applicable
(b) ............................................................... 6.7
(c) ............................................................... 9.4
317(a)(1) ............................................................... 6.8
(a)(2 ) ............................................................... 6.9
(b) ............................................................... 2.4
318(a) ............................................................... 11.1
</TABLE>
- ------------------------
*This Cross-Reference Table is not part of the Indenture.
** Included pursuant to Section 318(c) of the Trust Indenture Act of 1939.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE...................................................1
SECTION 1.1 DEFINITIONS...............................................................1
SECTION 1.2 OTHER DEFINITIONS.........................................................12
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.........................12
SECTION 1.4 RULES OF CONSTRUCTION.....................................................12
ARTICLE 2. THE SECURITIES...............................................................................13
SECTION 2.1 FORM AND DATING...........................................................13
SECTION 2.2 EXECUTION AND AUTHENTICATION..............................................13
SECTION 2.3 REGISTRAR AND PAYING AGENT................................................14
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST.......................................14
SECTION 2.5 REGISTRATION OF TRANSFER AND EXCHANGE.....................................14
SECTION 2.6 REPLACEMENT SECURITIES....................................................18
SECTION 2.7 OUTSTANDING SECURITIES....................................................18
SECTION 2.8 TREASURY SECURITIES.......................................................19
SECTION 2.9 TEMPORARY SECURITIES......................................................19
SECTION 2.10 CANCELLATION..............................................................19
SECTION 2.11 DEFAULTED INTEREST........................................................19
SECTION 2.12 SECURITIES ISSUABLE IN THE FORM OF A GLOBAL SECURITY......................19
ARTICLE 3. OPTIONAL REDEMPTION AND ASSET SALE OFFER.....................................................21
SECTION 3.1 NOTICES TO TRUSTEE........................................................21
SECTION 3.2 SELECTION OF SECURITIES TO BE REDEEMED OR PURCHASED.......................21
SECTION 3.3 NOTICES TO HOLDERS........................................................22
SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION............................................23
SECTION 3.5 DEPOSIT OF REDEMPTION PRICE OR PURCHASE PRICE.............................23
SECTION 3.6 SECURITIES REDEEMED OR PURCHASED IN PART..................................23
SECTION 3.7 OPTIONAL REDEMPTION.......................................................23
SECTION 3.8 ASSET SALE OFFER..........................................................24
ARTICLE 4. COVENANTS....................................................................................25
SECTION 4.1 PAYMENT OF SECURITIES.....................................................25
SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY...........................................25
SECTION 4.3 SEC REPORTS...............................................................25
SECTION 4.4 COMPLIANCE CERTIFICATE....................................................26
SECTION 4.5 CORPORATE EXISTENCE, TAXES, ETC...........................................26
SECTION 4.6 STAY, EXTENSION AND USURY LAWS............................................27
SECTION 4.7 LIMITATIONS ON RESTRICTED PAYMENTS........................................27
SECTION 4.8 LIMITATIONS ON RESTRICTIONS ON DISTRIBUTIONS FROM SUBSIDIARIES............27
SECTION 4.9 LIMITATIONS ON ADDITIONAL INDEBTEDNESS....................................28
SECTION 4.10 CHANGE IN CONTROL.........................................................29
SECTION 4.11 LIMITATIONS ON ASSET SALES................................................30
SECTION 4.12 LIMITATIONS ON TRANSACTIONS WITH AFFILIATES...............................31
SECTION 4.13 LIMITATIONS ON LIENS......................................................31
SECTION 4.14 LIMITATIONS ON SUBSIDIARY PREFERRED STOCK.................................31
SECTION 4.15 LIMITATIONS ON CERTAIN OTHER SUBORDINATED INDEBTEDNESS....................32
SECTION 4.16 LIMITATIONS ON SUBSIDIARIES AND UNRESTRICTED SUBSIDIARIES.................32
ARTICLE 5. SUCCESSORS...................................................................................33
SECTION 5.1 LIMITATIONS ON MERGERS AND CONSOLIDATIONS.................................33
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C> <C>
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED.........................................33
ARTICLE 6. DEFAULTS AND REMEDIES........................................................................33
SECTION 6.1 EVENTS OF DEFAULT.........................................................33
SECTION 6.2 ACCELERATION..............................................................35
SECTION 6.3 OTHER REMEDIES............................................................35
SECTION 6.4 WAIVER OF PAST DEFAULTS...................................................35
SECTION 6.5 CONTROL BY MAJORITY.......................................................35
SECTION 6.6 LIMITATIONS ON SUITS......................................................36
SECTION 6.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT......................................36
SECTION 6.8 COLLECTION SUIT BY TRUSTEE................................................36
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM..........................................36
SECTION 6.10 PRIORITIES................................................................37
SECTION 6.11 UNDERTAKING FOR COSTS.....................................................37
ARTICLE 7. TRUSTEE......................................................................................37
SECTION 7.1 DUTIES OF TRUSTEE.........................................................37
SECTION 7.2 RIGHTS OF TRUSTEE.........................................................38
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE..............................................38
SECTION 7.4 TRUSTEE'S DISCLAIMER......................................................39
SECTION 7.5 NOTICE OF DEFAULTS........................................................39
SECTION 7.6 COMPENSATION AND INDEMNITY................................................39
SECTION 7.7 REPLACEMENT OF TRUSTEE....................................................40
SECTION 7.8 SUCCESSOR TRUSTEE BY MERGER, ETC..........................................40
SECTION 7.9 ELIGIBILITY; DISQUALIFICATION.............................................40
ARTICLE 8. DISCHARGE OF INDENTURE.......................................................................41
SECTION 8.1 TERMINATION OF COMPANY'S OBLIGATIONS......................................41
SECTION 8.2 APPLICATION OF TRUST MONEY................................................43
SECTION 8.3 REPAYMENT TO THE COMPANY..................................................43
SECTION 8.4 REINSTATEMENT.............................................................43
ARTICLE 9. AMENDMENTS...................................................................................43
SECTION 9.1 WITHOUT CONSENT OF HOLDERS................................................43
SECTION 9.2 WITH CONSENT OF HOLDERS...................................................44
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT.......................................45
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS.........................................45
SECTION 9.5 NOTATION ON OR EXCHANGE OF SECURITIES.....................................46
SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC...........................................46
ARTICLE 10. SUBORDINATION...............................................................................46
SECTION 10.1 SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS............................46
SECTION 10.2 PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC............................46
SECTION 10.3 PRIOR PAYMENT TO SENIOR INDEBTEDNESS UPON ACCELERATION OF SECURITIES......47
SECTION 10.4 NO PAYMENT UPON CERTAIN DEFAULTS WITH RESPECT TO SENIOR INDEBTEDNESS.............48
SECTION 10.5 PAYMENT PERMITTED IF NO DEFAULT...........................................49
SECTION 10.6 SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS...................49
SECTION 10.7 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS...............................49
SECTION 10.8 APPLICATION BY TRUSTEE OF MONIES DEPOSITED WITH IT........................50
SECTION 10.9 TRUSTEE TO EFFECTUATE SUBORDINATION.......................................50
SECTION 10.10 NO WAIVER OF SUBORDINATION PROVISIONS.....................................50
SECTION 10.11 NOTICE TO TRUSTEE.........................................................51
SECTION 10.12 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT............51
SECTION 10.13 TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS..................51
SECTION 10.14 RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS; PRESERVATION OF
TRUSTEE'S RIGHTS..........................................................51
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C> <C>
ARTICLE 11. MISCELLANEOUS...............................................................................52
SECTION 11.1 TRUST INDENTURE ACT CONTROLS..............................................52
SECTION 11.2 NOTICES...................................................................52
SECTION 11.3 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT........................52
SECTION 11.4 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.............................53
SECTION 11.5 RULES BY TRUSTEE AND AGENTS...............................................53
SECTION 11.6 LEGAL HOLIDAYS............................................................53
SECTION 11.7 NO RECOURSE AGAINST OTHERS................................................53
SECTION 11.8 GOVERNING LAW.............................................................53
SECTION 11.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.............................53
SECTION 11.10 SUCCESSORS................................................................54
SECTION 11.11 SEVERABILITY..............................................................54
SECTION 11.12 COUNTERPART ORIGINALS.....................................................54
SECTION 11.13 TRUSTEE AS PAYING AGENT AND REGISTRAR.....................................54
SECTION 11.14 TABLE OF CONTENTS, HEADINGS, ETC..........................................54
</TABLE>
iii
<PAGE>
EXHIBIT A FORM OF RULE 144A NOTE
EXHIBIT B FORM OF EXCHANGE NOTE
EXHIBIT C TRANSFER CERTIFICATION
iv
<PAGE>
INDENTURE dated as of September 11, 1997, between INTEGRATED HEALTH
SERVICES, INC., a Delaware corporation (the "Company"), and FIRST UNION NATIONAL
BANK, a national banking association organized under the laws of the United
States, as Trustee (the "Trustee").
Each party agrees as follows for the benefit of the other parties
and for the equal and ratable benefit of the Holders of the Rule 144A Notes and
the Exchange Notes (each as defined below):
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.1 DEFINITIONS
"Acquired Indebtedness" means (a) with respect to any Person
(including an Unrestricted Subsidiary) that becomes a Subsidiary of the Company
after the date hereof, Indebtedness of such Person and its Subsidiaries existing
at the time such Person becomes a Subsidiary of the Company that was not
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary of the Company and (b) with respect to the Company or any of its
Subsidiaries, any Indebtedness assumed by the Company or any of its Subsidiaries
in connection with the acquisition of an asset from another Person that was not
incurred by such other Person in connection with, or in contemplation of, such
acquisition. Acquired Indebtedness shall be deemed to be incurred on the date
such person becomes a Subsidiary or the date of the related asset acquisition.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling, controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
when used with respect to any specified Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agent" means any Registrar or Paying Agent.
"Allowed and Disallowed Post-Commencement Interest and Expenses"
means all interest, at the rate provided in the applicable document or documents
(including any rate applicable upon any default or event of default, to the
extent lawful), and all reimbursements, costs, expenses and indemnities, to the
extent provided in the applicable document or documents, accruing or claimed at
any time after commencement of any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization, dissolution, winding up,
assignment for the benefit of creditors, marshalling of assets and liabilities
or other similar case or proceeding, whether or not such interest,
reimbursement, cost or expense is an allowed claim enforceable against the
Company in a case or proceeding under Bankruptcy Law or in any other such case
or proceeding.
"Asset Sale" for any Person means the sale, lease, conveyance or
other disposition (including, without limitation, by merger or consolidation,
and whether by operation of law or otherwise) of any of that Person's assets
(including, without limitation, the sale or other disposition of Capital Stock
of any Subsidiary of such Person, whether by such Person or by such Subsidiary),
whether owned on the date hereof or subsequently acquired, in one transaction or
a series of related transactions, in which such Person and/or its Subsidiaries
sell, lease, convey or otherwise dispose of (i) all or substantially all of the
Capital Stock of any of such Person's Subsidiaries, (ii) assets which constitute
substantially all of an operating unit or business of such Person or any of its
Subsidiaries, or (iii) any health care facility; provided, however, that the
following shall not constitute Asset Sales: (i) a transaction or series of
related transactions that results in a Change in Control, (ii) transactions
between the Company and any of its Wholly Owned Subsidiaries or among such
Wholly Owned Subsidiaries or (iii) a transaction or a series of related
transactions in which either (x) the fair market value of the asset(s) disposed
of does not exceed 2.5% of the Consolidated Tangible Assets of the Company
<PAGE>
or (y) the Consolidated EBITDA of the company associated with the asset disposed
of does not exceed 2.5% of the Consolidated EBITDA of the Company.
"Attributable Indebtedness," when used with respect to any Sale and
Leaseback Transaction or an operating lease with respect to a health care
facility means, as at the time of determination, the present value (discounted
at a rate equivalent to the interest rate implicit in the lease, compounded on a
semi-annual basis) of the total obligations of the lessee for rental payments,
after excluding all amounts required to be paid on account of maintenance and
repairs, insurance, taxes, utilities and other similar expenses payable by the
lessee pursuant to the terms of the lease, during the remaining term of the
lease included in any such Sale and Leaseback Transaction or such operating
lease or until the earliest date on which the lessee may terminate such lease
without penalty or upon payment of a penalty (in which case the rental payments
shall include such penalty); provided, that the Attributable Indebtedness with
respect to a Sale and Leaseback Transaction shall be no less than the fair
market value of the property subject to such Sale and Leaseback Transaction.
"Bank Agent" means Citibank, N.A., as Administrative Agent under
the Credit Agreement or any successor Administrative Agent thereunder.
"Bank Debt" means all obligations of the Company and its
Subsidiaries, now or hereafter existing under the Credit Agreement, whether for
principal, interest, reimbursement of amounts drawn under letters of credit
issued pursuant thereto, guarantees in respect thereof, fees, expenses,
premiums, indemnities or otherwise, including such obligations incurred by the
Company or its Subsidiaries in connection with any extension, refunding or
refinancing of the Credit Agreement.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal
or state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company or
any authorized committee of the Board of Directors of the Company.
"Business Day" means any day other than a Legal Holiday.
"Capital Stock" of any Person means any and all shares, rights to
purchase, warrants or options (whether or not currently exercisable),
participation or other equivalents of or interests in (however designated) the
equity (including, without limitation, common stock, preferred stock and
partnership and joint venture interests) of such Person. Solely for purposes of
clause (ii)(2) of Section 4.7 hereof, "the Company's Capital Stock" shall
include Capital Stock (other than Disqualified Stock) issued by a subsidiary
trust of the Company which is not conducting business operations, provided, that
the calculation pursuant to clause (ii)(2) of Section 4.7 hereof shall not
include (i) the subsequent issuance of Capital Stock of the Company in exchange
for or upon conversion of such subsidiary trust's Capital Stock or (ii) any
proceeds received by the subsidiary trust from the sale of Capital Stock by such
trust to the Company or any Subsidiary or Affiliate of the Company, and provided
further that to the extent the subsidiary trust uses the proceeds of its sale of
Capital Stock to purchase debt securities of the Company, (i) such debt
securities are subordinated in right of payment to the Securities and (ii)
distributions on the Capital Stock of the subsidiary trust may be suspended at
the option of the Company or the subsidiary trust for a period extending up to
the lesser of five years or the maturity of the underlying debt security of the
Company issued to the subsidiary trust.
"Capitalized Lease Obligation" of any Person means the obligation
of such Person to pay rent or other amounts under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such obligation shall be the capitalized amount thereof determined in
accordance with GAAP.
"Cash Equivalents" means, at any time, (i) any evidence of
Indebtedness with a maturity of 180 days or less issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in
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support thereof); (ii) certificates of deposit or acceptance with a maturity of
180 days or less of any financial institution that is a member of the Federal
Reserve System having combined capital and surplus and undivided profits of not
less than $500.0 million or (iii) commercial paper, maturing not more than 180
days after the date of acquisition, issued by any corporation (other than an
Affiliate or Subsidiary of the Company) organized and existing under the laws of
the United States of America with a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to Moody's Investor
Service, Inc. or any successor rating agency, or "A-1" (or higher) according to
Standard and Poor's Corporation or any successor rating agency.
"Change in Control" means any of the following: (i) all or
substantially all of the Company's assets are sold, leased, conveyed or disposed
of as an entirety or substantially as an entirety, to any Person or related
"group" of Persons (other than a Permitted Holder); (ii) stockholders of the
Company shall approve any plan or proposal for the liquidation or dissolution of
the Company; (iii) 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 consideration)
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
common stock of the continuing or surviving corporation immediately after such
consolidation or merger; or (iv) any Person, or any Persons acting together
which would constitute a "group" for purposes of Section 13(d) of the Exchange
Act (other than a Permitted Holder), together with any affiliates thereof shall
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.
"Common Equity" of any Person means all Capital Stock of such
Person that is generally entitled to (i) vote in the election of directors of
such Person or (ii) if such Person is not a corporation, vote or otherwise
participate in the selection of the governing body, partners, managers or others
that will control the management and policies of such Person.
"Company" means (i) Integrated Health Services, Inc., a Delaware
corporation, and (ii) any successor of Integrated Health Services, Inc.
"Consolidated Amortization Expense" of any Person for any period
means the amortization expense of such Person and its Subsidiaries for such
period (to the extent included in the computation of Consolidated Net Income of
such Person), determined on a consolidated basis in accordance with GAAP.
"Consolidated Coverage Ratio" with respect to the Company means the
ratio of (i) Consolidated EBITDA of the Company to (ii) the aggregate amount of
Consolidated Interest Expense of the Company for the four full fiscal quarters
immediately preceding the date of the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio and for which such quarters' financial
results have been reported; provided, however, that if any calculation of the
Company's Consolidated Coverage Ratio requires the use of any quarter prior to
the date of the Indenture, such calculation shall be made on a pro forma basis,
giving effect to the issuance of the Securities and the use of the net proceeds
therefrom as if the same had occurred at the beginning of the four-quarter
period used to make such calculation; and provided further that if any Asset
Sale was consummated or any acquisition of a hospital or other healthcare
facility or any assets purchased outside the ordinary course of business was
effected by the Company or any of its Subsidiaries during such four quarter
period or on any later date on or prior to the date of the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio, such calculation
shall be made on a pro forma basis, giving effect to each such Asset Sale or
acquisition (including the Consolidated EBITDA relating to the hospital,
healthcare facility or other assets acquired), as the case may be, and the use
of any proceeds therefrom, as if the same had occurred at the beginning of the
four-quarter period used to make such calculation (except that if any
calculation of the Consolidated Coverage Ratio requires the use of any quarter
prior to the acquisition of First American Health Care of Georgia, Inc. ("First
American"), then the results of operations for First American
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shall be reflected in such calculation from the date of the acquisition of First
American (on an annualized basis for the four quarter period following the
acquisition) and pro forma effect shall not be given to such results of
operations (but shall be given effect to any financing, including the incurrence
of Indebtedness, in connection with such acquisition) as if it had occurred at
the beginning of the four-quarter period used to make such calculation). The
calculation of the Consolidated Coverage Ratio shall also give pro forma effect
to (i) the incurrence, repayment or retirement of any other Indebtedness, and
the issuance or redemption of any Preferred Stock, by the Company and its
Subsidiaries and (ii) the discontinuance of any operations by the Company and
its Subsidiaries, in any case occurring during such four quarter period or on
any later date on or prior to the date of the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio as if such Indebtedness was
incurred, repaid or retired or such Preferred Stock was issued or redeemed at
the beginning of such four-quarter period. For purposes of calculating the
Consolidated Coverage Ratio, (i) the Consolidated Interest Expense attributable
to interest on any Indebtedness computed on a pro forma basis and (A) bearing a
floating interest rate shall be computed as if the average rate over the
applicable period had been the applicable rate for the entire period and (B)
which was not outstanding during the period for which the computation is being
made but which bears, at the option of the Company, a fixed or floating rate of
interest, shall be computed by applying at the option of the Company either the
fixed or floating rate and (ii) in making such calculation, the Consolidated
Interest Expense of the Company attributable to interest on any Indebtedness
under a revolving credit facility computed on a pro forma basis shall be
computed based upon the average daily balance of such Indebtedness during the
applicable period.
"Consolidated Depreciation Expense" of any Person for any period
means the depreciation expense of such Person and its Subsidiaries for such
period (to the extent included in the computation of Consolidated Net Income of
such Person), determined on a consolidated basis in accordance with GAAP.
"Consolidated EBITDA" of any Person means, with respect to any
determination date, Consolidated Net Income, plus (i) Consolidated Income Tax
Expense, plus (ii) Consolidated Depreciation Expense, plus (iii) Consolidated
Amortization Expense, plus (iv) Consolidated Interest Expense (to the extent
reducing Consolidated Net Income), plus (v) all other non-cash items reducing
Consolidated Net Income of such Person and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP, and less all non-cash items
increasing Consolidated Net Income of such Person and its Subsidiaries,
determined on a consolidated basis in accordance with GAAP, in each case, for
such Person's prior four full fiscal quarters for which financial results have
been reported immediately preceding the determination date.
"Consolidated Income Tax Expense" means, for any Person for any
period, the provision for taxes based on income and profits of such Person and
its Subsidiaries to the extent such income or profits were included in computing
Consolidated Net Income of such Person for such period.
"Consolidated Interest Expense" of any Person for any period means
the Interest Expense of such Person and its Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP, plus any dividends
accrued for such period on any Preferred Stock of any Subsidiary not held by the
Company or any Wholly Owned Subsidiary of the Company.
"Consolidated Net Income" of any Person for any period means the
net income (or loss) of such Person and its Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, without giving
effect to dividends on any series of preferred stock of any Subsidiary of such
Person, whether or not in cash, to the extent such consolidated net income was
reduced thereby; provided that there shall be excluded from such net income (to
the extent otherwise included therein), without duplication: (i) the net income
(or loss) of any Person (other than a Subsidiary of the referent Person) in
which any Person other than the referent Person has an ownership interest,
except to the extent that any such income has actually been received by the
referent Person or any of its Subsidiaries in the form of dividends or similar
distributions during such period; (ii) except to the extent includible in the
consolidated net income of the referent Person pursuant to the foregoing clause
(i), the net income (or loss) of any Person that accrued prior to the date that
(a) such Person becomes a Subsidiary of the referent Person or is merged into or
consolidated with the referent Person or any of its Subsidiaries or (b) the
assets of such Person are acquired by the referent Person or any of its
Subsidiaries; (iii) the net income of any Subsidiary of the referent Person
(other than a Wholly
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Owned Subsidiary) to the extent that the declaration or payment of dividends or
similar distributions by such Subsidiary of that income is not permitted by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary during such period; (iv) any gain or loss, together with any related
provisions for taxes on any such gain or loss, realized during such period by
the referent Person or any of its Subsidiaries upon (a) the acquisition of any
securities, or the extinguishment of any Indebtedness, of the referent Person or
any of its Subsidiaries or (b) any Asset Sale by the referent Person or any of
its Subsidiaries; (v) any extraordinary gain or loss, together with any related
provision for taxes on any such extraordinary gain or loss, realized by the
referent Person or any of its Subsidiaries during such period; (vi) any unusual
or nonrecurring non-cash charge which is not, under generally accepted
accounting principles, an extraordinary item; and (vii) in the case of a
successor to such Person by consolidation, merger or transfer of its assets, any
earnings of the successor prior to such merger, consolidation or transfer of
assets. For purposes of calculating the Consolidated Coverage Ratio, any unusual
or non-recurring charge shall be excluded from the calculation of Consolidated
Net Income.
"Consolidated Net Worth" of any Person as of any date means the
stockholders' equity (including any preferred stock that is classified as equity
under GAAP, other than Disqualified Stock) of such Person and its Subsidiaries
(excluding any equity adjustment for foreign currency translation for any period
subsequent to the date of this Indenture) on a consolidated basis at such date,
as determined in accordance with GAAP, less all write-ups (other than write-ups
in connection with acquisitions) subsequent to the date of this Indenture in the
book value of any asset owned by such Person or any of its Subsidiaries.
"Consolidated Tangible Assets" of any Person as of any date means
the total assets of such Person and its Subsidiaries (excluding any assets that
would be classified as "intangible assets" under GAAP) on a consolidated basis
at such date, as determined in accordance with GAAP, less all write-ups (other
than write-ups in connection with acquisitions) subsequent to the date of this
Indenture in the book value of any asset (except any such intangible assets)
owned by such Person or any of its Subsidiaries.
"Corporate Trust Office of the Trustee" shall be at the address of
the Trustee specified in Section 11.2 or such other address as the Trustee may
give notice to the Company.
"Credit Agreement" means the Revolving Credit Agreement, dated May
15, 1996, among the Company, the Bank Agent, and the other financial
institutions signatory thereto, together with the related documents thereto,
including, without limitation, any security documents and all exhibits and
schedules thereto, and any agreement or agreements relating to any extension,
refunding, refinancing, successor or replacement facility, whether or not with
the same lenders, and whether or not the principal amount or amount of letters
of credit outstanding thereunder or the interest rate payable in respect thereof
shall be thereby increased, in each case as amended and in effect from time to
time.
"Credit Facility" means the Credit Agreement and one or more
borrowing arrangements to be entered into by and between the Company and/or one
or more of its Subsidiaries and a commercial bank or other institutional lender,
including any related notes, security documentation, guarantees, collateral
documents, instruments and agreements executed in connection therewith, in each
case as amended, modified, supplemented, restructured, renewed, restated,
refunded, replaced or refinanced or extended from time to time on one or more
occasions.
"Default" means any event, act or condition that is, or after
notice or the passage of time or both would be, an Event of Default.
"Definitive Securities" means any Securities other than a Global
Security.
"Depositary" means, with respect to Securities issuable or issued
in whole or in part in global form hereunder, unless otherwise specified by the
Company pursuant to Section 2.12, The Depository Trust Company, New York, New
York, or any successor thereto registered as a clearing agency under the
Exchange Act or other applicable statute or regulation.
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"Disqualified Stock" means any Capital Stock that, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
final maturity date of the Securities for cash or debt securities at any time
prior to any such final maturity, or is convertible into or exchangeable for
debt securities at any time prior to any such final maturity.
"Eligible Investments" of any Person means Investments of such
Person in (i) securities issued or fully guaranteed or insured by the United
States Government or any agency thereof and backed by the full faith and credit
of the United States maturing not more than one year from the date of
acquisition; (ii) certificates of deposit, time deposits, Eurodollar time
deposits, bankers' acceptances or deposit accounts having in each case a
remaining term to maturity of not more than one year, which are either (a) fully
insured by the Federal Deposit Insurance Corporation or (b) issued by any lender
or by any commercial bank under the laws of any State or any national banking
association that has combined capital and surplus of not less than $500,000,000
and whose short-term securities are rated at least A-1 by S&P or P-1 by Moody's;
(iii) commercial paper that is rated at least A-1 by S&P or P-1 by Moody's,
issued by a company that is incorporated under the laws of the United States or
of any State and directly issues its own commercial paper, and has a remaining
term to maturity of not more than one year; (iv) a repurchase agreement with (A)
any commercial bank that is organized under the laws of any State or any
national banking association and that has total assets of at least $500,000,000,
or (B) any investment bank that is organized under the laws of any state and
that has total assets of at least $500,000,000, which agreement is secured by
any one or more of the securities and obligations described in clauses (i), (ii)
or (iii) of this definition of Eligible Investments, which shall have a market
value (exclusive of accrued interest and valued at least monthly) at least equal
to the principal amount of such investment; (v) any money market or other
investment fund the investments of which are limited to investments described in
clauses (i), (ii), (iii) and (iv) of this definition of Eligible Investments and
which is managed by (A) a commercial bank that is organized under the laws of
any State or any national banking association and that has total assets of at
least $500,000,000, or (B) any investment bank that is organized under the laws
of any State and that has total assets of at least $500,000,000; (vi)
obligations, debentures, notes, bonds or other evidences of indebtedness rated
at least A- by Moody's or A3 by S&P; provided that the aggregate amount of
investments by any Person permitted under this clause (vi) shall not exceed 25%
of the total amount invested by such Person in eligible investments; (vii)
investments in investment grade auction rate and adjustable rate preferred
equities for issuers whose actual or implied senior long-term debt is rated at
least A- by Moody's or A3 by S&P; (viii) investments in investment grade fixed
rate preferred equities for issuers whose actual or implied senior long-term
debt is rated at least A- by Moody's or A3 by S&P; provided that the aggregate
amount of investments by any Person permitted under this clause (viii) shall not
exceed 10% of the total amount invested by such Person in Eligible Investments;
(ix) adjustable rate mortgage-backed securities rated at least AA by S&P or Aa
by Moody's; and (x) fixed rate mortgage-backed securities rated at least AA by
S&P or Aa by Moody's, provided that the aggregate amount of investments by any
Person permitted under this clause (x) shall not exceed 25% of the total amount
invested by such Person in Eligible Investments.
"Equity Interest" means, with respect to any Person, any and all
shares or other equivalents (however designated) of capital stock, partnership
interests or any other participation, right or other interests in the nature of
an equity interest in such Person or any option, warrant or other security
convertible into or exchangeable for the foregoing.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Notes" means Notes having terms substantially identical
in all respects to the Rule 144A Notes for which they are to be exchanged in the
Exchange Offer, except that (i) the Exchange Notes will have been registered
under the Securities Act and, therefore, will not bear legends restricting the
transfer thereof, and (ii) Holders of Exchange Notes will not be entitled to
certain rights of holders of Rule 144A Notes under the Registration Rights
Agreement.
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"Exchange Offer" means the offer the Company is to make pursuant to
the Registration Rights Agreement to exchange Rule 144A Notes for Exchange
Notes.
"Existing Indebtedness" means all of the Indebtedness of the
Company and its Subsidiaries that is outstanding on the date hereof.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, as in effect from time to time.
"Global Security" means a Security which is executed by the Company
and authenticated and delivered by the Trustee to the Depositary or pursuant to
the Depositary's instruction, all in accordance with this Indenture and pursuant
to a written order of the Company, which shall be registered in the name of the
Depositary or its nominee and which shall represent, and shall be denominated in
an amount equal to the aggregate principal amount of, all of the Securities or
any portion thereof, but not including any Securities that are no longer
outstanding, and having the same terms, including, without limitation, the same
original issue date, date or dates on which principal is due, and rate of
interest.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Indebtedness
or other obligation of any other Person and, without limiting the generality of
the foregoing, any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, by agreement to
keepwell, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the obligee of such Indebtedness
or other obligation of the payment thereof or to protect such obligee against
loss in respect thereof (in whole or in part); provided that the term Guarantee
shall not include endorsements for collection or deposit in the ordinary course
of business. The term "Guarantee" used as a verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any interest rate swap agreement, foreign currency exchange
agreement, interest rate collar agreement, option or futures contract or other
similar agreement or arrangement relating to interest rates or foreign exchange
rates.
"Holder" means a Person in whose name a Security is registered.
"Indebtedness" of any Person at any date means, without
duplication: (i) all Bank Debt; (ii) all other indebtedness of such Person for
borrowed money (whether or not recourse of the lender is to the whole of the
assets of such Person or only to a portion thereof); (iii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments;
(iv) all obligations of such Person in respect of letters of credit or other
similar instruments (or reimbursement obligations with respect thereto); (v) all
obligations of such Person with respect to Hedging Obligations (other than those
that fix the interest rate on variable rate indebtedness otherwise permitted by
this Indenture or that protect the Company and/or its Subsidiaries against
changes in foreign exchange rates); (vi) all obligations of such Person to pay
the deferred and unpaid purchase price of property or services, except trade
payables and accrued expenses incurred in the ordinary course of business; (vii)
all Capitalized Lease Obligations of such Person; (viii) all Indebtedness of
others secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; (ix) all Indebtedness of others
guaranteed by such Person to the extent of such guarantee; and (x) all
Attributable Indebtedness. The amount of Indebtedness of any Person at any date
shall be the outstanding balance at such date of all unconditional obligations
as described above; and in the case of clauses (iv) and (ix), the maximum
liability of such Person for any such contingent obligations at such date, and
in the case of clause (viii), the amount of the Indebtedness secured.
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"Indenture" means this Indenture, as amended from time to time.
"Interest Expense" of any Person for any period means the aggregate
amount of interest which, in accordance with GAAP, would be set opposite the
caption "interest expense" or any like caption on an income statement for such
Person (including, without limitation or duplication, imputed interest included
in Capitalized Lease Obligations, all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, the net costs associated with Hedging Obligations, amortization of
financing fees and expenses, the interest portion of any deferred payment
obligation, amortization of discount and all other non-cash interest expense).
"Interest Payment Date" shall have the meaning assigned to such
term in the Securities.
"Investments" of any Person means (i) all investments by such
Person in any other Person in the form of loans, advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), (ii) all guarantees of
Indebtedness or other obligations of any other Person by such Person, (iii) all
purchases (or other acquisitions for consideration) by such Person of
Indebtedness, Capital Stock or other securities of any other Person and (iv) all
other items that would be classified as investments (including, without
limitation, purchases of assets outside the ordinary course of business) on a
balance sheet of such Person prepared in accordance with GAAP.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or other similar encumbrance of any kind in
respect of such asset, whether or not filed, recorded or otherwise perfected
under applicable law (including, without limitation, any conditional sale or
other title retention agreement, any financing lease in the nature thereof, any
agreement to sell, and any filing of, or agreement to give, any financing
statement (other than notice filings not perfecting a security interest) under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Proceeds" with respect to any Asset Sale means (i) cash (in
U.S. dollars or freely convertible into U.S. dollars) received by the Company or
any of its Subsidiaries from such Asset Sale (including, without limitation,
cash received as consideration for the assumption or incurrence of liabilities
incurred in connection with or in anticipation of such Asset Sale), after (a)
provision for all income or other taxes measured by or resulting from such Asset
Sale or the transfer of the proceeds of such Asset Sale to the Company or any of
its Subsidiaries, (b) payment of all brokerage commissions and the underwriting
and other fees and expenses related to such Asset Sale and (c) deduction of an
appropriate amount to be provided by the Company or any of its Subsidiaries as a
reserve, in accordance with GAAP, against any liabilities associated with the
assets sold or otherwise disposed of in such Asset Sale and retained by the
Company or any of its Subsidiaries after such Asset Sale (including, without
limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters) or against any indemnification
obligations associated with the sale or other disposition of the assets sold or
otherwise disposed of in such Asset Sale and (ii) all non-cash consideration
received by the Company or any of its Subsidiaries from such Asset Sale upon the
liquidation or conversion of such consideration into cash.
"Officer" means the Chief Executive Officer, the Chief Financial
Officer, the Treasurer, any Assistant Treasurer, Controller, Secretary or any
Vice President of the Company.
"Officers' Certificate" means a certificate signed by two Officers,
one of whom must be the Company's Chief Executive Officer or Chief Financial
Officer.
"Opinion of Counsel" means an opinion from legal counsel who is
acceptable to the Trustee in its sole discretion. The counsel may be an employee
of or counsel to the Company or the Trustee.
"Payment or Distribution in Respect of the Securities" means, for
purposes of Article 10 hereof, any payment or distribution of any kind or
character, whether in cash, property or securities, on account of the payment of
the principal of and premium, if any, and interest on any of the Securities,
including, without limitation, any redemption or repurchase price paid for any
optional or mandatory redemption, Asset Sale
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Offer, Change in Control Repurchase or other repurchase or retirement of the
Securities or any other payment on account of the Securities (including payments
with respect to claims related to the issuance of the Securities); provided,
however, that the exchange of Rule 144A Notes for a like amount of Exchange
Notes shall not constitute a Payment or Distribution in Respect of the
Securities. For purposes of this definition, 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 be outstanding to
substantially the same extent as, or to a greater extent than, the Securities
are so subordinated as provided in Article 10 and which securities are not
subject to maturity or mandatory prepayment prior to the maturity of any Senior
Indebtedness then outstanding.
"Permitted Holder" means Robert N. Elkins and any group (within the
meaning of Section 13(d)(3) of the Exchange Act) of which Mr. Elkins is a
member; so long as, with respect to any group, Mr. Elkins owns more than 20% of
the total voting power of all classes of Capital Stock of the acquiring entity
entitled to vote generally in the election of directors of the acquiring entity.
"Permitted Investment" means (i) capital contributions, advances or
loans to the Company by any Subsidiary, by the Company to a Wholly Owned
Subsidiary or by a Subsidiary to a Wholly Owned Subsidiary; (ii) the acquisition
or holding by the Company or any Subsidiary of receivables owing to the Company
or such Subsidiary, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; (iii) the
acquisition or holding by the Company or any Subsidiary of cash and Eligible
Investments; (iv) the Company and its Subsidiaries may make Investments in
Persons at least a majority of whose revenues result from healthcare related
businesses or facilities; (v) Investments acquired or retained from another
Person in connection with any sale, conveyance, transfer, lease or other
disposition of any properties or assets to such Person in accordance with the
covenant described in Section 4.11 hereof; and (vi) Investments not otherwise
permitted by clauses (i) through (v) above in an aggregate amount not exceeding
$10 million.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, incorporated or unincorporated association,
joint-stock company, trust, unincorporated organization or government or other
agency or political subdivision thereof or other entity of any kind.
"Preferred Stock" means with respect to any Person all Capital
Stock of such Person which has a preference in liquidation or a preference with
respect to the payment of dividends.
"Public Equity Offering" means a public offering by the Company of
shares of its common stock (however designated and whether voting or non-voting
but excluding Disqualified Stock) and any and all rights, warrants or options to
acquire such common stock pursuant to a registration statement registered under
the Securities Act.
"Refinancing Indebtedness" means Indebtedness that refunds,
refinances or extends any Existing Indebtedness or other Indebtedness permitted
to be incurred under the Indenture (other than Existing Indebtedness under the
Credit Agreement); provided that: (i) the Refinancing Indebtedness is the
obligation of the same Person as was obligated on the Indebtedness being
refinanced and has a ranking in priority relative to the Securities equal to or
junior to that of the Indebtedness being refunded, refinanced or extended; (ii)
the Refinancing Indebtedness is scheduled to mature no earlier than the
Indebtedness being refunded, refinanced or extended; (iii) the Refinancing
Indebtedness has a Weighted Average Life to Maturity at the time such
Refinancing Indebtedness is incurred that is equal to or greater than the
Weighted Average Life to Maturity of the portion of the Indebtedness being
refunded, refinanced or extended; (iv) the Refinancing Indebtedness is secured
only to the extent, if at all, and by the assets that the Indebtedness being
refunded, refinanced or extended is secured; and (v) such Refinancing
Indebtedness is in an aggregate principal amount that is equal to or less than
the aggregate principal amount then outstanding under the Indebtedness being
refunded, refinanced or extended (except for issuance costs and increases in
Attributable Indebtedness due solely to increases in the present value
calculations resulting from renewals or extensions of the terms of the
underlying leases in effect on the date of this Indenture).
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"Registration Rights Agreement" means the Registration Rights
Agreement dated as of September 8, 1997 by and between the Company and Smith
Barney Inc., Morgan Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation and Citicorp Securities, Inc., as Initial Purchasers, as
such agreement may be amended, modified or supplemented from time to time.
"Restricted Payment" means, with respect to any Person: (i) the
declaration of any dividend or the making of any other payment or distribution
of cash, securities or other property or assets in respect of such Person's
Capital Stock (except that a dividend payable solely in Capital Stock (other
than Disqualified Stock) of such Person shall not constitute a Restricted
Payment); (ii) any payment on account of the purchase, redemption, retirement or
other acquisition for value of such Person's Capital Stock or options, warrants
or other rights to acquire such Capital Stock, or any other payment or
distribution made in respect thereof, either directly or indirectly; (iii) the
making of any payment of principal, premium or interest on, or any payment on
account of the purchase, redemption, retirement, defeasance or other acquisition
for value (prior to any scheduled maturity, scheduled repayment, scheduled
sinking fund payment or scheduled interest payment date) of, Indebtedness of the
Company or its Subsidiaries which is pari passu with or subordinated in right of
payment to the Securities and has a scheduled maturity date subsequent to the
maturity of the Securities; or (iv) the making of any Investment in any Person
other than a Permitted Investment; provided, however, with respect to the
Company and its Subsidiaries, Restricted Payments shall not include (I) any
payment described (a) in clause (i), (ii) or (iii) above made (1) to the Company
or any of its Wholly Owned Subsidiaries by any of the Company's Subsidiaries or
(2) by the Company to any of its Wholly Owned Subsidiaries or (b) in clause
(iii) above made with the Net Proceeds from any Asset Sale remaining after
completion of the Asset Sale Offer made in connection with such Asset Sale, all
as contemplated under Section 4.11 hereof, (II) any payment described in clause
(i) above made by a Subsidiary that is not a Wholly Owned Subsidiary to all
holders of Capital Stock of such Subsidiary on a pro rata basis or (III) the
purchase by the Company of up to an aggregate of $50 million of the Company's
Capital Stock pursuant to one or more stock repurchase programs. Notwithstanding
the foregoing, the following shall not constitute Restricted Payments: (X) the
retirement, repurchase, redemption or other acquisition of Indebtedness of the
Company or any Subsidiary out of the net proceeds of a substantially concurrent
sale (other than to a Subsidiary of the Company) of new Indebtedness of the
Company; provided (a) the principal amount of such new Indebtedness does not
exceed the principal amount of Indebtedness so retired, repurchased, redeemed or
otherwise acquired (plus the amount of any premium required to be paid in
connection with such retirement, repurchase, redemption or acquisition), (b)
such Indebtedness has a ranking in priority relative to the Securities equal to
or junior to that of the Indebtedness so retired, repurchased, redeemed or
otherwise acquired, (c) such Indebtedness has a Stated Maturity for its final
scheduled principal payment later than the Stated Maturity for the final
scheduled principal payment of the Securities and (d) such Indebtedness has a
Weighted Average Life to Maturity equal to or greater than the remaining
Weighted Average Life to Maturity of the Securities; and (Y) the retirement,
repurchase, redemption or other acquisition of shares of the Company's Capital
Stock or Indebtedness of the Company or a Subsidiary of the Company out of the
proceeds of a substantially concurrent sale (other than to a Subsidiary of the
Company) of shares of the Company's Capital Stock (other than Disqualified
Stock); provided, however, that the proceeds of such a sale of Capital Stock
shall not be included in the calculation of aggregate net cash proceeds from the
issuance and sale of the Company's Capital Stock pursuant to clause (ii)(2) of
Section 4.7 hereof.
"Rule 144 A Notes" means the Company's 9 1/4% Senior Subordinated
Notes due 2008, as initially issued under this Indenture.
"Sale and Leaseback Transaction" means, with respect to any Person,
an arrangement with any bank, insurance company or other lender or investor or
to which such lender or investor is a party, providing for the leasing by such
Person or any of its Subsidiaries of any property or asset of such Person or any
of its Subsidiaries which has been or is being sold or transferred by such
Person or such Subsidiary to such lender or investor or to any Person to whom
funds have been or are to be advanced by such lender or investor on the security
of such property or asset.
"SEC" means the Securities and Exchange Commission.
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"Securities" means the Rule 144A Notes and Exchange Notes issued
under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means the principal of and premium, if any,
and interest on and other amounts due on or in connection with any Indebtedness
of the Company permitted under Section 4.9 hereof (including, without
limitation, all Allowed and Disallowed Post-Commencement Interest and Expenses
in respect of such Indebtedness) and any amounts with respect to Hedging
Obligations that fix the interest rate on variable rate indebtedness otherwise
permitted by this Indenture, other than the Securities, the Company's 10-1/4%
Senior Subordinated Notes due 2006, the Company's 9-5/8% Senior Subordinated
Notes due 2002, Series A, the Company's 10-1/4% Senior Subordinated Notes due
2004, the Company's 9-1/2% Senior Subordinated Notes due 2007, the Company's
5-3/4% Convertible Senior Subordinated Debentures due 2001 and the Company's 6%
Convertible Subordinated Debentures due 2003, whether outstanding on the date of
this Indenture or thereafter created, incurred or assumed, unless, in the case
of any particular Indebtedness, the instrument creating or evidencing the same
or pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Securities; provided
that Senior Indebtedness will not include (i) any Indebtedness, liability or
obligation of the Company to (A) any of its Subsidiaries, (B) trade creditors or
(C) any person arising out of any lawsuit against the Company or any of its
Subsidiaries or any settlement thereof (other than any lawsuit or settlement
thereof respecting amounts payable with regard to Senior Indebtedness), (ii) any
redemption or other payments on Preferred Stock, (iii) any Indebtedness incurred
in violation of the provisions of this Indenture or (iv) amounts owing under
leases (other than Capitalized Lease Obligations).
"Shelf Registration Statement" means the Registration Statement
with respect to the Securities which the Company is required to file pursuant to
the Registration Rights Agreement.
"Significant Subsidiary" has the meaning ascribed to it under
Regulation C promulgated under the Securities Act of 1933, as amended.
"Stated Maturity" means, when used with respect to any security or
any installment of interest thereon, that date specified in such security as the
fixed date on which the principal of such security or such installment of
interest is due and payable.
"Subsidiary" of any Person means (i) any corporation of which
Common Equity having ordinary voting power to elect a majority of the directors
of such corporation is owned by such Person directly or through one or more
other Subsidiaries of such Person, and (ii) any entity other than a corporation
in which such Person, directly or indirectly, owns at least a majority of the
Common Equity of such entity. Notwithstanding the foregoing, an Unrestricted
Subsidiary shall not be deemed a Subsidiary of the Company other than for
purposes of the definition of Unrestricted Subsidiary, unless the Company shall
have designated such Unrestricted Subsidiary as a "Subsidiary" by written notice
to the Trustee. An Unrestricted Subsidiary may be designated as a Subsidiary at
any time by the Company by written notice to the Trustee; provided, however,
that (i) no Default or Event of Default shall have occurred and be continuing or
would arise therefrom and (ii) if such Unrestricted Subsidiary is an obligor of
any Indebtedness, any such designation shall be deemed to be an incurrence as of
the date of such designation by the Company of such Indebtedness and immediately
after giving effect to such designation, the Company could incur $1.00 of
additional Indebtedness pursuant to clause (a) of Section 4.9 hereof.
"TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C.
ss.ss. 77aaa-77bbbb), as in effect on the date hereof (unless otherwise
specifically provided herein).
"Transfer Restricted Securities" means Securities that bear or are
required to bear the legend set forth in Section 2.5 hereof.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
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"Trust Officer" means any officer or assistant officer of the
Trustee assigned by the Trustee to administer its corporate trust matters.
"U.S. Government Obligations" means direct obligations of the
United States of America for the payment of which the full faith and credit of
the United States of America is pledged.
"Unrestricted Subsidiary" means any Subsidiary of the Company which
shall have been designated as an Unrestricted Subsidiary in accordance with the
Indenture. An Unrestricted Subsidiary may be designated as a Subsidiary at a
later date in the manner provided in the definition of "Subsidiary" above.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness or portion thereof at any date, the number of years obtained by
dividing (i) the then outstanding principal amount of such Indebtedness or
portion thereof (if applicable) into (ii) the sum of the products obtained by
multiplying (a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including payment at
final maturity, in respect thereof, by (b) the number of years (calculated to
the nearest one-twelfth) that will elapse between such date and the making of
such payment.
"Wholly Owned Subsidiary" of any Person means (i) a Subsidiary of
which 100% of the Common Equity (except for directors' qualifying shares or
certain minority interests owned by other Persons solely due to local law
requirements that there be more than one stockholder, but which interest is not
in excess of what is required for such purpose) is owned directly by such Person
or through one or more other Wholly Owned Subsidiaries of such Person and (ii)
any entity other than a corporation in which such Person, directly or
indirectly, owns all of the Common Equity of such entity.
SECTION 1.2 OTHER DEFINITIONS
Defined
Term in Section
---- ----------
"Affiliate Transaction"........................... 4.12
"Asset Sale Offer"................................ 4.11
"Asset Sale Offer Period"......................... 3.8
"Custodian"....................................... 6.1
"Change in Control Repurchase".................... 4.10
"Event of Default"................................ 6.1
"incur"........................................... 4.9(a)
"Legal Holiday"................................... 11.6
"Payment Blockage Period"......................... 10.4
"Paying Agent".................................... 2.3
"Payment Account"................................. 4.1
"Registrar"....................................... 2.3
"Repurchase Date"................................. 4.10
"Successor"....................................... 5.1
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
All terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
SECTION 1.4 RULES OF CONSTRUCTION
Unless the context otherwise requires:
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1. a term has the meaning assigned to it;
2. an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
3. "or" is not exclusive;
4. words in the singular include the plural, and in the plural
include the singular;
5. provisions apply to successive events and transactions;
6. any amount may be negative; and
7. "herein", "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article,
Section or Subdivision.
ARTICLE 2.
THE SECURITIES
SECTION 2.1 FORM AND DATING
The Rule 144A Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A. Subject to Section 2.6, the
Rule 144A Notes shall be in an aggregate principal amount no greater than
$500,000,000; provided, that if Exchange Notes are issued hereunder pursuant to
the Exchange Offer, the aggregate maximum principal amount of Rule 144A Notes
shall be reduced by the principal amount of Exchange Notes so issued. The
Exchange Notes, when and if issued, and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit B. Subject to
Section 2.6, the Exchange Notes shall be in an aggregate principal amount no
greater than $500,000,000 less the principal amount of Rule 144A Notes not
exchanged for the Exchange Notes in the Exchange Offer. The Securities may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Security shall be dated the date of its authentication. The
Securities shall be in denominations of $1,000 and integral multiples thereof.
The Securities may be initially issued either in the form of a
Global Security or Securities or in the form of Definitive Securities or both. A
Global Security shall represent such of the outstanding Securities as shall be
specified therein and shall provide that it shall represent the aggregate amount
of outstanding Securities from time to time endorsed thereon and that the
aggregate amount of outstanding Securities represented thereby may from time to
time be reduced or increased, as appropriate, to reflect exchanges and
redemptions. Any endorsement of a Global Security to reflect the amount of any
increase or decrease in the amount of outstanding Securities represented thereby
shall be made by the Trustee or an Agent thereof, at the direction of the
Trustee, in accordance with written instructions given by the Holder thereof.
Definitive Securities shall be printed, lithographed or engraved or produced by
any combination of these methods on steel engraved borders or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Securities may be listed, all as determined by the officers executing such
Securities, as evidenced by their execution of such Securities.
The terms and provisions contained in the Securities shall
constitute, and are hereby expressly made, a part of this Indenture and to the
extent applicable, the Company and the Trustee, by their execution and delivery
of this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
SECTION 2.2 EXECUTION AND AUTHENTICATION
Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Securities
and may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Security is authenticated, the Security nevertheless
shall be valid.
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A Security shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Security has been authenticated under this Indenture.
The Trustee shall authenticate Securities for original issue up to
the aggregate principal amount stated in paragraph 4 of the Securities, upon a
written order of the Company signed by two Officers. The aggregate principal
amount of Securities outstanding at any time may not exceed such amount except
as provided in Section 2.6.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. An authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate.
SECTION 2.3 REGISTRAR AND PAYING AGENT
The Company shall maintain or cause to be maintained through the
Trustee or such other Person as may be appointed hereunder an office or agency
where Securities may be presented for registration of transfer or for exchange
("Registrar") and an office or agency where Securities may be presented for
payment ("Paying Agent"). The Registrar shall keep a register of the Securities
and of their transfer and exchange. The Company may appoint one or more
co-registrars and one or more additional paying agents. The term "Registrar"
includes any co-registrar and the term "Paying Agent" includes any additional
paying agent. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company shall notify the Trustee in writing of the
name and address of any Agent not a party to this Indenture, such notification
to be delivered, together with a certificate of such Agent that it agrees to
perform its duties in accordance with the procedures established by the Trustee
and with the terms of this Indenture, to the Trustee prior to the date such
Agent assumes its duties hereunder. If the Company fails to appoint or maintain
another entity as Registrar or Paying Agent, the Trustee shall act as such. The
Company or any of its Subsidiaries may act as Paying Agent or Registrar.
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST
The Company shall require each Paying Agent other than the Trustee
to agree in writing that the Paying Agent will hold in trust for the benefit of
the Holders or the Trustee all money held by the Paying Agent for the payment of
principal of or premium, if any, or interest on the Securities, and will notify
the Trustee of any default by the Company in making any such payment. While any
such default continues, the Trustee may require a Paying Agent to pay all money
held by it to the Trustee. The Company at any time may require a Paying Agent to
pay all money held by it to the Trustee. Upon payment over to the Trustee, the
Paying Agent (if other than the Company or a Subsidiary) shall have no further
liability for the money. If the Company or a Subsidiary acts as Paying Agent, it
shall segregate and hold in a separate trust fund for the benefit of the Holders
all money held by it as Paying Agent.
SECTION 2.5 REGISTRATION OF TRANSFER AND EXCHANGE
(a) With respect to the transfer and exchange of Definitive
Securities: when Definitive Securities are presented to the Trustee with the
request (x) to register the transfer of the Definitive Securities or (y) to
exchange such Definitive Securities for an equal principal amount of Definitive
Securities of other authorized denominations, the Trustee shall register the
transfer or make the exchange as requested if its requirements for such
transactions are met; provided, however, that the Definitive Securities
presented or surrendered for register of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Trustee
duly executed by the Holder thereof or by its attorney, duly
authorized in writing; and
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(ii) shall, in the case of Transfer Restricted Securities that
are Definitive Securities, except if exchanged for an
Exchange Note in the Exchange Offer, be accompanied by the
following additional information and documents, as
applicable
(A) if such Transfer Restricted Security is being delivered to
the Registrar by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to
that effect (in substantially the form of Exhibit C hereto); or
(B) if such Transfer Restricted Security is being transferred
to a "qualified institutional buyer" (as defined in Rule 144A
under the Securities Act) in reliance on Rule 144A under the
Securities Act or pursuant to an exemption from registration in
accordance with Rule 144 under the Securities Act or pursuant
to an effective registration statement under the Securities
Act, a certification to that effect (in substantially the form
of Exhibit C hereto); or
(C) if such Transfer Restricted Security is being transferred
in reliance on another exemption from the registration
requirements of the Securities Act, a certification to that
effect (in substantially the form of Exhibit C hereto) and an
opinion of counsel reasonably acceptable to the Company and to
the Registrar to the effect that such transfer is in compliance
with the Securities Act.
(b) The following restrictions apply to any transfer of a
Definitive Security for a beneficial interest in a Global Security. A Definitive
Security may not be exchanged for a beneficial interest in a Global Security
except, until and upon satisfaction of the requirements set forth below. Upon
receipt by the Trustee of a Definitive Security, duly endorsed or accompanied by
appropriate written instruments of transfer, in form satisfactory to the
Trustee, together with:
(i) if such Definitive Security is a Transfer Restricted
Security and such transfer is not being made in connection
with the Exchange Offer, certification, substantially in the
form of Exhibit C hereto, that such Definitive Security is
being transferred to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act) in accordance
with Rule 144A under the Securities Act; and
(ii) whether or not such Definitive Security is a Transfer
Restricted Security, written instructions directing the
Trustee to make an endorsement on the Global Security to
reflect an increase in the aggregate principal amount of the
Securities represented by the Global Security,
then the Trustee shall cancel such Definitive Security and cause, in accordance
with the standing instructions and procedures existing between it and the
Depositary, the aggregate principal amount of Securities represented by the
Global Security to be increased accordingly. If no Global Securities are then
outstanding, the Company shall issue and, upon receipt of a written
authentication order in the form of an Officers' Certificate, the Trustee shall
authenticate a new Global Security in the appropriate principal amount.
(c) The transfer and exchange of Global Securities or beneficial
interests therein shall be effected through the Depositary, in accordance with
this Indenture (including the restrictions on transfer set forth herein) and the
procedures of the Depositary therefor.
(d) With respect to the transfer of a beneficial interest in a
Global Security for a Definitive Security:
(i) Any person having a beneficial interest in a Global Security
may upon request exchange such beneficial interest for a
Definitive Security. Upon receipt by the Trustee of written
instructions or such other form of instructions as is
customary for the Depositary or its nominee on behalf of any
person having a beneficial interest in
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a Global Security constituting a Transfer Restricted
Security only, except if exchanged for an Exchange Note in
the Exchange Offer, the following additional information and
documents (all of which may be submitted by facsimile):
(A) if such beneficial interest is being transferred to the
person designated by the Depositary as being the beneficial
owner, a certification from such person to that effect (in
substantially the form of Exhibit C hereto); or
(B) if such beneficial interest is being transferred to a
"qualified institutional buyer" (as defined in Rule 144A under
the Securities Act) in accordance with Rule 144A under the
Securities Act or pursuant to an exemption from registration in
accordance with Rule 144 under the Securities Act or pursuant
to an effective registration statement under the Securities
Act, a certification to that effect from the transferor (in
substantially the form of Exhibit C hereto); or
(C) if such beneficial interest is being transferred in
reliance on another exemption from the registration
requirements of the Securities Act, a certification to that
effect from the transferee or transferor (in substantially the
form of Exhibit C hereto) and an opinion of counsel from the
transferee or transferor reasonably acceptable to the Company
and to the Registrar to the effect that such transfer is in
compliance with the Securities Act,
then the Trustee will cause, in accordance with the standing instructions and
procedures existing between it and the Depositary, the aggregate principal
amount of the Global Security to be reduced and, following such reduction, the
Company will execute and, upon receipt of a written authentication order in the
form of an Officers' Certificate, the Trustee will authenticate and deliver to
the transferee a Definitive Security.
(ii) Definitive Securities issued in exchange for a beneficial
interest in a Global Security pursuant to this Section 2.5
shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions
from its direct or indirect participants or otherwise, shall
in writing instruct the Trustee. The Trustee shall deliver
such Definitive Securities to the persons in whose name such
Securities are so registered.
(e) Notwithstanding any other provisions of this Indenture (other
than the provisions set forth in subsection (f) of this Section 2.5), a Global
Security may not be transferred as a whole except by the Depositary to a nominee
of the Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) The following relates to the authentication of Definitive
Securities in the absence of the Depositary. If at any time: (i) the Depositary
for the Securities notifies the Company that the Depositary is unwilling or
unable to continue as Depositary for the Global Securities and a successor
Depositary for the Global Securities is not appointed by the Company within 90
days after delivery of such notice; or (ii) the Company, at its sole discretion,
notifies the Trustee in writing that it elects to cause the issuance of
Definitive Securities under this Indenture, then the Company will execute, and
the Trustee, upon receipt of a written order in the form of an Officers'
Certificate requesting the authentication and delivery of Definitive Securities,
will authenticate and deliver Definitive Securities, in an aggregate principal
amount equal to the principal amount of the Global Securities, in exchange for
such Global Securities.
(g) (i) Except as otherwise agreed to by the Company, the Trustee
and the Holder thereof or as permitted by the following paragraph (ii), each
Rule 144A Note certificate evidencing the Global Securities and the Definitive
Securities (and all Securities other than Exchange Notes issued in exchange
therefor or substitution thereof) shall bear a legend in substantially the
following form:
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THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN 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 UNDER
SUCH LAWS.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HERETO AGREES NOT TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE
"RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE
LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE
COMPANY OR ANY AFFILIATED PERSON OF THE COMPANY WAS THE OWNER OF THIS
SECURITY UNLESS SUCH OFFER, SALE OR OTHER TRANSFER IS (A) TO THE
COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE
SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON
THE HOLDER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO
WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE
MEANING OF SUBPARAGRAPH (a)(1), (a)(2), (a)(3) OR (a)(7) OF RULE 501
UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED
INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER
OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND IN EACH OF THE
FOREGOING CASES SUCH OFFER, SALE OR OTHER TRANSFER IS IN COMPLIANCE
WITH ANY APPLICABLE STATE SECURITIES LAWS, SUBJECT TO THE COMPANY'S AND
THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT
TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM,
AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE
FORM CONTAINED IN THE INDENTURE IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST
OF THE THEN HOLDER OF THIS SECURITY AFTER THE RESALE RESTRICTION
TERMINATION DATE. ANY TRANSFEREE OF THIS SECURITY SHALL BE DEEMED TO
HAVE REPRESENTED EITHER (A) THAT IT IS NOT USING THE ASSETS OF AN
EMPLOYEE BENEFIT PLAN SUBJECT TO THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT ("ERISA") OR THE INTERNAL REVENUE CODE (THE "CODE") TO
PURCHASE THIS SECURITY OR (B) THAT ITS PURCHASE AND CONTINUED HOLDING
OF THE SECURITY WILL BE COVERED BY A U.S. DEPARTMENT OF LABOR CLASS
EXEMPTION (WITH RESPECT TO PROHIBITED TRANSACTIONS UNDER SECTION 406(a)
OF ERISA).
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a
Global Security) pursuant to Rule 144 under the Securities
Act or an effective registration statement under the
Securities Act (including the Shelf Registration Statement):
(A) in the case of any Transfer Restricted Security that is a
Definitive Security, the Registrar shall permit the Holder
thereof to exchange such Transfer Restricted Security for a
Definitive Security that does not bear the legend set forth
above and rescind any restriction on the transfer of such
Transfer Restricted Security; and
(B) any such Transfer Restricted Security represented by a
Global Security shall not be subject to the provisions set
forth in (i) above (such sales or transfers being subject only
to the provisions of Section 2.5(c) hereof); provided, however,
that with respect to any
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request for an exchange of a Transfer Restricted Security that
is represented by a Global Security for a Definitive Security
that does not bear a legend, which request is made in reliance
upon Rule 144 or an effective registration statement, the
Holder thereof shall certify in writing to the Registrar that
such request is being made pursuant to Rule 144 or an effective
registration statement (such certification to be substantially
in the form of Exhibit C hereto.)
(h) At such time as all beneficial interests in a Global Security
have either been exchanged for Definitive Securities, redeemed, repurchased or
cancelled, such Global Security shall be returned to or retained and cancelled
by the Trustee. At any time prior to such cancellation, if any beneficial
interest in a Global Security is exchanged for Definitive Securities, redeemed,
repurchased or cancelled, the principal amount of Securities represented by such
Global Security shall be reduced and an endorsement shall be made on such Global
Security, by the Trustee or the Securities Custodian, at the direction of the
Trustee, to reflect such reduction.
(i) All Definitive Securities and Global Securities issued upon any
registration of transfer or exchange of Definitive Securities or Global
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Definitive
Securities or Global Securities surrendered upon such registration of transfer
or exchange.
No service charge shall be made to a Holder for any registration of
transfer or exchange (except as otherwise expressly permitted herein), but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable and any other expenses (including the fees
and expenses of the Trustee) in connection therewith (other than such transfer
tax or similar governmental charge payable upon exchanges pursuant to Section
2.6 or 9.5).
SECTION 2.6 REPLACEMENT SECURITIES
If any mutilated Security is surrendered to the Trustee, or the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, the Company shall issue and the
Trustee, upon the written order of the Company signed by two Officers, shall
authenticate a replacement Security if the Trustee's requirements are met. If
required by the Trustee or the Company, an indemnity bond must be supplied by
the Holder that is sufficient in the judgment of the Trustee and the Company to
protect the Company, the Trustee, the Agent or any authenticating agent from any
loss which any of them may suffer if a Security is replaced. The Company and the
Trustee may charge for their expenses in replacing a Security.
Every replacement Security is an additional obligation of the
Company.
SECTION 2.7 OUTSTANDING SECURITIES
The Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those canceled by it, those delivered to
it for cancellation and those described in this Section 2.7 as not outstanding.
If a Security is replaced pursuant to Section 2.6, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the principal amount of any Security is considered paid under
Section 4.1, it ceases to be outstanding and interest on it ceases to accrue as
of the date it is deemed paid. Upon a "legal defeasance" pursuant to Section
8.1(b) or a "covenant defeasance" pursuant to Section 8.1(c), the Securities
shall be deemed to be outstanding or not outstanding as provided in the
applicable Section 8.1(b) or 8.1(c).
Except as set forth in Section 2.8, a Security does not cease to be
outstanding because the Company or an Affiliate holds the Security.
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SECTION 2.8 TREASURY SECURITIES
In determining whether the Holders of the required principal amount
of Securities have concurred in any direction, waiver or consent, Securities
owned by the Company or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company shall
be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Securities which the corporate trust officer
having responsibility for the administration of this Indenture on behalf of the
Trustee actually knows are so owned shall be so disregarded.
SECTION 2.9 TEMPORARY SECURITIES
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities upon a written
order of the Company signed by two Officers. Temporary Securities shall be
substantially in the form of definitive Securities but may have variations that
the Company considers appropriate for temporary Securities. Without unreasonable
delay, the Company shall prepare and the Trustee shall authenticate definitive
Securities in exchange for temporary Securities.
SECTION 2.10 CANCELLATION
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Securities surrendered for registration of
transfer, exchange, payment, replacement or cancellation, and, upon request of
the Company, certification of their destruction shall be delivered to the
Company unless, by a written order signed by two Officers, the Company shall
direct that canceled Securities be returned to it after being appropriately
designated as cancelled. The Company may not issue new Securities to replace
Securities that it has paid or that have been delivered to the Trustee for
cancellation.
SECTION 2.11 DEFAULTED INTEREST
If the Company defaults in a payment of interest on the Securities,
it shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Securities. The Company, with the consent of the Trustee, shall fix each
such special record date and payment date. At least 15 days before the special
record date, the Company (or, upon written request of the Company, the Trustee,
in the name of and at the expense of the Company) shall mail to Holders a notice
that states the special record date, the related payment date and the amount of
such interest to be paid.
SECTION 2.12 SECURITIES ISSUABLE IN THE FORM OF A GLOBAL SECURITY
(a) If the Company shall establish that the Securities are to be issued in whole
or in part in the form of one or more Global Securities, then the Company shall
execute and the Trustee or an agent thereof shall, in accordance with Section
2.2 and the written order of the Company delivered to the Trustee or its agent
thereunder, authenticate and deliver such Global Security or Securities, which
(i) shall represent, and shall be denominated in an amount equal to the
aggregate principal amount of the outstanding Securities to be represented by
such Global Security or Securities, or such portion thereof as the Company shall
specify in a written order of the Company signed by two Officers, (ii) shall be
registered in the name of the Depositary for such Global Security or Securities
or its nominee, (iii) shall be delivered by the Trustee or its agent to the
Depositary or pursuant to the Depositary's instruction and (iv) shall bear a
legend substantially to the following effect: "Unless and until it is exchanged
in whole or in part for securities in definitive form, this security may not be
transferred except as a whole by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor Depositary or
a nominee of such successor Depositary. Unless this certificate is presented by
an authorized representative of the Depositary to the Company or its agent for
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registration of transfer, exchange, or payment, and any certificate issued is
registered in the name of the nominee of the Depositary or in such other name as
is requested by an authorized representative of the Depositary (and any payment
is made to the nominee of the Depositary or to such other entity as is requested
by an authorized representative of the Depositary), ANY TRANSFER, PLEDGE, OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch
as the registered owner hereof, the nominee of the Depositary, has an interest
herein."
(b) Notwithstanding any other provision of this Section 2.12 or of
Section 2.5, and subject to the provisions of paragraph (c) below, a Global
Security may be transferred, in whole but not in part and in the manner provided
in Section 2.5, only to a nominee of the Depositary for such Global Security, or
to the Depositary, or a successor Depositary for such Global Security selected
or approved by the Company, or to a nominee of such successor Depositary.
(c) (i) If at any time the Depositary for a Global Security
notifies the Company that it is unwilling or unable to continue as Depositary
for such Global Security or if at any time the Depositary for the Securities
shall no longer be eligible or in good standing under the Exchange Act or any
other applicable statute or regulation, the Company shall appoint a successor
Depositary with respect to such Global Security. If a successor Depositary for
such Global Security is not appointed by the Company within 90 days after the
Company receives such notice or becomes aware of such ineligibility, the Company
will execute, and the Trustee or an agent thereof, upon receipt of a written
order of the Company signed by two Officers for the authentication and delivery
of individual Definitive Securities in exchange for such Global Security, will
authenticate and deliver, individual Definitive Securities of like tenor and
terms in an aggregate principal amount equal to the principal amount of the
Global Security in exchange for such Global Security.
(ii) The Company may at any time and in its sole discretion
determine that the Securities issued in the form of one or
more Global Securities shall no longer be represented by
such Global Security or Securities. In such event the
Company will execute, and the Trustee or an agent thereof,
upon receipt of a written order of the Company signed by two
Officers for the authentication and delivery of individual
Definitive Securities in exchange in whole or in part for
such Global Security, will authenticate and deliver
individual Definitive Securities of like tenor and terms in
an aggregate principal amount equal to the principal amount
of such Global Security or Securities in exchange for such
Global Security or Securities.
(iii) If specified by the Company pursuant to a written order of
the Company signed by two Officers, the Depositary for a
Global Security may surrender such Global Security in
exchange in whole or in part for individual Definitive
Securities of like tenor and terms on such terms as are
acceptable to the Company and such Depositary. Thereupon the
Company shall execute, and the Trustee or an agent thereof,
upon a written order of the Company signed by two Officers,
shall authenticate and deliver, without service charge, (1)
to each Person specified by such Depositary a new Definitive
Security or Securities of like tenor and terms and of any
authorized denomination as requested by such Person in an
aggregate principal amount equal to and in exchange for such
Person's beneficial interest as specified by such Depositary
in the Global Security; and (2) to such Depositary a new
Global Security of like tenor and terms and in an authorized
denomination equal to the difference, if any, between the
principal amount of the surrendered Global Security and the
aggregate principal amount of Definitive Securities
delivered to Holders thereof.
(iv) In any exchange provided for in (i), (ii) or (iii) of this
paragraph (c), the Company will execute and the Trustee or
an agent thereof, upon receipt of a written order of the
Company signed by two Officers, will authenticate and
deliver individual Definitive Securities in registered form
in authorized denominations. Upon the exchange of the entire
principal amount of a Global Security for individual
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Definitive Securities, such Global Securities shall be
cancelled by the Trustee or an agent thereof. Except as
provided in (iii) above, Definitive Securities issued in
exchange for a Global Security pursuant to this Section
shall be registered in such names and in such authorized
denominations as the Depositary for such Global Security,
pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct either the Trustee
or the Registrar. Such Trustee or the Registrar shall
deliver such Definitive Securities to the Persons in whose
names such Securities are so registered.
ARTICLE 3.
OPTIONAL REDEMPTION AND ASSET SALE OFFER
SECTION 3.1 NOTICES TO TRUSTEE
(a) If the Company elects to redeem Securities pursuant to the
optional redemption provisions of Section 3.7, it shall furnish to the Trustee,
at least 45 days but not more than 60 days before a redemption date, an
Officers' Certificate stating that the Company has exercised its option to
redeem Securities pursuant to Section 3.7 and setting forth the redemption date,
the principal amount of Securities to be redeemed and the redemption price.
(b) If the Company offers to purchase Securities pursuant to the
provisions of Section 3.8, it shall furnish to the Trustee, on or before the
fifth Business Day preceding the commencement of an Asset Sale Offer Period, an
Officers' Certificate stating that the Company is making an Asset Sale Offer
pursuant to Section 3.8 and setting forth the Asset Sale Payment Date, the
principal amount of Securities the Company is offering to purchase and the
purchase price of such Securities, and further setting forth a statement to the
effect that (a) the Company has consummated an Asset Sale and (b) the conditions
set forth in the first sentence of Section 4.11 have been satisfied.
SECTION 3.2 SELECTION OF SECURITIES TO BE REDEEMED OR PURCHASED
(a) If less than all of the Securities are to be redeemed pursuant
to Section 3.7, the Trustee shall select the Securities to be redeemed on a pro
rata basis, by lot or in such other manner as the Trustee shall deem fair and
equitable; provided, however, that in the case of a partial redemption of
Securities made with the proceeds of a Public Equity Offering, selection of the
Securities for redemption shall be made on a pro rata basis, unless such method
is otherwise prohibited (in which case the Securities to be purchased shall be
selected by lot or in such other manner as the Trustee shall deem fair and
equitable). The particular Securities to be redeemed shall be selected, unless
otherwise provided herein, prior to the date notice of redemption is required to
be sent by the Trustee, from the outstanding Securities not previously called
for redemption.
The Trustee promptly shall notify the Company in writing of the
Securities selected for redemption and, in the case of any Security selected for
partial redemption, the principal amount thereof to be redeemed. Securities and
portions of them selected shall be in amounts of $1,000 or integral multiples of
$1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption.
(b) If less than all of the Securities are to be purchased pursuant
to Section 3.8, the Trustee shall select the Securities to be purchased on a pro
rata basis, unless such method is otherwise prohibited (in which case the
Securities to be purchased shall be selected by lot or in such other manner as
the Trustee shall deem fair and equitable). The particular Securities to be
purchased shall be selected, unless otherwise provided herein, prior to the date
notice of purchase is required to be sent by the Trustee, from the outstanding
Securities tendered pursuant to the Asset Sale Offer.
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The Trustee promptly shall notify the Company in writing of the
Securities selected for purchase and, in the case of any Security selected for
partial purchase, the principal amount thereof to be purchased. Securities and
portions of them selected shall be in amounts of $1,000 or integral multiples of
$1,000. Provisions of this Indenture that apply to Securities called for
purchase also apply to portions of Securities called for purchase.
SECTION 3.3 NOTICES TO HOLDERS
(a) At least 30 days but not more than 60 days before a redemption
date, the Company shall mail a notice to each Holder whose Securities are to be
redeemed.
The notice shall identify the Securities to be redeemed and shall
state:
1. the redemption date;
2. the redemption price;
3. if any Security is being redeemed in part, the portion of
the principal amount of such Security to be redeemed and
that, after the redemption date, upon surrender of such
Security, a new Security or Securities in principal amount
equal to the unredeemed portion will be issued;
4. the name and address of the Paying Agent;
5. that Securities called for redemption must be surrendered to
the Paying Agent at the address specified in such notice to
collect the redemption price;
6. that interest on Securities called for redemption ceases to
accrue on and after the redemption date (unless the Company
defaults on its obligation to repurchase Securities);
7. the paragraph of the Securities pursuant to which the
Securities are being redeemed; and
8. the aggregate principal amount of Securities that are being
redeemed.
(b) If the Company determines to make an Asset Sale Offer as
provided in Section 3.8, the Company shall promptly mail a notice to each
Holder.
The Notice shall state:
1. that an Asset Sale Offer is being made pursuant to Section
3.8 and the length of time the Asset Sale Offer will remain
open;
2. the purchase price and the Asset Sale Payment Date;
3. the aggregate principal amount of Securities the Company is
offering to purchase;
4. that any Security not tendered or accepted for payment will
continue to accrue interest;
5. that any Security accepted for payment pursuant to the Asset
Sale Offer shall cease to accrue interest on the Asset Sale
Payment Date;
6. that Holders electing to have a Security purchased pursuant
to any Asset Sale Offer will be required to surrender the
Security, with the form entitled "Option of Holder to Elect
Purchase" on the reverse side of the Security completed, to
the Company, a depositary, if appointed by the Company, or a
Paying Agent at the address specified in the notice prior to
expiration of the Asset Sale Offer Period;
7. that Holders will be entitled to withdraw their election if
the Company, Depositary or Paying Agent, as the case may be,
receives, not later than the expiration of the Asset Sale
Offer Period, or such longer period as may be required by
law, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount
of the Security the Holder delivered for purchase and a
statement that such Holder is withdrawing his election to
have the Security purchased;
8. that, if the aggregate principal amount of Securities
surrendered by Holders exceeds the aggregate principal
amount of Securities offered to be purchased, the Trustee
shall
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select the Securities to be purchased on a pro rata basis,
unless such method is otherwise prohibited (in which case
the Securities to be purchased shall be selected by lot or
in such other manner as the Trustee shall deem fair and
equitable); and
9. that Holders whose Securities are purchased only in part
will be issued new Securities equal in principal amount to
the unpurchased portion of the Securities surrendered.
(c) At the Company's request, the Trustee shall give the notice
required in Section 3.3(a) or 3.3(b) in the Company's name and at its expense;
provided, however, that the Company shall deliver to the Trustee, at least 45
days prior to the redemption date or not later than the fifth Business Day
preceding the commencement of an Asset Sale Offer Period, as the case may be, an
Officers' Certificate requesting that the Trustee give such notice and setting
forth the information to be stated in such notice as provided in Section 3.3(a)
or 3.3(b).
SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION
Once notice of redemption under Section 3.7 is mailed, Securities
called for redemption become due and payable on the redemption date at the
redemption price. However, if a redemption date is on or before an Interest
Payment Date and on or after the related record date, any interest accrued and
unpaid to the redemption date shall be paid on such Interest Payment Date to the
person in whose name the Security is registered at the close of business on such
record date and the only remaining right of the Holders of Securities called for
redemption shall be to receive the redemption price (excluding such interest)
upon surrender of such Securities to the Paying Agent.
SECTION 3.5 DEPOSIT OF REDEMPTION PRICE OR PURCHASE PRICE
One Business Day prior to the redemption date or the Asset Sale
Payment Date, as the case may be, the Company shall deposit with the Trustee or
with the Paying Agent money sufficient to pay the redemption price or the
purchase price of, and accrued interest on, all Securities to be redeemed or
purchased on that date. The Trustee or the Paying Agent shall return to the
Company any money not required for that purpose.
If the Company complies with the preceding paragraph, interest on
the Securities or portions thereof to be redeemed or purchased (in the case of a
redemption, whether or not such Securities are presented for payment) will cease
to accrue on the applicable redemption date or Asset Sale Payment Date, as the
case may be. If any Security called for redemption shall not be so paid upon
surrender, or if any Security to be purchased shall not be so paid on the Asset
Sale Payment Date, because of the failure of the Company to comply with the
preceding paragraph, then interest will be paid on the unpaid principal from the
redemption date or the Asset Sale Payment Date, as the case may be, until such
principal is paid and on any interest not paid on such unpaid principal, in each
case, at the rate provided in the Securities and in Section 4.1.
SECTION 3.6 SECURITIES REDEEMED OR PURCHASED IN PART
Upon surrender of a Security that is redeemed or purchased in part,
the Company shall issue, and the Trustee shall, upon receipt of a written order
of the Company signed by two Officers, authenticate for the Holder at the
expense of the Company, a new Security equal in principal amount to the
unredeemed portion or the portion not purchased of the Security surrendered.
SECTION 3.7 OPTIONAL REDEMPTION
The Company may redeem all or any of the Securities at any time on
or after January 15, 2003, at the following redemption prices (expressed as
percentages of principal amount), plus accrued and unpaid interest to the
redemption date:
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IF REDEEMED DURING REDEMPTION PRICE
THE 12-MONTH PERIOD COMMENCING ----------------
------------------------------
January 15, 2003 104.625%
January 15, 2004 103.083%
January 15, 2005 101.542%
January 15, 2006 and thereafter 100%
Notwithstanding the foregoing, the Company may redeem in the
aggregate up to $166,667,000 principal amount of Securities at any time and from
time to time prior to January 15, 2001 at a redemption price equal to 109.25% of
the aggregate principal amount so redeemed, plus accrued interest to the
redemption date, out of the net cash proceeds of one or more Public Equity
Offerings; provided that at least $333,333,000 aggregate principal amount of
Securities originally issued remains outstanding after the occurrence of any
such redemption and that any such redemption occurs within 60 days following the
closing of any such Public Equity Offering.
Any redemption pursuant to this Section 3.7 shall be made, to the
extent applicable, in accordance with the provisions of Sections 3.1 through
3.6.
SECTION 3.8 ASSET SALE OFFER
If the Company determines to make an Asset Sale Offer, the Company
shall promptly mail (with notice to the Trustee) or shall cause the Trustee to
promptly mail (in the Company's name and at its expense) notice of an Asset Sale
Offer to each Holder of Securities as set forth in Section 3.3(b). The Asset
Sale Offer shall be deemed to have commenced on the date of such mailing and
shall terminate 30 days after its commencement unless a longer offering period
is required by law (the "Asset Sale Offer Period"). On or prior to the fifth
Business Day following the termination of the Asset Sale Offer Period (the
"Asset Sale Payment Date"), the Company shall purchase, or cause the Trustee to
purchase, and mail or deliver payment for, as selected on a pro rata basis
(unless such method is otherwise prohibited, in which case the Securities to be
purchased shall be selected by lot, with such adjustments as may be deemed
appropriate by the Company so that only Securities in denominations of $1,000 or
integral multiples thereof shall be purchased, or in such other manner as the
Trustee shall deem fair and equitable) from Holders tendering their Securities
pursuant to the Asset Sale Offer, the amount of Securities required to be
purchased pursuant to Section 4.11. If the Asset Sale Payment Date is on or
after an interest payment record date and on or before the related interest
payment date, any accrued interest will be paid to the person in whose name a
Security is registered at the close of business on such record date, and no
additional interest will be payable to Holders who tender Securities pursuant to
the Asset Sale Offer. Any Asset Sale Offer shall be conducted in compliance with
applicable tender offer rules, including Section 14(e) of the Exchange Act and
Rule 14e-1 thereunder.
On or before any Asset Sale Payment Date, the Company, to the
extent lawful, shall (i) accept for payment, as selected on a pro rata basis
(unless such method is otherwise prohibited, in which case the Securities to be
purchased shall be selected by lot, with such adjustment as may be deemed
appropriate by the Company so that only Securities in denominations of $1,000 or
integral multiples thereof shall be purchased, or in such other manner as the
Trustee shall deem fair and equitable), Securities or portions thereof tendered
pursuant to the Asset Sale Offer, (ii) if the Company appoints a depositary or
Paying Agent, deposit with such depositary or Paying Agent money sufficient to
pay the purchase price (including all accrued interest on the purchased
Securities) of all Securities or portions thereof so accepted, (iii) deliver or
cause the depositary or Paying Agent to deliver to the Trustee Securities so
accepted and (iv) deliver an Officers' Certificate identifying the Securities or
portions thereof accepted for payment by the Company in accordance with the
terms of this Section 3.8. The depositary, the Paying Agent or the Company, as
the case may be, promptly shall mail or deliver to each tendering Holder an
amount equal to the purchase price (including all accrued interest on the
purchased Securities) of the Securities tendered by such Holder and accepted by
the Company for purchase, and the Trustee promptly shall authenticate and mail
or deliver to
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such Holders a new Security equal in principal amount to any unpurchased portion
of the Security surrendered. Any Securities not so accepted promptly shall be
mailed or delivered by the Company to the Holder thereof. The Company will
publicly announce the results of the Asset Sale Offer on the Asset Sale Payment
Date.
Other than as specifically provided in this Section 3.8, any offer
to purchase Securities pursuant to this Section 3.8 shall be made in accordance
with the other provisions of this Indenture.
ARTICLE 4.
COVENANTS
SECTION 4.1 PAYMENT OF SECURITIES
The Company shall pay the principal of and premium, if any, and
interest on the Securities on the dates and in the manner provided in the
Securities. Principal, premium, if any, and interest shall be considered paid on
the date due if the Paying Agent, other than the Company or a Subsidiary of the
Company, holds on that date money deposited by the Company designated for and
sufficient to pay all principal, premium, if any, and interest then due.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to the interest rate on the Securities to the extent lawful; it shall pay
interest on overdue payments of premium, if any, or installments of interest
(without regard to any applicable grace period) at the same rate to the extent
lawful.
On or prior to the effective date of this Indenture, the Trustee
shall establish a segregated non-interest-bearing corporate trust account (the
"Payment Account") maintained by the Trustee for the benefit of Holders in which
all amounts paid in respect of the Securities will be held and from which the
Trustee shall make payments to the Holders in accordance with this Indenture and
the Securities. The Trustee and any Agent of the Trustee shall have exclusive
control and sole right of withdrawal with respect to the Payment Account for the
purpose of making deposits in and withdrawals from the Payment Account in
accordance with this Indenture. All monies and other property deposited or held
from time to time in the Payment Account shall be held by the Trustee in the
Payment Account for the exclusive benefit of the Holders, subject to
subordination to Senior Indebtedness in accordance with Article 10 hereof.
SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY
The Company will maintain an office or agency where Securities may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company with respect of the Securities and this Indenture
may be served pursuant to Section 2.3. The Company hereby designates the
Corporate Trust Office of the Trustee as such office or agency of the Company.
The Company also from time to time may designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and from time to time may rescind such designations. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
SECTION 4.3 SEC REPORTS
(a) The Company shall remain subject to the reporting requirements
of Section 13 or Section 15(d) of the Exchange Act and shall continue to file
with the SEC such annual reports and such information, documents and other
reports which are specified in Sections 13 and 15(d) of the Exchange Act.
(b) The Company shall file with the Trustee and cause to be
provided to the Holders, within 15 days after it files the same with the SEC,
copies of its annual reports and of the information, documents
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and other reports (or copies of such portions of any of the foregoing as the SEC
may by rules and regulations prescribe) which the Company or any subsidiary of
the Company is required to file with the SEC pursuant to Section 13 or 15(d) of
the Exchange Act. The Company shall cause any annual report furnished to its
stockholders generally and any quarterly or other financial reports furnished by
it to its stockholders generally to be filed with the Trustee and mailed to the
Holders at their addresses appearing in the register of Securities maintained by
the Registrar. The Company will cause to be disclosed in an Officers'
Certificate accompanying any annual report filed with the Trustee and mailed to
Holders or comparable information as of the date of the most recent financial
statements in each such report or comparable information the amount available
for payments pursuant to Section 4.7. The Trustee shall have no obligation to
furnish such information to the Holders unless instructed to do so by the
Company or requested by a Holder.
SECTION 4.4 COMPLIANCE CERTIFICATE
(a) The Company shall deliver to the Trustee, within 120 days after
the end of each fiscal year of the Company, an Officers' Certificate stating
that a review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
his knowledge the Company has kept, observed, performed and fulfilled each
covenant contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions hereof (or, if a
Default or Event of Default shall have occurred, describing all such Defaults or
Events of Default of which he may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of his
knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or premium, if any, or interest, if any,
on the Securities are prohibited or, if such event has occurred, a description
of the event and what action the Company is taking or proposes to take with
respect thereto.
(b) So long as (i) not contrary to the then current recommendations
of the American Institute of Certified Public Accountants or (ii) the Company's
independent public accountants do not have in effect a policy, of general
applicability with respect to their clients, that such accountants will not
prepare statements on the subjects specified below, the year-end financial
statements delivered pursuant to Section 4.3 shall be accompanied by a written
statement of the Company's independent public accountants (who shall be a firm
of established national reputation) that in making the examination necessary for
certification of such financial statements nothing has come to their attention
that would lead them to believe that the Company has violated any provisions of
Article 4 or 5 or, if any such violation has occurred, specifying the nature and
period of existence thereof, it being understood that such accountants shall not
be liable directly or indirectly to any Person for any failure to obtain
knowledge of any such violation.
(c) The Company, so long as any of the Securities are outstanding,
will deliver to the Trustee, forthwith upon any Officer becoming aware of any
Default or Event of Default under this Indenture, an Officers' Certificate
specifying such Default or Event of Default and what action the Company is
taking or proposes to take with respect thereto.
SECTION 4.5 CORPORATE EXISTENCE, TAXES, ETC.
Subject to the provisions of Section 5.1, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect its rights (charter and statutory), licenses and franchises; 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
the loss thereof is not disadvantageous in any material respect to the Holders.
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SECTION 4.6 STAY, EXTENSION AND USURY LAWS
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, plead or in any manner whatsoever
claim or take the benefit or advantage of any stay, extension or usury law
wherever enacted, now or at any time hereafter in force, that may affect the
Company's obligation to pay the Securities; and the Company (to the extent that
it may lawfully do so) hereby expressly waives all benefit or advantage of any
such law insofar as such law applies to the Securities, and covenants that it
will not, by resort to any such law, hinder, delay or impede the execution of
any power, right or remedy herein granted to the Trustee, but will suffer and
permit the execution of every such power, right or remedy as though no such law
has been enacted.
SECTION 4.7 LIMITATIONS ON RESTRICTED PAYMENTS
The Company shall not, and shall not permit any of its
Subsidiaries, directly or indirectly, to make any Restricted Payment if at the
time of such Restricted Payment:
(i) a Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof;
(ii) after giving effect to the proposed Restricted Payment, the
amount of such Restricted Payment, when added to the
aggregate amount of all Restricted Payments made after May
15, 1996, exceeds the sum of (1) 50% of the Company's
Consolidated Net Income accrued during the period (taken as
a single period) commencing May 15, 1996, to and including
the most recent fiscal quarter ended immediately prior to
the date of such Restricted Payment and for which financial
results have been reported (or, if such aggregate
Consolidated Net Income shall be a deficit, minus 100% of
such aggregate deficit); (2) the net cash proceeds from the
issuance and sale of the Company's (a) Capital Stock that is
not Disqualified Stock, including net cash proceeds received
upon the exercise of any options or warrants to purchase
shares of Capital Stock other than Disqualified Stock (other
than to a Subsidiary of the Company) and (b) debt securities
or other securities that are convertible or exercisable or
exchangeable for such Capital Stock that is not Disqualified
Stock and that have been so converted or exercised or
exchanged, after May 15, 1996; (3) aggregate net cash
proceeds received by the Company after the date of the
Indenture as capital contributions to the Company; and (4)
$20.0 million; or
(iii) the Company would not be able to incur an additional $1.00
of Indebtedness under the Consolidated Coverage Ratio test
in Section 4.9(a).
Notwithstanding the foregoing, the provisions of this Section 4.7
shall not prevent the following Restricted Payments (provided, however, that
such Restricted Payments shall be included for purposes of computing the amount
of Restricted Payments previously made under clause (ii) of the preceding
paragraph): (x) the payment of any dividend within 60 days after the date of
declaration thereof if the payment thereof would have complied with the
limitations of this covenant on the date of declaration and (y) the purchase of
stock held by officers, directors or employees of the Company whose employment
or term with the Company has been terminated or who have died or become disabled
in an aggregate amount not to exceed $5.0 million in any fiscal year.
SECTION 4.8 LIMITATIONS ON RESTRICTIONS ON DISTRIBUTIONS FROM SUBSIDIARIES
The Company shall not, and shall not permit any of its Subsidiaries
to, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction (other than encumbrances or restrictions
imposed by law or by judicial or regulatory action or by provisions in leases or
other agreements that restrict the assignability thereof) on the ability of any
Subsidiary of the Company to (i) pay dividends or make any other distributions
on its Capital Stock or any other interest or participation in, or measured by,
its
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profits, owned by the Company or any of its other Subsidiaries, or pay interest
on or principal of any Indebtedness owed to the Company or any of its other
Subsidiaries, (ii) make loans or advances to the Company or any of its other
Subsidiaries or (iii) transfer any of its properties or assets to the Company or
any of its other Subsidiaries, except for encumbrances or restrictions existing
under or by reason of (a) applicable law, (b) Existing Indebtedness, (c) any
restrictions under any agreement evidencing any Acquired Indebtedness that was
permitted to be incurred pursuant to Section 4.9, provided that such
restrictions and encumbrances only apply to assets that were subject to such
restrictions and encumbrances prior to the acquisition of such assets by the
Company or its Subsidiaries, (d) restrictions or encumbrances replacing those
permitted by clause (b) or (c) which, taken as a whole, are not more
restrictive, (e) this Indenture, (f) any restrictions or encumbrances arising in
connection with Refinancing Indebtedness, provided that any restrictions and
encumbrances of the type described in this Section 4.8 that arise under such
Refinancing Indebtedness are not, taken as a whole, more restrictive than those
under the agreement creating or evidencing the Indebtedness being refunded or
refinanced, (g) any restrictions with respect to a Subsidiary of the Company
imposed pursuant to an agreement that has been entered into for the sale or
other disposition of all or substantially all of the Capital Stock or assets of
such Subsidiary, (h) any agreement restricting the sale or other disposition of
property securing Indebtedness if such agreement does not expressly restrict the
ability of a Subsidiary of the Company to pay dividends or make loans or
advances and (i) customary restrictions in purchase money debt or leases
relating to the property covered thereby.
SECTION 4.9 LIMITATIONS ON ADDITIONAL INDEBTEDNESS
(a) After the date hereof, the Company shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee, extend the maturity of, or otherwise become liable with
respect to (collectively, "incur"), any Indebtedness (including, without
limitation, Acquired Indebtedness), unless after giving effect thereto, the
Company's Consolidated Coverage Ratio on the date thereof would be at least:
(i) 2.00 to 1, if such date is on or prior to December 31, 1998,
(ii) 2.25 to 1, if such date is after December 31, 1998 and on or
prior to December 31, 1999, and
(iii) 2.50 to 1, if such date is after December 31, 1999,
in each case determined on a pro forma basis as if the incurrence of such
additional Indebtedness and the application of the net proceeds therefrom, had
occurred at the beginning of the four-quarter period used to calculate the
Company's Consolidated Coverage Ratio.
(b) Notwithstanding the foregoing: (a) the Company and its
Subsidiaries may (i) incur Indebtedness under one or more Credit Facilities not
to exceed $700.0 million at any one time outstanding; (ii) incur Refinancing
Indebtedness; (iii) incur any Indebtedness of the Company to any Wholly Owned
Subsidiary or of any Subsidiary to the Company or to any Wholly Owned
Subsidiary; (iv) incur any Indebtedness evidenced by letters of credit which are
used in the ordinary course of business of the Company and its Subsidiaries to
secure workers' compensation and other insurance coverages; and (v) incur
Capitalized Lease Obligations of the Company and its Subsidiaries such that the
aggregate principal amount of Capitalized Lease Obligations of the Company and
its Subsidiaries then outstanding, when added to the Capitalized Lease
Obligations to be incurred, does not exceed 5% of Consolidated Tangible Assets;
and (b) the Company and its Subsidiaries may incur additional Indebtedness
(including additional Indebtedness under any Credit Facility that is designated
in such Credit Facility as incurred under this clause (b)), provided that the
aggregate principal amount of any such additional Indebtedness outstanding under
this clause (b) at any time, together with the aggregate liquidation value of
any outstanding Preferred Stock issued by a Subsidiary of the Company, does not
exceed $75.0 million.
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No Subsidiary of the Company shall Guarantee any Indebtedness of
the Company (including by way of a pledge of assets) that is subordinate in
right of payment to any Senior Indebtedness unless such Subsidiary also
guarantees the Securities and waives, and will not claim or take advantage of,
any rights of reimbursement, indemnity or subrogation against the Company as a
result of any payment by such Subsidiary under its Guarantee of the Securities.
If such other Indebtedness of the Company is (1) pari passu with the Securities,
such Guarantee of such pari passu Indebtedness shall be pari passu with or
expressly subordinated to such Guarantee of the Securities, or (2) subordinated
in right of payment to the Securities, such Guarantee of such subordinated
Indebtedness shall be expressly subordinated to such Guarantee of the
Securities, at least to the extent that such subordinated Indebtedness is
subordinated or junior to the Securities. Notwithstanding the foregoing, any
Guarantee of the Securities by a Subsidiary of the Company may provide by its
terms that it shall be automatically and unconditionally released and discharged
upon the release or discharge of the Guarantee which resulted in the creation of
such Guarantee of the Securities, except a discharge or release by or as a
result of payment under such Guarantee of such other Indebtedness or if any
other Guarantee of other Indebtedness is outstanding.
SECTION 4.10 CHANGE IN CONTROL
(a) Following the occurrence of any Change in Control, each Holder
will have the right, at such Holder's option, to require that the Company
purchase (a "Change in Control Repurchase"), and upon the exercise of such
right, the Company shall, subject to the provisions of Section 10.3 hereof,
purchase, all or any part of such Holder's Securities on a date (the "Repurchase
Date") that is no earlier than 30 days nor later than 60 days after the date on
which the Company gives notice of a Change in Control as provided in (b) below
at a purchase price equal to 101% of the aggregate principal amount of the
Securities, plus accrued and unpaid interest thereon, if any, to the Repurchase
Date.
(b) Within 30 days after any Change in Control, the Company (with
notice to the Trustee) will mail or cause to be mailed to all Holders on the
date of the Change in Control a notice of the occurrence of such Change in
Control and of the Holders' rights arising as a result thereof. Such notice,
which shall govern the terms of the Change in Control Repurchase, shall state:
1. that a Change in Control has occurred and that such Holder has the
right to require the Company to repurchase such Holder's
Securities in cash;
2. the Repurchase Date (which will be no earlier than 30 days nor
later than 60 days from the date such notice is mailed);
3. the purchase price for the repurchase;
4. the date by which the repurchase right must be exercised; and
5. the instructions determined by the Company, consistent with this
Section 4.10, that a Holder must follow in order to have its
Securities repurchased.
At the Company's request, the Trustee shall give such notice in the
Company's name and at its expense; provided, however, that the Company shall
deliver to the Trustee no later than the fifth Business Day preceding the Change
in Control an Officer's Certificate requesting that the Trustee give such notice
and setting forth the information to be stated in such notice as provided in
this Section 4.10 (b).
(c) To exercise a repurchase right, a Holder shall deliver to the
Company (or a depositary or Paying Agent designated by the Company for such
purpose in the notice referred to in (b) above), on or before the close of
business on the Repurchase Date, the Security or Securities with respect to
which the repurchase right is being exercised, duly endorsed for transfer to the
Company, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of each Security so delivered completed. Holders shall be entitled to
withdraw their election if the Company (or the depositary or Paying Agent
designated by the Company for the purpose of receiving such election) receives,
not later than five Business Days prior to the Repurchase Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the Holder,
the principal amount of the Security or Securities the Holder delivered for
purchase and a statement that such Holder is withdrawing its election to the
have the Security or Securities purchased.
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(d) In the event a repurchase right shall be exercised in
accordance with the terms hereof, subject to Article 10, the Company shall on or
promptly following 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 has been exercised. In the event that the repurchase right
is exercised with respect to less than the entire principal amount of a
surrendered Security, the Company shall execute and deliver to the Trustee and
the Trustee, upon written order of the Company, shall authenticate for issuance
in the name of the Holder a new Security or Securities in the aggregate
principal amount of the unrepurchased portion of such surrendered security.
(e) If the Repurchase Date is on or before an Interest Payment Date
and on or after the related record date, any interest accrued and unpaid to the
Repurchase Date will be paid to the Person in whose name the Security is
registered at the close of business on such record date, and no additional
interest will be payable to Holders who exercise their repurchase right pursuant
to this Section 4.10.
(f) Any Change in Control Repurchase shall be conducted in
compliance with applicable tender offer rules, including Section 14(e) of the
Exchange Act and Rule 14(e)(1) thereunder. The Change in Control Repurchase may
not be modified or conditioned by the Company in any manner.
SECTION 4.11 LIMITATIONS ON ASSET SALES
The Company shall not, and shall not permit any of its Subsidiaries
to, consummate any Asset Sale unless (i) the Company or its Subsidiaries receive
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets or Capital Stock included in such Asset Sale (as determined
in good faith by the Board of Directors, whose determination shall be conclusive
and evidenced by a board resolution) and (ii) not less than 50% of such
consideration is in the form of cash or Cash Equivalents (provided, however,
that this clause (ii) shall not be applicable to a transaction involving assets
acquired and designated as held for sale, which assets represent in aggregate
since the date of the Indenture 5% or less of the net tangible assets previously
acquired by the Company or a Subsidiary pursuant to acquisitions since the date
of the Indenture and which assets are disposed of no later than one year
following their initial acquisition). The Net Proceeds of Asset Sales shall,
within 360 days of receipt thereof, (a) be reinvested in the lines of business
of the Company or any of its Subsidiaries immediately prior to such investment;
(b) be applied to the payment of the principal of, and interest on, Senior
Indebtedness; (c) be utilized to make any Investment in any other Person
permitted under this Indenture; or (d) be applied to an offer (an "Asset Sale
Offer") to purchase outstanding Securities. In any such Asset Sale Offer, the
Company shall offer to purchase Securities on a pro rata basis (unless such
method is otherwise prohibited, in which case the Securities to be purchased
shall be selected by lot, with such adjustments as may be deemed appropriate by
the Company so that only Securities in denominations of $1,000 or integral
multiples thereof shall be purchased, or in such other manner as the Trustee
shall deem fair and equitable), at a purchase price equal to 100% of the
aggregate principal amount of the Securities, plus accrued and unpaid interest
to the date of purchase, in the manner set forth in this Indenture. Any Asset
Sale Offer will be conducted in compliance with applicable tender offer rules,
including Section 14(e) of the Exchange Act and Rule 14e-1 thereunder. Any Net
Proceeds remaining immediately after the completion of any Asset Sale Offer may
be used by the Company or its Subsidiaries for any purpose not inconsistent with
the other provisions of this Indenture.
Notwithstanding the provisions of the immediately preceding
paragraph, the Company and its Subsidiaries may, in the ordinary course of
business (or, if otherwise than in the ordinary course of business, upon receipt
of a favorable written opinion from an independent financial advisor of national
reputation as to the fairness from a financial point of view to the Company or
such Subsidiary of the proposed transaction), exchange all or a portion of its
property, businesses or assets for property, businesses or assets that, or
Capital Stock of a Person all or substantially all of whose assets, are of a
type used in a healthcare related business, or a combination of any such
property, businesses or assets, or Capital Stock of such a Person and cash or
Cash Equivalents; provided that (i) there shall not exist immediately prior or
subsequent thereto a Default or an Event of Default, (ii) a majority of the
disinterested members of the Board of Directors of the Company shall have
approved a resolution of the Board of Directors that such exchange is fair to
the Company or such Subsidiary, as the case may be, and (iii) any cash or Cash
Equivalents received pursuant to any such exchange
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shall be applied in the manner applicable to Net Proceeds of Asset Sales as set
forth pursuant to the provisions of the immediately preceding paragraph; and
provided, further, that any Capital Stock of a Person received in such an
exchange pursuant to this paragraph shall be owned directly by the Company or a
Subsidiary of the Company and, when combined with the Capital Stock of such
person already owned by the Company and its Subsidiaries, shall result in such
Person becoming a Wholly Owned Subsidiary of the Company.
SECTION 4.12 LIMITATIONS ON TRANSACTIONS WITH AFFILIATES
Neither the Company nor any of its Subsidiaries shall make any
loan, advance, guarantee or capital contribution to, or for the benefit of, or
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or for the benefit of, or purchase or lease any property or assets from, or
enter into or amend any contract, agreement or understanding with, or for the
benefit of, any Affiliate of the Company or any of its Subsidiaries or any
Person (or any Affiliate of such Person) holding 10% or more of the Common
Equity of the Company or any of its Subsidiaries (each an "Affiliate
Transaction") unless (i) such Affiliate Transactions are between or among the
Company and its Subsidiaries; (ii) such Affiliate Transactions are in the
ordinary course of business and consistent with past practice; or (iii) the
terms of such Affiliate Transactions are fair and reasonable to the Company or
such Subsidiary, as the case may be, and are at least as favorable as the terms
which could be obtained by the Company or such Subsidiary, as the case may be,
in a comparable transaction made on an arm's-length basis between unaffiliated
parties. In the event of any transaction or series of transactions occurring
subsequent to the date of this Indenture with an Affiliate of the Company which
is not permitted under clauses (i) or (ii) above and involves in excess of $5.0
million, the terms of such transaction shall be in writing and a majority of the
disinterested members of the Board of Directors shall by resolution determine
that such business or transaction meets the criteria set forth in clause (iii)
above.
SECTION 4.13 LIMITATIONS ON LIENS
The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, create, incur or affirm any Lien of any kind securing
any Indebtedness which is pari passu or subordinate in right of payment to the
Securities (including any assumption, guarantee or other liability with respect
thereto by any Subsidiary) upon any property or assets (including any
intercompany notes) of the Company or any Subsidiary owned on the date hereof or
hereafter acquired, or any income or profits therefrom, unless the Securities
are directly secured equally and ratably with (or, in the case of subordinated
Indebtedness, prior or senior thereto, with the same relative priority as the
Securities shall have with respect to such subordinated Indebtedness) the
obligation or liability secured by such Lien except for Liens (A) securing any
Indebtedness which became Indebtedness pursuant to a transaction permitted under
Section 5.1 hereof or securing Acquired Indebtedness which, in each case, were
created prior to (and not created in connection with, or in contemplation of)
the incurrence of such pari passu Indebtedness or subordinated Indebtedness by
the Company or any Subsidiary and which Indebtedness is permitted under the
provisions of Section 5.1 hereof, (B) securing any Indebtedness incurred in
connection with any refinancing, renewal, substitutions or replacements of any
such Indebtedness described in clause (A) or (C) created in favor of the
Company; provided, however, that in the case of clauses (A) and (B), any such
Lien only extends to the assets that were subject to such Lien securing such
Indebtedness prior to the related acquisition by the Company or its
Subsidiaries.
SECTION 4.14. LIMITATIONS ON SUBSIDIARY PREFERRED STOCK
The Company shall not permit any of its Subsidiaries to issue any
Preferred Stock (other than to the Company or a Wholly Owned Subsidiary) or
permit any Person (other than the Company or a Wholly Owned Subsidiary) to own
or hold any interest in any Preferred Stock of any such Subsidiary (other than
Preferred Stock issued prior to the date of this Indenture), unless the
Subsidiary would be permitted to incur Indebtedness pursuant to the provisions
of Section 4.9 hereof in the aggregate principal amount equal to the aggregate
liquidation value of such Preferred Stock.
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SECTION 4.15 LIMITATIONS ON CERTAIN OTHER SUBORDINATED INDEBTEDNESS
The Company shall not create, incur, assume or suffer to exist any
Indebtedness that is subordinate in right of payment to any Senior Indebtedness
unless such Indebtedness by its terms or the terms of the instrument creating or
evidencing such Indebtedness is subordinate in right of payment to, or ranks
pari passu with, the Securities.
SECTION 4.16 LIMITATIONS ON SUBSIDIARIES AND UNRESTRICTED SUBSIDIARIES
The Company may, by written notice to the Trustee, designate any
Subsidiary (including a newly acquired or a newly formed Subsidiary) to be an
Unrestricted Subsidiary; provided, however, that (i) no Default or Event of
Default shall have occurred and be continuing or would arise therefrom, (ii)
such designation, when considered as an Investment as described in the next
sentence, is at that time permitted under the covenant described under Section
4.7 hereof and (iii) immediately after giving effect to such designation, the
Company could incur $1.00 of additional Indebtedness pursuant to clause (a) of
Section 4.9 hereof. For purposes of Section 4.7 hereof, (i) an "Investment"
shall be deemed to have been made at the time any Subsidiary is designated as an
Unrestricted Subsidiary in an amount (proportionate to the Company's percentage
Equity Interest in such Subsidiary) equal to the net worth of such Subsidiary at
the time that such Subsidiary is designated as an Unrestricted Subsidiary; (ii)
at any date the aggregate amount of all Restricted Payments made as Investments
since May 15, 1996 shall exclude and be reduced by an amount (proportionate to
the Company's percentage Equity Interest in such Subsidiary) equal to the net
worth of any Unrestricted Subsidiary from and after the date that such
Unrestricted Subsidiary is designated a Subsidiary, not to exceed, in the case
of any such redesignation of an Unrestricted Subsidiary as a Subsidiary, the
amount of Investments previously made by the Company and its Subsidiaries in
such Unrestricted Subsidiary (in the case of either clauses (i) or (ii) above,
"net worth" to be calculated based upon the fair market value of the assets of
such Subsidiary as of any such date of designation); and (iii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer. As of the date of the original
issuance of the Securities, there shall exist no Unrestricted Subsidiaries.
Notwithstanding the foregoing, the Board of Directors of the
Company may not designate any Subsidiary of the Company to be an Unrestricted
Subsidiary if, after such designation, (a) the Company or any Subsidiary of the
Company provides credit support for, or a guarantee of, any Indebtedness or
other obligation (contingent or otherwise) of such Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness or obligation)
or is otherwise subject to recourse or obligated thereunder or therefor, (b) a
default with respect to any Indebtedness of such Subsidiary (including any right
which the holders thereof may have to take enforcement action against such
Subsidiary) would permit (upon notice, lapse of time or both) any holder of any
other Indebtedness of the Company or any Subsidiary of the Company to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity (whether or not any
such default had occurred or was continuing as of the time of such designation),
(c) such Subsidiary owns any Equity Interests in, or owns or holds any Lien on
any property of, any Subsidiary which is not a Subsidiary of the Subsidiary to
be so designated, (d) such Subsidiary has any contract, arrangement, agreement
or understanding with the Company, or any Subsidiary of the Company, whether
written or oral, other than a transaction having terms no less favorable to the
Company or such Subsidiary of the Company than those which might be obtained at
the time from persons who are not Affiliates of the Company, or (e) the Company
or any Subsidiary of the Company has any obligation to subscribe for any Equity
Interest in such Subsidiary or to maintain or preserve such Subsidiary's
financial condition or to cause such Subsidiary to achieve specified levels of
operating results.
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ARTICLE 5.
SUCCESSORS
SECTION 5.1 LIMITATIONS ON MERGERS AND CONSOLIDATIONS
The Company shall not consolidate or merge with or into, or sell,
lease, convey or otherwise dispose of all or substantially all of its assets, or
assign any of its obligations hereunder or under the Securities, to any Person
unless:
(i) the Person formed by or surviving such consolidation or
merger (if other than the Company), or to which sale, lease,
conveyance or other disposition or assignment shall be made
(collectively, the "Successor"), is a corporation organized
and existing under the laws of the United States or any
State thereof or the District of Columbia, and the Successor
assumes by supplemental indenture in a form satisfactory to
the Trustee all of the obligations of the Company hereunder
and under the Securities;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be
continuing;
(iii) immediately after giving effect to such transaction and the
use of any net proceeds therefrom on a pro forma basis, the
Consolidated Net Worth of the Company or the Successor, as
the case may be, would be at least equal to the Consolidated
Net Worth of the Company immediately prior to such
transaction; and
(iv) the Consolidate Coverage Ratio of the Company or the
Successor, as the case may be, immediately after giving
effect to such transaction, would on a pro forma basis be
such that the Company or the Successor, as the case may be,
would be entitled to incur at least $1 of additional
Indebtedness under the Consolidated Coverage Ratio test in
Section 4.9(a).
The Company shall deliver to the Trustee prior to the consummation
of the proposed transaction an Officers' Certificate to the foregoing effect and
an Opinion of Counsel stating that the proposed transaction and such
supplemental indenture comply with this Indenture.
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED
Upon any consolidation or merger, or any sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company or
any assignment of its obligations under this Indenture or the Securities in
accordance with Section 5.1, the Successor formed by such consolidation or into
or with which the Company is merged or to which such sale, lease, conveyance or
other disposition or assignment is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Indenture
with the same effect as if such Successor has been named as the Company herein
and the predecessor Company, in the case of a sale, lease, conveyance or other
disposition or assignment, shall be released from all obligations under this
Indenture and the Securities.
ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.1 EVENTS OF DEFAULT
An "Event of Default" occurs if:
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(i) the Company defaults in the payment of the principal of, or
any premium on, any Security when the same becomes due and
payable, whether at Stated Maturity, upon redemption, upon
acceleration or otherwise;
(ii) the Company defaults in the payment of interest on any
Security when the same becomes due and payable and the
Default continues for a period of 30 days (even if such
payment is prohibited by Article 10 hereof);
(iii) the Company fails to comply with any of its agreements or
covenants in, or provisions of, the Securities or this
Indenture (other than a default in the performance or breach
of a covenant or agreement specifically addressed in clause
(1) or (2) of this Section) and such failure continues for
the period and after the notice specified below;
(iv) any acceleration of the maturity of Indebtedness of the
Company or its Subsidiaries having in the aggregate an
outstanding principal amount of at least $10.0 million or a
failure to pay such Indebtedness at its Stated Maturity;
provided that such acceleration or failure to pay is not
cured within 10 days after such acceleration or failure to
pay;
(v) the Company or any of its Significant Subsidiaries pursuant
to or within the meaning of any Bankruptcy Law: (A)
commences a voluntary case,
(B) consents to the entry of an order for relief against it in
an involuntary case,
(C) consents to the appointment of a Custodian of it or for all
or substantially all of its property, or
(D) makes a general assignment for the benefit of its
creditors;
(vi) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any of its Significant
Subsidiaries as debtor in an involuntary case,
(B) appoints a Custodian of the Company or any of its
Significant Subsidiaries or a Custodian for all or
substantially all of the property of the Company or any of its
Significant Subsidiaries, or
(C) orders the liquidation of the Company or any of its
Significant Subsidiaries, and the order or decree remains
unstayed and in effect for 60 days.
The term "Custodian" means any receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law.
The Trustee shall not be deemed to know of a Default unless the
corporate trust officer having responsibility for the administration of this
Indenture on behalf of the Trustee has actual knowledge of such Default or
receives written notice of such Default with specific reference to such Default.
A Default under clause (iii) is not an Event of Default until the
Trustee notifies the Company, or the Holders of at least 25% in aggregate
principal amount of the then outstanding Securities notify the Company and the
Trustee, of the Default and the Company does not cure the Default within 45 days
after
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receipt of the notice. The notice must specify the Default, demand that it be
remedied and state that the notice is a "Notice of Default."
SECTION 6.2 ACCELERATION
If an Event of Default (other than an Event of Default with respect
to the Company specified in clause (vi) or (vi) of Section 6.1) occurs and is
continuing, the Trustee by written notice to the Company, or the Holders of at
least 25% in aggregate principal amount of the then outstanding Securities by
written notice to the Company and the Trustee, may declare all Securities to be
due and payable immediately. Upon such declaration the amounts due and payable
on the Securities, as determined in the next succeeding paragraph, shall be due
and payable immediately. If an Event of Default with respect to the Company
specified in clause (vi) or (vi) of Section 6.1 occurs, such an amount shall
ipso facto become and be immediately due and payable without any declaration,
notice or other act on the part of the Trustee or any Holder. The Holders of a
majority in aggregate principal amount of the then outstanding Securities by
written notice to the Trustee may rescind an acceleration and its consequences
if the rescission would not conflict with any judgment or decree and if all
existing Events of Default (except nonpayment of principal of, or premium, if
any, or interest on the Securities or that resulted from a failure to comply
with Section 4.10 in which case a rescission may be effected only by Holders of
an aggregate principal amount of Securities then outstanding greater than or
equal to that aggregate principal amount of Securities which would be necessary
to waive the Default or Event of Default resulting in such acceleration pursuant
to Section 6.4) have been cured or waived.
In the event that the maturity of the Securities is accelerated
pursuant to this Section 6.2, 100% of the principal amount thereof and premium,
if any, shall become due and payable plus accrued interest to the date of
payment plus interest on defaulted interest to the extent provided herein.
SECTION 6.3 OTHER REMEDIES
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of the principal of, or
premium, if any, or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 6.5 WAIVER OF PAST DEFAULTS
The Holders of a majority in aggregate principal amount of the then
outstanding Securities by written notice to the Trustee may waive an existing
Default or Event of Default and its consequences, except a continuing Default or
Event of Default in the payment of the principal of, or premium, if any, or
interest on any Security or in respect of a provision under this Indenture which
cannot be modified or amended without the consent of the Holder of each Security
then outstanding or the Holders of at least 66 2/3% of the aggregate principal
amount of Securities outstanding, as applicable (in which case the consent of
the Holder of each Security then outstanding or the Holders of at least 66 2/3%
of the aggregate principal amount of Securities outstanding, as the case may be,
shall be required to consent to a waiver of such provision). Upon any such
waiver, such Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
Event of Default or impair any right or remedy consequent thereon.
SECTION 6.5 CONTROL BY MAJORITY
The Holders of a majority in aggregate principal amount of the then
outstanding Securities may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising
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any trust or power conferred on it. However, the Trustee may refuse to follow
any direction that conflicts with law or this Indenture, that the Trustee
determines may be unduly prejudicial to the rights of other Holders, or that may
involve the Trustee in personal liability, in each case as determined by the
Trustee.
SECTION 6.6 LIMITATIONS ON SUITS
A Holder may pursue a remedy with respect to this Indenture or the
Securities only if:
(1) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(2) the Holders of at least 25% in aggregate principal amount of
the then outstanding Securities make a written request to the Trustee to pursue
the remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee in its sole discretion against any loss, liability
or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holders of a majority in
aggregate principal amount of the then outstanding Securities do not give the
Trustee a direction inconsistent with the request.
A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over another Holder.
SECTION 6.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Security to receive payment of principal, premium, if any, and
interest on the Security, on or after the respective due dates expressed in the
Security, or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
the Holder.
SECTION 6.8 COLLECTION SUIT BY TRUSTEE
If an Event of Default specified in Section 6.1(i) or (ii) occurs
and is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company for the amount of
principal of, premium, if any, and interest remaining unpaid on the Securities,
determined in accordance with Section 6.2, and interest on overdue principal and
premium, if any, and, to the extent lawful, interest on overdue installments of
interest, and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relative to the Company, its
creditors or its property and shall be entitled and empowered to collect,
receive and distribute any money or other property payable or deliverable on any
such claims and any Custodian in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee, and in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee
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under Section 7.6. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.6 out of the estate in any
such proceeding, shall be denied for any reason, payment of the same shall be
secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties which the Holders of the
Securities may be entitled to receive in such proceeding whether in liquidation
or under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Securities or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding; provided, however, that the Trustee may, on
behalf of the Holders, vote for the election of a trustee (or similar official)
in bankruptcy and may be a member of the creditors' committee.
SECTION 6.10 PRIORITIES
If the Trustee collects any money pursuant to this Article 6, it
shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.6;
Second: to Holders for amounts due and unpaid on the Securities for
principal, premium, if any, and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the Securities
for principal, premium, if any, and interest, respectively; and
Third: to the Company.
The Trustee may fix a record date and payment date for any payment
to Holders pursuant to this Article.
SECTION 6.11 UNDERTAKING FOR COSTS
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.7 or a suit by Holders of more than 10% in principal
amount of the then outstanding Securities.
ARTICLE 7.
TRUSTEE
SECTION 7.1 DUTIES OF TRUSTEE
(1) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in such exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(2) Except during the continuance of an Event of Default:
(a) the Trustee need perform only those duties that are
specifically set forth in this Indenture and no others, and no implied covenants
or obligations shall be read into this Indenture against the Trustee; and
(b) the Trustee shall have no duty to inquire as to the performance
of the Company's covenants herein and in the absence of bad faith on its part,
the Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this Indenture;
however, the Trustee shall
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examine the certificates and opinions to determine whether or not, on their
face, they appear to conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (2) of
this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.5.
(3) Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (1), (2), (3) and (5) of this Section 7.1.
(4) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee may refuse to
perform any duty or exercise any right or power unless it receives indemnity
satisfactory to it against any loss, liability or expense.
(5) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.2 RIGHTS OF TRUSTEE
(1) Subject to Section 7.1, the Trustee may rely on any document
believed by it to be genuine and to have been signed or presented by the proper
Person, and the Trustee need not investigate any fact or matter stated in the
document.
(2) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in reliance
thereon.
(3) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(4) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers conferred upon it by this Indenture.
(5) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or any of
its Affiliates with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights.
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SECTION 7.4 TRUSTEE'S DISCLAIMER
The Trustee makes no representation as to the validity or adequacy
of this Indenture or the Securities or as to the Company's ability to pay the
Securities when and as due or perform its other obligations hereunder. It shall
not be accountable for the Company's use of the proceeds from the Securities or
any money paid to the Company or upon the Company's direction under any
provision hereof. It shall not be responsible for the use or application of any
money received by any Paying Agent other than the Trustee. It shall not be
responsible for any statement or recital herein or any statement in the
Securities other than its certificate of authentication.
SECTION 7.5 NOTICE OF DEFAULTS
If a Default or Event of Default occurs and is continuing and if it
is known to the corporate trust officer having responsibility for the
administration of this Indenture on behalf of the Trustee, the Trustee shall
mail to Holders a notice of the Default or Event of Default within 90 days after
it occurs. Except in the case of a Default or Event of Default in payment of the
principal of, or premium, if any, or interest on any Security or that resulted
from a failure by the Company to comply with Section 4.10, the Trustee may
withhold the notice if it in good faith determines that withholding the notice
is in the interests of Holders.
SECTION 7.6 COMPENSATION AND INDEMNITY
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable disbursements, advances and expenses incurred by it.
Such expenses shall include the reasonable compensation, disbursements and
expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee, its employees, officers,
directors and agents and any predecessor Trustee hereunder against any claim,
demand, loss, liability or expense incurred by it arising out of or in
connection with the acceptance or administration of its duties under this
Indenture or in connection with enforcing this indemnification provision, the
offering and sale of the Securities, any act of negligence or bad faith of the
Company or of any of its officers, employees, agents or licensees, except as set
forth in the next paragraph. The Trustee promptly shall notify the Company of
any claim for which it may seek indemnity. The Company shall defend the claim
and the Trustee shall cooperate in the defense. The Trustee may have separate
counsel and the Company shall pay the reasonable fees and expenses of such
counsel. The Company need not pay for any settlement made without its consent,
which consent shall not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through negligence or bad faith.
To secure the Company's payment obligations in this Section 7.6,
the Trustee shall have a Lien prior to the Securities on all money or property
held or collected by the Trustee, except that held in trust to pay principal of,
premium, if any, and interest on particular Securities. Such Lien shall survive
the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.1(v) or (vi) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The provisions of this Section 7.6 shall survive the resignation or
removal of the Trustee and the termination of this Indenture.
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SECTION 7.7 REPLACEMENT OF TRUSTEE
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign and be discharged from the trust hereby
created by so notifying the Company. The Holders of a majority in principal
amount of the then outstanding Securities may remove the Trustee by so notifying
the Trustee and the Company. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 310(b) of the TIA;
(2) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(3) a Custodian or public officer takes charge of the Trustee or
its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee.
If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of at least 10% in principal amount of the then outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 310 of the TIA, any
Holder may petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, subject to the Lien provided for
in Section 7.6. Notwithstanding replacement of the Trustee pursuant to this
Section 7.7, the Company's obligations under Section 7.6 shall continue for the
benefit of the retiring Trustee.
SECTION 7.8 SUCCESSOR TRUSTEE BY MERGER, ETC.
Subject to Section 7.9, if the Trustee consolidates, merges or
converts into, or transfers all or substantially all of its corporate trust
business to, another corporation, the successor corporation without any further
act shall be the successor Trustee.
SECTION 7.9 ELIGIBILITY; DISQUALIFICATION
There shall at all times be a Trustee hereunder which shall be a
bank or corporation organized and doing business under the laws of the United
States of America, any state thereof or the District of Columbia authorized
under such laws to exercise corporate trustee power, shall be subject to
supervision or examination by Federal or state (or the District of Columbia)
authority and shall have a combined capital and surplus of at least $50 million
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1) and 310(a)(2). The Trustee is subject to TIA
ss. 310(b). If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect specified in Section 7.7.
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ARTICLE 8.
DISCHARGE OF INDENTURE
SECTION 8.1 TERMINATION OF COMPANY'S OBLIGATIONS
(a) This Indenture shall cease to be of further effect (except that
the Company's obligations under Section 7.6 and the Trustee's and Paying Agent's
obligations under Section 8.3 shall survive) when all outstanding Securities
theretofore authenticated and issued have been delivered (other than destroyed,
lost or stolen Securities that have been replaced or paid) to the Trustee for
cancellation and the Company has paid all sums payable hereunder. In addition,
the Company may elect to have either paragraph (b) or paragraph (c) below be
applied to the outstanding Securities upon compliance with the conditions set
forth in paragraph (d).
(b) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (b), the Company shall be deemed to have been
released and discharged from its obligations with respect to the outstanding
Securities on the date the conditions set forth below are satisfied
(hereinafter, "legal defeasance"). For this purpose, such legal defeasance means
that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Securities, which shall thereafter
be deemed to be "outstanding" only for the purposes of the Sections of and
matters under this Indenture referred to in (i) and (ii) below, and to have
satisfied all its other obligations under such Securities and this Indenture
insofar as such Securities are concerned (and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging the same), except for
the following which shall survive until otherwise terminated or discharged
hereunder: (i) the rights of Holders of outstanding Securities to receive solely
from the trust fund described in paragraph (d) below and as more fully set forth
in such paragraph, payments in respect of the principal of, premium, if any, and
interest on such Securities when such payments are due, (ii) the Company's
obligations with respect to such Securities under Sections 2.5, 2.6 and 4.2,
and, with respect to the Trustee, under Section 7.6, (iii) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and (iv) this Section
8.1. Subject to compliance with this Section 8.1, the Company may exercise its
option under this paragraph (b) notwithstanding the prior exercise of its option
under paragraph (c) below with respect to the Securities.
(c) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (c), the Company shall be released and discharged
from its obligations under any covenant contained in Article 5 and in Sections
4.3, 4.4 and 4.6 through 4.16 with respect to the outstanding Securities on and
after the date the conditions set forth below are satisfied (hereinafter,
"covenant defeasance"), and the Securities shall thereafter be deemed to be not
"outstanding" for the purpose of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to the outstanding Securities, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 6.1, but, except as specified above, the remainder of this Indenture and
such Securities shall be unaffected thereby.
(d) The following shall be the conditions to the application of
either paragraph (b) or (c) above to the outstanding Securities:
(1) the Company has irrevocably deposited in trust with the Trustee or,
at the option of the Trustee, with a trustee satisfactory to the Trustee and the
Company under the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee in its sole discretion, money or U.S. Government
Obligations sufficient to pay principal of, premium, if any, and interest on the
Securities to maturity or redemption (in the opinion of a nationally recognized
accounting firm of independent certified public accountants expressed in a
written certificate delivered to the Trustee) and to pay all other sums payable
by it
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hereunder; provided that (i) the trustee of the irrevocable trust shall have
been irrevocably instructed to pay such money or the proceeds of such U.S.
Government Obligations to the Trustee and (ii) the Trustee shall have been
irrevocably instructed to apply such money or the proceeds of such U.S.
Government Obligations to the payment of said principal, premium, if any, and
interest with respect to the Securities;
(2) the Company has delivered to the Trustee an Officer's
Certificate stating that (a) all conditions precedent provided for relating to
either the legal defeasance under paragraph (b) above or the covenant defeasance
under paragraph (c) above, as the case may be, have been complied with and (b)
if any other Indebtedness of the Company shall then be outstanding or committed,
such legal defeasance or covenant defeasance will not violate the provisions of
the agreements or instruments evidencing such Indebtedness;
(3) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit;
(4) the Trustee shall not have received notice from any holder of
Bank Debt or any holder of Senior Indebtedness in an aggregate principal amount
in excess of $20 million that such legal defeasance or covenant defeasance would
violate the provisions of the agreements or instruments evidencing such Senior
Indebtedness;
(5) such legal defeasance or covenant defeasance shall not result
in a breach or violation of, or constitute a default or event of default under,
this Indenture or any other material agreement or instrument to which the
Company is a party or by which it is bound;
(6) in the case of an election under paragraph (b) above, the
Company shall have delivered to the Trustee an Opinion of Counsel from
nationally recognized counsel acceptable to the Trustee stating that (x) the
Company has received from, or there has been published by, the Internal Revenue
Service a ruling, (y) there exists controlling precedent, or (z) since the date
of this Indenture, there has been a change in the applicable Federal income tax
law, in any case to the effect that the Holders of the outstanding Securities
will not recognize income, gain or loss for Federal income tax purposes as a
result of such legal defeasance and will be subject to federal income tax on the
same amount and in the same manner and at the same time as would have been the
case if such legal defeasance had not occurred; and
(7) in the case of an election under paragraph (c) above, the
Company shall have delivered to the Trustee an Opinion of Counsel from
nationally recognized counsel acceptable to the Trustee (i) to the effect that
the Holders of the outstanding Securities will not recognize income, gain or
loss for Federal income tax purposes as a result of such covenant defeasance and
will be subject to Federal income tax on the same amount and in the same manner
and at the same time as would have been the case if such covenant defeasance had
not occurred or (ii) that the Company has received from, or there has been
published by, the Internal Revenue Service a ruling to the foregoing effect.
After such irrevocable deposit made pursuant to this Section 8.1
and satisfaction of the other conditions set forth herein, the Trustee upon
request shall acknowledge in writing the discharge of the Company's obligations
under this Indenture except for those surviving obligations specified above.
The Company may make an irrevocable deposit pursuant to this
Section 8.1 only if at such time it is not prohibited from doing so under the
provisions of Article 10 and the Company shall have delivered to the Trustee and
any Paying Agent an Officers' Certificate to that effect.
In order to have money available on a payment date to pay the
principal of, premium, if any, or interest on the Securities, the U.S.
Government Obligations shall be payable as to principal, premium, if any, or
interest on or before such payment date in such amounts as will provide the
necessary money to effect the applicable defeasance. U.S. Government Obligations
shall not be callable at the issuer's option.
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SECTION 8.2 APPLICATION OF TRUST MONEY
The Trustee or a trustee satisfactory to the Trustee and the
Company shall hold in trust money or U.S. Government Obligations deposited with
it pursuant to Section 8.1. It shall apply the deposited money and the money
from U.S. Government Obligations through the Paying Agent and in accordance with
this Indenture to the payment of principal of, premium, if any, and interest on
the Securities.
SECTION 8.3 REPAYMENT TO THE COMPANY
The Trustee and the Paying Agent shall promptly pay to the Company
upon written request any excess money or securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company at their
option or upon written request any money held by them for the payment of
principal, premium, if any, or interest that remains unclaimed for two years
after the date upon which such payment shall have become due; provided, however,
that the Company shall have either caused notice of such payment to be mailed to
each Holder entitled thereto no less than 30 days prior to such repayment or
within such period shall have published such notice in a financial newspaper of
widespread circulation published in The City of New York. After payment to the
Company, Holders entitled to the money must look to the Company for payment as
general creditors unless an applicable abandoned property law designates another
Person, and all liability of the Trustee and such Paying Agent with respect to
such money shall cease.
SECTION 8.4 REINSTATEMENT
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 8.1 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's obligations under this Indenture and the Securities shall be revived
and reinstated as though no deposit had occurred pursuant to Section 8.1 until
such time as the Trustee or Paying Agent is permitted to apply all such money or
U.S. Government Obligations in accordance with Section 8.1; provided, however,
that if the Company has made any payment of premium, if any, or interest on or
principal of any Securities because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the money or U.S. Government Obligations held by the
Trustee or Paying Agent.
ARTICLE 9.
AMENDMENTS
SECTION 9.1 WITHOUT CONSENT OF HOLDERS
The Company and the Trustee may amend this Indenture or the
Securities or waive any provision hereof without the consent of any Holder:
(1) to comply with Section 5.1;
(2) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities;
(3) to comply with a provision or provisions of the TIA applicable
to this Indenture;
(4) to add to the covenants of the Company for the benefit of the
Holders or an additional Event of Default or to provide for the surrender by the
Company of any right or power conferred upon it hereunder;
(5) to secure the Securities or provide for any Guarantee by a
Subsidiary;
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(6) to provide for the issuance of securities identical in all
material respects to the Rule 144A Notes pursuant to the Exchange Offer; or
(7) to cure any ambiguity, correct or supplement any provision
which may be defective or inconsistent with any other provision contained in
this Indenture, or make any provisions with respect to matters or questions
arising under this Indenture which shall not be inconsistent with the provisions
of this Indenture, provided that such modification or amendment does not
adversely affect the interests of the Holders.
Upon the request of the Company, accompanied by a resolution of the
Board of Directors authorizing the execution of any such supplemental indenture,
and upon receipt by the Trustee of the documents described in Section 9.6, the
Trustee shall join with the Company in the execution of any supplemental
indenture authorized or permitted by the terms of this Indenture and make any
further appropriate agreements and stipulations that may be therein contained,
but the Trustee shall not be obligated to enter into any supplemental indenture
that affects its own rights, duties or immunities under this Indenture or
otherwise. After an amendment or waiver under this Section becomes effective,
the Company shall mail to the Holders of each Security affected thereby a notice
briefly describing the amendment or waiver. Any failure of the Company to mail
such notice, or any defect therein, shall not, however, in any way impair or
affect the validity of any such supplemental indenture.
SECTION 9.2 WITH CONSENT OF HOLDERS
Except as provided in this Section 9.2, the Company and the Trustee
may amend this Indenture or the Securities with the written consent of the
Holders of at least a majority in principal amount of the then outstanding
Securities.
Upon the request of the Company, accompanied by a resolution of the
Board of Directors authorizing the execution of any such supplemental indenture,
and upon the filing with the Trustee of evidence of the consent of the Holders
as aforesaid, and upon receipt by the Trustee of the documents described in
Section 9.6, the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such supplemental indenture.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment or waiver, but
it shall be sufficient if such consent approves the substance thereof.
The Holders of a majority in principal amount of the Securities
then outstanding may waive compliance in a particular instance by the Company
with any provision of this Indenture or the Securities. However, (a) without the
consent of each Holder affected, an amendment or waiver under this Section may
not:
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security;
(2) reduce the principal amount of, or premium, if any, or interest
on, any Security;
(3) change the place of payment where, or the coin or currency in
which, any Security or any premium or interest thereon is payable;
(4) impair the right of Holders to institute suit for the
enforcement of payment of the principal of and premium, if any, and interest on
Securities on or after the Stated Maturity thereof (or in the case of
redemption, on or after the redemption date);
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(5) reduce the percentage in principal amount of Securities, the
consent of whose Holders is required for any modification or amendment of the
Indenture, or the consent of whose Holders is required for any waiver of
compliance with certain provisions of this Indenture or certain Defaults or
Events of Default hereunder and their consequences provided for in this
Indenture; or
(6) modify any of the provisions of Section 6.4 or clause (a) of
this sentence of this Section 9.2, and (b) without the consent of the Holders of
at least 66 2/3% of the aggregate principal amount of the outstanding
Securities, an amendment or waiver may not:
(1) amend, change or modify the provisions of Article Three
relating to the optional redemption of Securities by the
Company in accordance with Section 3.7 hereof;
(2) amend, change or modify the obligations of the Company with
respect to a Change in Control Repurchase pursuant to Section
4.10 hereof or modify any of the provisions or definitions
relating thereto; or
(3) modify or change any provision of Article 10 in a manner
adverse to Holders of the Securities; or
(4) modify any of the provisions of clause (b) of this sentence of
this Section 9.2.
The right of any Holder to participate in any consent required or
sought pursuant to any provision of this Indenture (and the obligation of the
Company to obtain any such consent otherwise required from such Holder) may be
subject to the requirement that such Holder shall have been the Holder of record
of any Securities with respect to which such consent is required or sought as of
a date identified by the Trustee in a notice furnished to Holders in accordance
with the terms of this Indenture.
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT
Every amendment to this Indenture or the Securities shall comply in
form and substance with the TIA as then in effect.
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS
Until an amendment (which includes any supplement) or waiver
becomes effective, a consent to it by a Holder of a Security is a continuing
consent by the Holder and every subsequent Holder of a Security or portion of a
Security that evidences the same debt as the consenting Holder's Security, even
if notation of the consent is not made on any Security. However, any such Holder
may revoke the consent as to his or her Security or portion of a Security if the
Trustee receives written notice of revocation before the date the amendment or
waiver becomes effective. An amendment or waiver becomes effective in accordance
with its terms and thereafter binds every Holder of a Security whether
theretofore or thereafter authenticated and delivered.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment
or waiver. If the Company elects to fix a record date for such purpose, the
record date shall be fixed at (i) the later of 30 days prior to the first
solicitation of such consent or the date of the most recent list of Holders
furnished to the Trustee prior to such solicitation, or (ii) such other date as
the Company shall designate. If a record date is fixed, then notwithstanding the
provisions of the immediately preceding paragraph, those Persons who were
Holders at such record date (or their duly designated proxies), and only those
Persons, shall be entitled to consent to such amendment or waiver or to revoke
any consent previously given, whether or not such Persons continue to be Holders
after such record date. No consent shall be valid or effective for more than 90
days after such record date unless consents from Holders of the principal amount
of Securities required hereunder for such amendment or waiver to be effective
shall have also been given and not revoked within such 90-day period.
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SECTION 9.5 NOTATION ON OR EXCHANGE OF SECURITIES
The Trustee may place an appropriate notation about an amendment or
waiver on any Security thereafter authenticated. The Company in exchange for the
Securities may issue and the Trustee shall authenticate new Securities that
reflect the amendment or waiver.
SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment or supplemental indenture
authorized pursuant to this Article 9 if the amendment does not adversely affect
the rights, duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, but need not, sign it. In signing or refusing to sign such
amendment or supplemental indenture, the Trustee shall be entitled to receive
and, subject to Section 7.1 and 7.2 shall be fully protected in relying upon, an
Officers' Certificate and an Opinion of Counsel as conclusive evidence that such
amendment or supplemental indenture is authorized or permitted by this
Indenture, that it is not inconsistent herewith, and that it will be valid and
binding upon the Company in accordance with its terms.
ARTICLE 10.
SUBORDINATION
SECTION 10.1 SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS
The Company covenants and agrees, and each Holder of a Security, by
his acceptance thereof, likewise covenants and agrees, that, to the extent and
in the manner hereinafter set forth in this Article 10, the indebtedness
represented by the Securities and all Payments or Distributions in Respect of
the Securities are hereby expressly made subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness, whether
outstanding on the date of this Indenture or thereafter incurred.
If at any time following the payment of any amount to a holder of
Senior Indebtedness with respect to such Senior Indebtedness, such payment is
rescinded or must otherwise be returned by such holder upon the insolvency,
bankruptcy, reorganization, dissolution or liquidation of the Company or any
other Person or otherwise, and is so rescinded or returned to the party or
parties making such payment, such Senior Indebtedness shall be reinstated to the
extent of such payment and the provisions of this Article 10 shall be applicable
as if such payment were never made.
The provisions of this Article 10 are for the benefit of the
holders of Senior Indebtedness, and each Holder of the Securities, by his
purchase or other acquisition of the Securities, hereby agrees for the benefit
of each holder of Senior Indebtedness that his Securities are subject to the
provisions of this Article 10.
SECTION 10.2 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 assignment for
the benefit of creditors or any other marshalling 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 (including, without limitation, all
Allowed and Disallowed Post-Commencement Interest and Expenses), or provision
shall be made for such payment in cash or in a manner otherwise satisfactory to
the holders of Senior Indebtedness, before the Holders of the Securities are
entitled to receive any Payment or Distribution in Respect of the Securities
(other than payments of amounts deposited prior to any such case, proceeding,
dissolution or other winding up or event in accordance with the defeasance
provisions of Article 8 hereof), and to that end the holders of Senior
Indebtedness shall be entitled to receive, for application to the payment
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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 Trustee or the Holder of any Security shall have received any
Payment or Distribution in Respect of the Securities in any such case,
proceeding, dissolution, liquidation or other winding up or event (other than
payments of amounts deposited prior to any such case, proceeding, dissolution or
other winding up or event in accordance with the defeasance provisions of
Article 8 hereof), 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 (including, without limitation, all Allowed and Disallowed
Post-Commencement Interest and Expenses) is paid in full or payment thereof
provided for, and, if (i) subject to Section 10.8, such fact shall, at or prior
to the time of such payment or distribution, have been made known to the
Trustee, then and in such event such payment or distribution shall be paid over
or delivered forthwith to the holders of Senior Indebtedness or to a
representative duly appointed by any such holder or holders of Senior
Indebtedness unless otherwise required by law or court order or (ii) such fact
shall have been made known to such Holder at any time before or after such
payment, then and in such event such Holder shall forthwith pay over and deliver
such payment to the holders of Senior Indebtedness or to a representative duly
appointed by any such holder or holders of such Senior Indebtedness unless
otherwise required by law or court order, in either such case for application to
the payment of all Senior Indebtedness remaining unpaid, to the extent necessary
to pay all Senior Indebtedness (including, without limitation, all Allowed and
Disallowed Post-Commencement Interest and Expenses) in full, after giving effect
to any concurrent payment or distribution to or for the holders of Senior
Indebtedness.
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 5
shall not be deemed a dissolution, winding up, liquidation, reorganization,
assignment for the benefit of creditors or marshalling 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 5.
SECTION 10.3 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 in cash, or in a manner otherwise
satisfactory to the holders of Senior Indebtedness, of all amounts due on or in
respect of such Senior Indebtedness (including, without limitation, all Allowed
and Disallowed Post-Commencement Interest and Expenses) before the Holders of
the Securities are entitled to receive any Payment or Distribution in Respect of
the Securities (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), other than payment of amounts previously deposited
in accordance with the defeasance provisions of Article 8 hereof, by or for the
account of the Company.
In the event that, notwithstanding the foregoing, the Company shall
make any Payment or Distribution in Respect of the Securities to the Trustee or
the Holder of any Security prohibited by the foregoing provisions of this
Section, then if (i) subject to Section 10.8, such fact shall, prior to the time
of such payment, have been made known to the Trustee, then and in such event the
Trustee shall forthwith pay over
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and deliver such payment to the holders of such Senior Indebtedness or to a
representative duly appointed by any such holder or holders of such Senior
Indebtedness or (ii) such fact shall have been made known to such Holder at any
time before or after such payment, then and in such event such Holder shall
forthwith pay over and deliver such payment to the holders of Senior
Indebtedness or to a representative duly appointed by any such holder or holders
of such Senior Indebtedness, in either such case for application to the payment
of all Senior Indebtedness then remaining unpaid (including, without limitation,
all Allowed and Disallowed Post-Commencement Interest and Expenses), after
giving effect to any concurrent payment or distribution to or for the benefit of
holders of Senior Indebtedness.
The provisions of this Section shall not apply to any payment with
respect to which Section 10.2 is applicable.
SECTION 10.3 NO PAYMENT UPON CERTAIN DEFAULTS WITH RESPECT TO SENIOR
INDEBTEDNESS
(a) No Payment or Distribution in Respect of the Securities (other
than payments of amounts previously deposited in accordance with the defeasance
provisions of Article 8 hereof) shall be made by or for the account of the
Company or any other Person upon its behalf upon the occurrence of any default
in the payment of principal, premium, if any, interest on or any other amount
due under or with respect to any Bank Debt or any Senior Indebtedness (other
than Bank Debt) in excess of $20 million beyond any applicable grace period,
unless and until such default is cured or waived or ceases to exist or such
Senior Indebtedness has been paid in full or provision for such payment in cash
or in a manner otherwise satisfactory to holders of Senior Indebtedness has been
made.
(b) Upon any default with respect to the financial covenants under
the Credit Agreement as specified therein, or if any payment or distribution by
the Company with respect to any Security would, immediately after giving effect
thereto, result in such default, no Payment or Distribution in Respect of the
Securities (other than payments of amounts previously deposited in accordance
with the defeasance provisions of Article 8 hereof), including any payment which
may be payable by reason of the payment of any other indebtedness being
subordinated to the payment of the Securities, shall be made by or for the
account of the Company on account of principal of or premium, if any, or
interest on the Securities or on account of the purchase, redemption or other
acquisition of the Securities for the period specified below (the "Payment
Blockage Period"). The Payment Blockage Period shall commence upon the receipt
of notice by the Company or the Trustee from the Bank Agent and shall end on the
earlier of (i) 179 days thereafter, (ii) the date on which such default with
respect to the financial covenants under the Credit Agreement is cured or waived
or ceases to exist or on which such Bank Debt is paid in full or provision for
such payment in money or money's worth has been made, (iii) the date on which
the maturity of any Indebtedness (other than Senior Indebtedness) shall have
been accelerated by virtue of such event, or (iv) the date on which such Payment
Blockage Period shall have been terminated by written notice to the Company or
the Trustee from the Bank Agent, after which any and all required payments in
respect of the Securities, including any missed payments, may resume. Only one
Payment Blockage Period may be commenced during any period of 365 consecutive
days. No default with respect to the financial covenants under the Credit
Agreement that existed or was continuing on the date of the commencement of any
Payment Blockage Period will be, or can be, made the basis for the commencement
of a second Payment Blockage Period whether or not within a period of 365
consecutive days, unless such default has been cured or waived for a period of
not less than 90 consecutive days. In no event will a Payment Blockage Period
extend beyond 179 days from the receipt by the Trustee of notice initiating such
Payment Blockage Period and there must be a 186 consecutive day period in any
365 day period during which no Payment Blockage Period is in effect.
(c) In the event that, notwithstanding the foregoing, the Company
shall make any payment to the Trustee or the Holder of any Security prohibited
by the foregoing provisions of this Section, then (i) subject to Section 10.8,
if such fact shall, at or prior to the time of such payment, have been made
known to the Trustee, then and in such event the Trustee shall forthwith pay
over and deliver such payment to the holders of Senior Indebtedness or to a
representative duly appointed by any such holder or holders of such Senior
Indebtedness or (ii) such fact shall have been made known to such Holder at any
time before or after such payment, then and in such event such Holder shall
forthwith pay over and deliver such payment to the holders of Senior
Indebtedness or to a representative duly appointed by any such holder or holders
of such Senior Indebtedness.
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The provisions of this Section shall not apply to any payment with respect to
which Section 10.2 is applicable.
SECTION 10.5 PAYMENT PERMITTED IF NO DEFAULT
Nothing contained in this Article or elsewhere in this Indenture or
in any of the Securities shall prevent (a) the Company, at any time except
during the pendency of any case, proceeding, dissolution, liquidation or other
winding up, assignment for the benefit of creditors or other marshalling of
assets and liabilities of the Company referred to in Section 10.2 or under the
conditions described in Section 10.3 or Section 10.4, from making any Payment or
Distribution in Respect of the Securities, or (b) the application by the Trustee
of any money deposited with it hereunder with respect to any Payment or
Distribution in Respect of the Securities or the retention of such Payment or
Distribution in Respect of the Securities by the Holders, if, at the time of
such application by the Trustee, it had not been notified in accordance with
Section 10.8 that such payment was prohibited by the provisions of this Article
10.
SECTION 10.6 SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS
Subject to the payment in full in cash of all amounts due on or in
respect of Senior Indebtedness (including, without limitation, all Allowed and
Disallowed Post-Commencement Interest and Expenses, except to the extent
provided below), 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 10 (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 are 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 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 or the Trustee
would be entitled except for the provisions of this Article 10, and no payments
over pursuant to the provisions of this Article to the holders of Senior
Indebtedness by Holders of the Securities or the Trustee, shall, as among the
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.
Notwithstanding anything to the contrary in this Section 10.6, the
Holders of the Securities hereby agree that they shall have no rights of
subrogation with respect to amounts paid to the holders of Senior Indebtedness
in payment of any interest, reimbursements, costs, expenses or indemnities that
are not allowed claims enforceable against the Company in a case or proceeding
under Bankruptcy Law.
SECTION 10.7 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS
The provisions of this Article 10 are and are intended solely for
the purpose of defining the relative rights of the Holders of the Securities on
the one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article or elsewhere in this Indenture or in the Securities is
intended to or shall (a) impair, as 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 Trustee or the Holder of any Security
from exercising all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, under this Article 10 of
the holders of Senior Indebtedness to receive cash, property and securities
otherwise payable or deliverable to the Trustee or such Holder. The failure to
make a payment on account of principal of, premium, if any, or interest on, or
any other amounts then payable with respect to, the Securities by any reason of
this Article 10 shall not be construed as preventing the occurrence of an Event
of Default under Section 6.1.
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SECTION 10.8 APPLICATION BY TRUSTEE OF MONIES DEPOSITED WITH IT
Money and U.S. Government Obligations deposited in trust with the
Trustee pursuant to Section 8.2 and in compliance with Section 8.1 shall be for
the sole benefit of the Holders and, to the extent allocated for the payment of
Securities, shall not be subject to the subordination provisions of this Article
10. Otherwise, any deposit of monies by the Company with the Trustee or any
Paying Agent (whether or not in trust) for payment on account of principal of,
premium, if any, and interest on the Securities or that otherwise constitutes a
Payment or Distribution in Respect of the Securities shall be subject to the
provisions of Sections 10.1, 10.2, 10.3 and 10.4 except that, if at least three
Business Days prior to the date on which by the terms of this Indenture any such
monies may become payable for any purpose (including, without limitation, the
payment of the principal of, premium, if any, or the interest on any Security)
the Trustee shall not have received with respect to such monies the notice
provided for in Section 10.4(b) or 10.11, then the Trustee shall have full power
and authority to receive such monies and to apply the same to the purpose for
which they were received, and shall not be affected by any notice to the
contrary which may be received by it within three Business Days of such date.
This Section shall be construed solely for the benefit of the Trustee and Paying
Agent and shall not otherwise affect the rights of holders of Senior
Indebtedness.
SECTION 10.9 TRUSTEE TO EFFECTUATE SUBORDINATION
Each holder of a Security by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes.
SECTION 10.10 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
Indenture, 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 Trustee or 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,
compromise, accelerate, extend or refinance 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, foreclose upon or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii)
release any Person liable in any manner for the payment or collection of Senior
Indebtedness; (iv) exercise or refrain from exercising any rights against the
Company and any other Person; (v) increase or reduce the rate of interest or
amount of principal payable on any Senior Indebtedness; (vi) release or
discharge the Company, by acceptance of a deed or assignment in lieu of
foreclosure or otherwise, as to all or any portion of the Senior Indebtedness;
or (vii) release, substitute or add any one or more guarantors or endorsers,
accept additional or substituted security for payment or performance of the
Senior Indebtedness, or release or subordinate any security therefor. No
exercise, delay in exercise or failure to exercise by any holder of any Senior
Indebtedness of any right hereby given it, no dealing by any holder of any
Senior Indebtedness with the Company or any other guarantor, endorser or other
person, no change, impairment or suspension of any right or remedy of any holder
of any Senior Indebtedness, and no act or thing which but for this provision
could act as a release or exoneration of the Holders of the Securities
hereunder, shall in any way affect, decrease, diminish or impair any of the
obligations of the Holders of the Securities and the Trustee or give to the
Holders of the Securities, the Trustee or any other person or entity any
recourse or defense against any holder of any Senior Indebtedness.
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SECTION 10.11 NOTICE TO TRUSTEE
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities. Notwithstanding the provisions of
this Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Company or a holder of Senior Indebtedness or from any trustee or other
representative therefor; and, prior to the receipt of any such written notice,
the Trustee, subject to the provisions of Sections 7.1 and 7.2, shall be
entitled in all respects to assume that no such facts exist.
Subject to the provisions of Sections 7.1 and 7.2, the Trustee
shall be entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Indebtedness (or a trustee
therefor) to establish that such notice has been given by a holder of Senior
Indebtedness (or a trustee therefor). In the event that the Trustee determines
in good faith that further evidence is required with respect to the right of any
Person as a holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article 10, the Trustee may request such Person to
furnish evidence to the reasonable satisfaction of the Trustee as to the amount
of Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article 10, and if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
SECTION 10.12 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT
Upon any payment or distribution of assets of the Company referred
to in this Article 10, the Trustee, subject to the provisions of Sections 7.1
and 7.2, and the Holders of the Securities shall be entitled to rely upon any
order or decree 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 Trustee or to the Holders of Securities, for the
purpose of ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
10.
SECTION 10.13 TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and shall not be liable to any such holders if it
shall in good faith mistakenly pay over or distribute to Holders of Securities
or to the Company or to any other Person cash, property or securities to which
holders of Senior Indebtedness shall be entitled by virtue of this Article 10 or
otherwise.
SECTION 10.14 RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS; PRESERVATION
OF TRUSTEE'S RIGHTS
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness which
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
Nothing in this Article shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 7.6.
51
<PAGE>
ARTICLE 11.
MISCELLANEOUS
SECTION 11.1 TRUST INDENTURE ACT CONTROLS
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by TIA ss. 318(c), the imposed duties shall control.
SECTION 11.2 NOTICES
Any notice or communication by the Company or the Trustee to the
other is duly given if in writing and delivered in Person or mailed by
first-class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
other's address:
If to the Company:
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: General Counsel
If to the Trustee:
First Union National Bank
901 East Cary Street Second Floor
Richmond, Virginia 23219
Attn: Corporate Trust
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
All notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and the
next Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by
first-class mail to the Holder's address shown on the register kept by the
Registrar. Failure to mail a notice or communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 11.3 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate (which shall include the statements
set forth in Section 11.4) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
52
<PAGE>
(2) an Opinion of Counsel (which shall include the statements set
forth in Section 11.4) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been complied with.
SECTION 11.4 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA ss. 314(a)(4)) shall include:
(1) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been complied with.
SECTION 11.5 RULES BY TRUSTEE AND AGENTS
The Trustee may make reasonable rules for action by or at a meeting
of Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 11.6 LEGAL HOLIDAYS
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in The City of New York or the City of Richmond, Virginia are
authorized or obligated by law, regulation or executive order to remain closed.
If a payment date is a Legal Holiday at a place of payment, payment may be made
at that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
SECTION 11.7 NO RECOURSE AGAINST OTHERS
A director, officer, employee or stockholder of the Company or the
Trustee, as such, shall not have any liability for any obligations of the
Company under the Securities or this Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. Each Holder by
accepting a Security waives and releases all such liability.
SECTION 11.8 GOVERNING LAW
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW.
SECTION 11.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS
This Indenture may not be used to interpret another indenture, loan
or debt agreement of the Company or a Subsidiary. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
53
<PAGE>
SECTION 11.10 SUCCESSORS
All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of the Trustee in this Indenture shall
bind its successor.
SECTION 11.11 SEVERABILITY
In case any provision in this Indenture or in the Securities shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 11.12 COUNTERPART ORIGINALS
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 11.13 TRUSTEE AS PAYING AGENT AND REGISTRAR
The Company initially appoints the Trustee as Paying Agent and
Registrar.
SECTION 11.14 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
[Signatures on Next Page]
54
<PAGE>
Dated as of September 11, 1997
INTEGRATED HEALTH SERVICES, INC.
By: /s/ W. Bradley Bennett
-----------------------------
Name: W. Bradley Bennett
Title: Executive Vice President-
Chief Accounting Officer
Attest:
/s/
- ------------------------------------------
Dated as of September 11, 1997
FIRST UNION NATIONAL BANK,
as Trustee
By:/s/
-----------------------------
Name:
Title:
Attest:
/s/
- ------------------------------------------
55
<PAGE>
EXHIBIT A
LEGENDS FOR GLOBAL SECURITY:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO
THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME
AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN 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 UNDER SUCH LAWS.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH SECURITY PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATED PERSON OF THE
COMPANY WAS THE OWNER OF THIS SECURITY UNLESS SUCH OFFER, SALE OR OTHER TRANSFER
IS (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES
ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON THE HOLDER REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR"
WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (A)(2), (A)(3) OR (A)(7) OF RULE 501
UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR
FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN EACH OF THE FOREGOING CASES SUCH OFFER, SALE OR OTHER TRANSFER IS IN
COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, SUBJECT TO THE COMPANY'S
AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH
OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM PROVIDED FOR IN
THE INDENTURE (A COPY OF WHICH MAY BE OBTAINED FROM THE TRUSTEE) IS COMPLETED
AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON
THE REQUEST OF THE THEN HOLDER OF THIS SECURITY AFTER THE RESALE RESTRICTION
TERMINATION DATE. ANY TRANSFEREE OF THIS SECURITY SHALL BE DEEMED TO HAVE
REPRESENTED EITHER (A) THAT IT IS NOT USING THE ASSETS OF AN EMPLOYEE BENEFIT
PLAN SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT ("ERISA") OR THE
INTERNAL REVENUE CODE (THE "CODE") TO PURCHASE THIS SECURITY OR (B) THAT ITS
PURCHASE AND CONTINUED HOLDING OF THE SECURITY WILL BE COVERED BY A U.S.
DEPARTMENT OF LABOR CLASS EXEMPTION (WITH RESPECT TO PROHIBITED TRANSACTIONS
UNDER SECTION 406(A) OF ERISA).
<PAGE>
LEGENDS FOR DEFINITIVE SECURITY:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN 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 UNDER SUCH LAWS.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATED PERSON OF THE
COMPANY WAS THE OWNER OF THIS SECURITY UNLESS SUCH OFFER, SALE OR OTHER TRANSFER
IS (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES
ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON THE HOLDER REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR"
WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (A)(2), (A)(3) OR (A)(7) OF RULE 501
UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR
FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN EACH OF THE FOREGOING CASES SUCH OFFER, SALE OR OTHER TRANSFER IS IN
COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, SUBJECT TO THE COMPANY'S
AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH
OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM PROVIDED FOR IN
THE INDENTURE (A COPY OF WHICH MAY BE OBTAINED FROM THE TRUSTEE) IS COMPLETED
AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON
THE REQUEST OF THE THEN HOLDER OF THIS SECURITY AFTER THE RESALE RESTRICTION
TERMINATION DATE. ANY TRANSFEREE OF THIS SECURITY SHALL BE DEEMED TO HAVE
REPRESENTED EITHER (A) THAT IT IS NOT USING THE ASSETS OF AN EMPLOYEE BENEFIT
PLAN SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT ("ERISA") OR THE
INTERNAL REVENUE CODE (THE "CODE") TO PURCHASE THIS SECURITY OR (B) THAT ITS
PURCHASE AND CONTINUED HOLDING OF THE SECURITY WILL BE COVERED BY A U.S.
DEPARTMENT OF LABOR CLASS EXEMPTION (WITH RESPECT TO PROHIBITED TRANSACTIONS
UNDER SECTION 406(A) OF ERISA).
A-2
<PAGE>
9 1/4% SENIOR SUBORDINATED NOTES DUE 2008
Cusip No. $
INTEGRATED HEALTH SERVICES, INC.
promises to pay to
or registered assigns,
the principal sum of
Dollars [or such greater or lesser amount as indicated on the Schedule of
Exchanges of Definitive Securities on the reverse hereof]1 on January 15, 2008.
Interest Payment Dates: January 15 and July 15
Record Dates: December 31 and June 30
Authentication: Dated: , 1997
This is one of the Securities referred
to in the within-mentioned Indenture.
FIRST UNION NATIONAL BANK,
as Trustee INTEGRATED HEALTH SERVICES, INC.
By: By:
--------------------- -----------------------------
Authorized Officer
By:
-----------------------------
(SEAL)
- ------------------------
1 This phrase should be included only if the Security is issued in global
form.
A-3
<PAGE>
9 1/4% SENIOR SUBORDINATED NOTES DUE 2008
1. INTEREST. INTEGRATED HEALTH SERVICES, INC., a Delaware
corporation (the "Company"), promises to pay interest on the principal amount of
this Security at 9 1/4% per annum from the date this Security is issued until
maturity. The Company will pay interest semiannually on January 15 and July 15
of each year, or if any such day is not a Business Day, on the next succeeding
Business Day (each an "Interest Payment Date") and any Penalty Interest payable
pursuant to Section 6 of the Registration Rights Agreement on such Interest
Payment Date. Interest on the Securities will accrue from the most recent date
on which interest has been paid or, if no interest has been paid, from the date
of issuance; provided, that if there is no existing Default in the payment of
interest, and if this Security is authenticated between a record date referred
to on the face hereof and the next succeeding Interest Payment Date, interest
shall accrue from such next succeeding Interest Payment Date; provided, further,
that the first Interest Payment Date shall be January 15, 1998. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the
Securities (except defaulted interest) to the Persons who are registered Holders
of Securities at the close of business on the record date next preceding the
Interest Payment Date, even if such Securities are canceled after such record
date and on or before such Interest Payment Date. In the case of a Security to
be repurchased by the Company in connection with a Change in Control Repurchase
pursuant to paragraph 6, on or after an interest payment record date and prior
to the next Interest Payment Date, the registered holder of such Security as of
such record date shall be entitled to accrued and unpaid interest to the
repurchase date, as provided in paragraph 6 below. The Holder must surrender
this Security to a Paying Agent to collect principal payments. The Company will
pay the principal of, premium, if any, and interest on the Securities in money
of the United States of America that at the time of payment is legal tender for
payment of public and private debts. Such amounts will be payable (i) in respect
of Securities in book-entry form held of record by the Depository Trust Company
("DTC") or its nominee, in same day funds on or prior to the payment dates with
respect to such amounts and (ii) in respect of Securities issued in certificated
form, at the office of the Trustee, and the Securities may be presented for
registration of transfer or exchange, at the offices of the Trustee. The
Company, however, may pay such amounts in respect of the Securities issued in
certificated form by check payable in such money mailed to a Holder's registered
address.
3. PAYING AGENT AND REGISTRAR. Initially, FIRST UNION NATIONAL
BANK, the Trustee under the Indenture, will act as Paying Agent and Registrar.
The Company may change any Paying Agent, Registrar or co-registrar without
notice to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. INDENTURE. The Company issued the Securities under an Indenture
dated as of September 11, 1997 ("Indenture") between the Company and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code ss.ss. 77aaa-77bbbb), as in effect on the date of
execution of the Indenture. The Securities are subject to all such terms, and
Holders are referred to the Indenture and such Act for a statement of such
terms. The Securities are unsecured general obligations of the Company limited
to $500,000,000 in aggregate principal amount, plus amounts, if any, sufficient
to pay interest on outstanding Securities as set forth in Paragraph 2 hereof.
The Securities will rank pari passu with the Exchange Notes, the Company's
10-1/4% Senior Subordinated Notes due 2006, the Company's 9-5/8% Senior
Subordinated Notes due 2002, Series A, the Company's 10-3/4% Senior Subordinated
Notes due 2004 and the Company's 9-1/2% Senior Subordinated Notes due 2007.
5. OPTIONAL REDEMPTION. The Company may redeem all or any of the
Securities at any time on or after January 15, 2003 at the following redemption
prices (expressed as percentages of principal amount), plus accrued and unpaid
interest to the redemption date:
A-4
<PAGE>
IF REDEEMED DURING
THE 12-MONTH PERIOD COMMENCING REDEMPTION PRICE
------------------------------ ----------------
January 15, 2003 104.625%
January 15, 2004 103.083%
January 15, 2005 101.542%
January 15, 2006 and thereafter 100%
Notwithstanding the foregoing, the Company may redeem in the
aggregate up to $166,667,000 principal amount of Securities at any time and from
time to time prior to January 15, 2001 at a redemption price equal to 109.25% of
the aggregate principal amount so redeemed, plus accrued interest to the
redemption date, out of the net cash proceeds of one or more Public Equity
Offerings; provided that at least $333,333,000 aggregate principal amount of
Securities originally issued remains outstanding after the occurrence of any
such redemption and that any such redemption occurs within 60 days following the
closing of any such Public Equity Offering.
6. RIGHT TO REQUIRE REPURCHASE. Following the occurrence of any
Change in Control, each Holder will have the right to require that the Company
repurchase (a "Change in Control Repurchase") such Holder's Securities at a
purchase price equal to 101% of the aggregate principal amount of the
Securities, plus accrued and unpaid interest thereon, if any, to the date of
repurchase. Within 30 days after any Change in Control, the Company or, at the
Company's request, the Trustee, shall cause to be mailed a notice to all Holders
notifying such Holders of the occurrence of such Change in Control, the Holder's
rights arising as a result thereof and the procedures to be followed by Holders
wishing to exercise such rights.
A Holder of Securities may exercise the right to require a Change
in Control Repurchase after receipt of notice of the existence of such right by
completing the form entitled "OPTION OF HOLDER TO ELECT PURCHASE" appearing on
this Security and by complying with the other procedures set forth in such
notice. Any portion of Securities with respect to which the Holder wishes to
exercise such right must be in integral multiples of $1,000.
7. MANDATORY OFFER TO REPURCHASE. If the Company consummates an
Asset Sale (as such term is defined in the Indenture), the Company may, under
certain circumstances, be required to utilize a portion of the net proceeds
received from such Asset Sale to offer to purchase Securities at a purchase
price equal to 100% of the aggregate principal amount of the Securities, plus
accrued interest to the date fixed for redemption (the "Asset Sale Offer").
Holders of Securities that are the subject of an offer to purchase will receive
an Asset Sale Offer from the Company or the Trustee. The Asset Sale Offer shall
remain open for a period of 30 days after its commencement unless a longer
offering period is required by law (the "Asset Sale Offer Period"). On or prior
to the fifth Business Day following the termination of the Asset Sale Offer
Period (the "Asset Sale Payment Date"), the Company shall purchase, or cause the
Trustee to purchase, and mail or deliver payment for the amount of Securities
required to be purchased pursuant to the Asset Sale Offer or, if less than the
amount of Securities required to be purchased pursuant to the Asset Sale Offer
has been tendered, all Securities tendered in response to the Asset Sale Offer.
A Holder of Securities may tender or refrain from tendering all or
any portion of his Securities at his discretion by completing the form entitled
"OPTION OF HOLDER TO ELECT PURCHASE" appearing on this Security. Any portion of
Securities tendered must be in integral multiples of $1,000.
8. NOTICE OF REDEMPTION. Notice of Redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder of Securities to be redeemed at his registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Securities held by a Holder are to be
redeemed. On and after the redemption date interest will cease to accrue on
Securities or portions thereof called for redemption (unless the Company
defaults on its obligation to repurchase Securities).
A-5
<PAGE>
9. SUBORDINATION. The indebtedness evidenced by this Security is,
to the extent provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness (as defined in
the Indenture), and this Security is issued subject to the provisions of the
Indenture with respect thereto. Each Holder of this Security, by accepting the
same, (a) agrees to and shall be bound by such provisions, (b) authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination so provided, and (c) appoints the
Trustee his attorney-in-fact for any and all such purposes.
10. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered and Securities
may be exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture.
11. PERSONS DEEMED OWNERS. The registered Holder of a Security may
be treated as its owner for all purposes.
12. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the
Indenture or the Securities may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the Securities then
outstanding, and any existing default under, or compliance with any provision
of, the Indenture may be waived (other than any continuing Default or Event of
Default in the payment of interest or premium, if any, on or the principal of
the Securities or in respect of a provision under the Indenture which cannot be
modified or amended without the consent of the Holder of each Security then
outstanding or the Holders of at least 66 2/3% of the aggregate principal amount
of Securities outstanding, as applicable (in which case the consent of the
Holder of each Security then outstanding or the Holders of at least 66 2/3% of
the aggregate principal amount of Securities outstanding, as the case may be,
shall be required to consent to a waiver of such provision)) with the consent of
the Holders of a majority in principal amount of the Securities then
outstanding. Without the consent of any Holder, the Company and the Trustee may
amend or supplement the Indenture or the Securities to provide for the
assumption of the Company's obligations to Holders in the case of a merger or
acquisition; to evidence and provide for the acceptance of appointment of any
successor Trustee under the Indenture; to comply with the requirements of the
Trust Indenture Act of 1939, as amended; to add to the covenants of the Company
for the benefit of the Holders or an additional Event of Default or to provide
for the surrender by the Company of any right or power conferred upon it under
the Indenture; secure the Securities or provide for any Guarantee by a
Subsidiary; to provide for the issuance of securities identical in all material
respects to the Securities pursuant to the Exchange Offer; or to cure any
ambiguity, correct or supplement any provision which may be defective or
inconsistent with any other provision in the Indenture, or make any provisions
with respect to matters or questions arising under the Indenture which shall not
be inconsistent with the provisions of the Indenture, provided that such
modification or amendment does not adversely affect the interests of the
holders.
The right of any Holder to participate in any consent required or
sought pursuant to any provision of the Indenture (and the obligation of the
Company to obtain any such consent otherwise required from such Holder) may be
subject to the requirement that such Holder shall have been the Holder of record
of any Securities with respect to which such consent is required or sought as of
a date identified by the Trustee in a notice furnished to Holders in accordance
with the terms of the Indenture.
Without the consent of each Holder affected, the Company may not,
among other things, (i) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, (ii) reduce the principal amount of,
or premium, if any, or interest on, any Security, (iii) change the place of
payment where, or the coin or currency in which, any Security or any premium or
interest thereon is payable, (iv) impair the right of a Holder to institute suit
for the enforcement of payment of the principal of and premium, if any, and
interest on any Security on or after the Stated Maturity thereof (or in the case
of a redemption, on or after the redemption date) or (v) reduce the percentage
in principal amount of Securities the consent of whose Holders is required for
any modification or amendment of the Indenture, or the consent of whose Holders
is required for any waiver of compliance with certain provisions of the
Indenture or certain Defaults or Events of Default thereunder.
A-6
<PAGE>
Without the consent of at least 66 2/3% of the aggregate principal
amount of outstanding Securities, the Company may not (i) amend, change or
modify the provisions of Article Three of the Indenture relating to the optional
redemption of the Securities by the Company in accordance with Section 3.7
thereof, (ii) amend, change or modify the obligations of the Company with
respect to a Change in Control Repurchase pursuant to Section 4.10 of the
Indenture or modify any of the provisions or definitions relating thereto or
(iii) modify or change any provision of the Indenture affecting the
subordination or ranking of the Securities in a manner adverse to Holders of the
Securities.
13. DEFAULTS AND REMEDIES. Events of Default include: (i) default
in payment of principal or premium on the Securities; (ii) default in payment of
interest on the Securities for 30 days; (iii) failure by the Company for 45 days
after notice to it to comply with any of its other agreements in the Indenture
or the Securities; (iv) any acceleration of Indebtedness of the Company or its
Subsidiaries having an outstanding principal amount of $10 million in the
aggregate or a failure to pay such Indebtedness at its stated maturity if such
acceleration or failure to pay is not cured within 10 days of such acceleration
or failure to pay; and (v) certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in aggregate principal amount of the then outstanding Securities may
declare all the Securities to be immediately due and payable for an amount equal
to 100% of the principal amount of the Securities, and premium, if any, plus
accrued interest to the date of payment, except that in the case of an Event of
Default arising from certain events of bankruptcy or insolvency, all outstanding
Securities become due and payable immediately without further action or notice.
Holders may not enforce the Indenture or the Securities except as provided in
the Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Securities. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Securities may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders notice of any continuing default (except a default in
payment of principal or interest or that resulted from the failure of the
Company to comply with its obligations with respect to Holders' rights to
require repurchase of Securities upon a Change in Control) if it determines that
withholding notice is in their interests. The Company must furnish an annual
compliance certificate to the Trustee.
14. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not Trustee.
15. NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Holder by accepting a Security waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Securities.
16. ERISA MATTERS. Each Holder of Securities, by its acceptance
thereof, will be deemed to certify that (i) no part of the funds used by such
Holder to purchase the Securities constitutes assets of an employee benefit plan
or (ii) the acquisition and continued holding of the Securities will be covered
by a U.S. Department of Labor class exemption (with respect to prohibited
transactions set forth under Section 406(a) of ERISA).
17. AUTHENTICATION. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
18. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (--tenants in common), TEN ENT
(--tenants by the entireties), JT TEN (--joint tenants with right of
survivorship and not as tenants in common), CUST (--Custodian), and U/G/M/A
(--Uniform Gifts to Minors Act).
A-7
<PAGE>
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Request may be made to:
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Secretary
A-8
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign
and transfer this Security to
- ----------------------------------------------------------------
(Insert assignee's Soc. Sec. or Tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________ to transfer
this Security on the books of the Company. The agent may substitute another to
act for him.
Date:
---------------------
Your Signature:
---------------------------------------------
(Sign exactly as your name appears on the face
of this Security)
Signature Guarantee:
----------------------------
A-9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 3.8 or 4.10 of the Indenture, check the appropriate box:
[ ] Section 3.8 [ ] Section 4.10
If you want to elect to have only part of the Security purchased by
the Company pursuant to Section 3.8 or 4.10 of the Indenture, state the amount
you elect to have purchased:
$
-----------------------------------
Date:
---------------------------------
Your Signature:
-----------------------------------------
(Sign exactly as your name appears on the
face of this Security)
Signature Guarantee:
--------------------
A-10
<PAGE>
[FORM OF SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITIES2]
The following exchanges of a part of this Global Security for Definitive
Securities have been made.
<TABLE>
<CAPTION>
Amount of decrease Amount of increase Principal Amount of
in Principal in Principal this Global Security Signature of
Date of Amount of this Amount of this following such authorized officer
Exchange Global Security Global Security decrease (or increase) of Trustee
---------- ------------------ ----------------- ---------------------- ------------------
<S> <C>
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
</TABLE>
- ------------------------
2 This schedule should be included only if the Security is issued in global
form.
A-11
<PAGE>
EXHIBIT B
LEGEND FOR GLOBAL SECURITY:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO
THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME
AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
<PAGE>
9 1/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
Cusip No. $
INTEGRATED HEALTH SERVICES, INC.
promises to pay to
or registered assigns,
the principal sum of
Dollars [or such greater or lesser amount as indicated on the Schedule of
Exchanges of Definitive Securities on the reverse hereof]* on January 15, 2008
Interest Payment Dates: January 15 and July 15
Record Dates: December 31 and June 30
Authentication: Dated: , 1997
This is one of the Securities referred to in the within-mentioned Indenture.
FIRST UNION NATIONAL BANK,
as Trustee INTEGRATED HEALTH SERVICES, INC.
By: By:
------------------------- ---------------------------------
Authorized Officer
By:
---------------------------------
(SEAL)
- ------------------------
* This phrase should be included only if the Security is issued in global
form.
B-2
<PAGE>
9 1/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
1. INTEREST. INTEGRATED HEALTH SERVICES, INC., a Delaware
corporation (the "Company"), promises to pay interest on the principal amount of
this Security (which has been exchanged for one of the Company's 9 1/4% Senior
Subordinated Notes due 2008 (the "Rule 144A Notes") at 9 1/4% per annum from the
date this Security is issued until maturity. The Company will pay interest
semiannually on January 15 and July 15 of each year, or if any such day is not a
Business Day, on the next succeeding Business Day (each an "Interest Payment
Date"). Interest on the Securities will accrue from the most recent date on
which interest has been paid or, if no interest has been paid, from the most
recent date on which interest was paid on the Rule 144A Notes or, if no interest
was paid on the Rule 144A Notes, from the date of original issuance of the Rule
144A Notes; provided, that if there is no existing Default in the payment of
interest, and if this Security is authenticated between a record date referred
to on the face hereof and the next succeeding Interest Payment Date, interest
shall accrue from such next succeeding Interest Payment Date; provided, further,
that the first Interest Payment Date shall be January 15, 1998. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the
Securities (except defaulted interest) to the Persons who are registered Holders
of Securities at the close of business on the record date next preceding the
Interest Payment Date, even if such Securities are canceled after such record
date and on or before such Interest Payment Date. In the case of a Security to
be repurchased by the Company in connection with a Change in Control Repurchase
pursuant to paragraph 6, on or after an interest payment record date and prior
to the next Interest Payment Date, the registered holder of such Security as of
such record date shall be entitled to accrued and unpaid interest to the
repurchase date, as provided in paragraph 6 below. The Holder must surrender
this Security to a Paying Agent to collect principal payments. The Company will
pay the principal of, premium, if any, and interest on the Securities in money
of the United States of America that at the time of payment is legal tender for
payment of public and private debts. Such amounts will be payable (i) in respect
of Securities in book-entry form held of record by the Depository Trust Company
("DTC") or its nominee, in same day funds on or prior to the payment dates with
respect to such amounts and (ii) in respect of Securities issued in certificated
form, at the office of the Trustee, and the Securities may be presented for
registration of transfer or exchange, at the offices of the Trustee. The
Company, however, may pay such amounts in respect of the Securities issued in
certificated form by check payable in such money mailed to a Holder's registered
address.
3. PAYING AGENT AND REGISTRAR. Initially, FIRST UNION NATIONAL
BANK, the Trustee under the Indenture, will act as Paying Agent and Registrar.
The Company may change any Paying Agent, Registrar or co-registrar without
notice to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. INDENTURE. The Company issued the Securities under an Indenture
dated as of September 11, 1997 ("Indenture") between the Company and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code ss.ss. 77aaa-77bbbb), as in effect on the date of
execution of the Indenture. The Securities are subject to all such terms, and
Holders are referred to the Indenture and such Act for a statement of such
terms. The Securities are unsecured general obligations of the Company limited
to $500,000,000 in aggregate principal amount, plus amounts, if any, sufficient
to pay interest on outstanding Securities as set forth in Paragraph 2 hereof.
The Securities will rank pari passu with the Rule 144A Notes, the Company's
10-1/4% Senior Subordinated Notes due 2006, the Company's 9-5/8% Senior
Subordinated Notes due 2002, Series A, the Company's 10-1/4% Senior Subordinated
Notes due 2004 and the Company's 9-1/2% Senior Subordinated Notes due 2007.
5. OPTIONAL REDEMPTION. The Company may redeem all or any of the
Securities at any time on or after January 15, 2003 at the following redemption
prices (expressed as percentages of principal amount), plus accrued and unpaid
interest to the redemption date:
B-3
<PAGE>
IF REDEEMED DURING
THE 12-MONTH PERIOD COMMENCING REDEMPTION PRICE
------------------------------ ----------------
January 15, 2003 104.625%
January 15, 2004 103.083%
January 15, 2005 101.542%
January 15, 2006 and thereafter 100%
Notwithstanding the foregoing, the Company may redeem in the
aggregate up to $166,667,000 principal amount of Securities at any time and from
time to time prior to January 15, 2001 at a redemption price equal to 109.25% of
the aggregate principal amount so redeemed, plus accrued interest to the
redemption date, out of the net cash proceeds of one or more Public Equity
Offerings; provided that at least $333,333,000 aggregate principal amount of
Securities originally issued remains outstanding after the occurrence of any
such redemption and that any such redemption occurs within 60 days following the
closing of any such Public Equity Offering.
6. RIGHT TO REQUIRE REPURCHASE. Following the occurrence of any
Change in Control, each Holder will have the right to require that the Company
repurchase (a "Change in Control Repurchase") such Holder's Securities at a
purchase price equal to 101% of the aggregate principal amount of the
Securities, plus accrued and unpaid interest thereon, if any, to the date of
repurchase. Within 30 days after any Change in Control, the Company or, at the
Company's request, the Trustee, shall cause to be mailed a notice to all Holders
notifying such Holders of the occurrence of such Change in Control, the Holder's
rights arising as a result thereof and the procedures to be followed by Holders
wishing to exercise such rights.
A Holder of Securities may exercise the right to require a Change
in Control Repurchase after receipt of notice of the existence of such right by
completing the form entitled "OPTION OF HOLDER TO ELECT PURCHASE" appearing on
this Security and by complying with the other procedures set forth in such
notice. Any portion of Securities with respect to which the Holder wishes to
exercise such right must be in integral multiples of $1,000.
7. MANDATORY OFFER TO REPURCHASE. If the Company consummates an
Asset Sale (as such term is defined in the Indenture), the Company may, under
certain circumstances, be required to utilize a portion of the net proceeds
received from such Asset Sale to offer to purchase Securities at a purchase
price equal to 100% of the aggregate principal amount of the Securities, plus
accrued interest to the date fixed for redemption (the "Asset Sale Offer").
Holders of Securities that are the subject of an offer to purchase will receive
an Asset Sale Offer from the Company or the Trustee. The Asset Sale Offer shall
remain open for a period of 30 days after its commencement unless a longer
offering period is required by law (the "Asset Sale Offer Period"). On or prior
to the fifth Business Day following the termination of the Asset Sale Offer
Period (the "Asset Sale Payment Date"), the Company shall purchase, or cause the
Trustee to purchase, and mail or deliver payment for the amount of Securities
required to be purchased pursuant to the Asset Sale Offer or, if less than the
amount of Securities required to be purchased pursuant to the Asset Sale Offer
has been tendered, all Securities tendered in response to the Asset Sale Offer.
A Holder of Securities may tender or refrain from tendering all or
any portion of his Securities at his discretion by completing the form entitled
"OPTION OF HOLDER TO ELECT PURCHASE" appearing on this Security. Any portion of
Securities tendered must be in integral multiples of $1,000.
8. NOTICE OF REDEMPTION. Notice of Redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder of Securities to be redeemed at his registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Securities held by a Holder are to be
redeemed. On and after the redemption date interest will cease to accrue on
Securities or portions thereof called for redemption (unless the Company
defaults on its obligation to repurchase Securities).
B-4
<PAGE>
9. SUBORDINATION. The indebtedness evidenced by this Security is,
to the extent provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness (as defined in
the Indenture), and this Security is issued subject to the provisions of the
Indenture with respect thereto. Each Holder of this Security, by accepting the
same, (a) agrees to and shall be bound by such provisions, (b) authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination so provided, and (c) appoints the
Trustee his attorney-in-fact for any and all such purposes.
10. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered and Securities
may be exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture.
11. PERSONS DEEMED OWNERS. The registered Holder of a Security may
be treated as its owner for all purposes.
12. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the
Indenture or the Securities may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the Securities then
outstanding, and any existing default under, or compliance with any provision
of, the Indenture may be waived (other than any continuing Default or Event of
Default in the payment of interest or premium, if any, on or the principal of
the Securities or in respect of a provision under the Indenture which cannot be
modified or amended without the consent of the Holder of each Security then
outstanding or the Holders of at least 66 2/3% of the aggregate principal amount
of Securities outstanding, as applicable (in which case the consent of the
Holder of each Security then outstanding or the Holders of at least 66 2/3% of
the aggregate principal amount of Securities outstanding, as the case may be,
shall be required to consent to a waiver of such provision)) with the consent of
the Holders of a majority in principal amount of the Securities then
outstanding. Without the consent of any Holder, the Company and the Trustee may
amend or supplement the Indenture or the Securities to provide for the
assumption of the Company's obligations to Holders in the case of a merger or
acquisition; to evidence and provide for the acceptance of appointment of any
successor Trustee under the Indenture; to comply with the requirements of the
Trust Indenture Act of 1939, as amended; to add to the covenants of the Company
for the benefit of the Holders or an additional Event of Default or to provide
for the surrender by the Company of any right or power conferred upon it under
the Indenture; secure the Securities or provide for any Guarantee by a
Subsidiary; to provide for the issuance of securities identical in all material
respects to the Securities pursuant to the Exchange Offer; or to cure any
ambiguity, correct or supplement any provision which may be defective or
inconsistent with any other provision in the Indenture, or make any provisions
with respect to matters or questions arising under the Indenture which shall not
be inconsistent with the provisions of the Indenture, provided that such
modification or amendment does not adversely affect the interests of the
holders.
The right of any Holder to participate in any consent required or
sought pursuant to any provision of the Indenture (and the obligation of the
Company to obtain any such consent otherwise required from such Holder) may be
subject to the requirement that such Holder shall have been the Holder of record
of any Securities with respect to which such consent is required or sought as of
a date identified by the Trustee in a notice furnished to Holders in accordance
with the terms of the Indenture.
Without the consent of each Holder affected, the Company may not,
among other things, (i) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, (ii) reduce the principal amount of,
or premium, if any, or interest on, any Security, (iii) change the place of
payment where, or the coin or currency in which, any Security or any premium or
interest thereon is payable, (iv) impair the right of a Holder to institute suit
for the enforcement of payment of the principal of and premium, if any, and
interest on any Security on or after the Stated Maturity thereof (or in the case
of a redemption, on or after the redemption date) or (v) reduce the percentage
in principal amount of Securities the consent of whose Holders is required for
any modification or amendment of the Indenture, or the consent of whose Holders
is required for any waiver of compliance with certain provisions of the
Indenture or certain Defaults or Events of Default thereunder.
B-5
<PAGE>
Without the consent of at least 66 2/3% of the aggregate principal
amount of outstanding Securities, the Company may not (i) amend, change or
modify the provisions of Article Three of the Indenture relating to the optional
redemption of the Securities by the Company in accordance with Section 3.7
thereof, (ii) amend, change or modify the obligations of the Company with
respect to a Change in Control Repurchase pursuant to Section 4.10 of the
Indenture or modify any of the provisions or definitions relating thereto or
(iii) modify or change any provision of the Indenture affecting the
subordination or ranking of the Securities in a manner adverse to Holders of the
Securities.
13. DEFAULTS AND REMEDIES. Events of Default include: (i) default
in payment of principal or premium on the Securities; (ii) default in payment of
interest on the Securities for 30 days; (iii) failure by the Company for 45 days
after notice to it to comply with any of its other agreements in the Indenture
or the Securities; (iv) any acceleration of Indebtedness of the Company or its
Subsidiaries having an outstanding principal amount of $10 million in the
aggregate or a failure to pay such Indebtedness at its stated maturity if such
acceleration or failure to pay is not cured within 10 days of such acceleration
or failure to pay; and (v) certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in aggregate principal amount of the then outstanding Securities may
declare all the Securities to be immediately due and payable for an amount equal
to 100% of the principal amount of the Securities, and premium, if any, plus
accrued interest to the date of payment, except that in the case of an Event of
Default arising from certain events of bankruptcy or insolvency, all outstanding
Securities become due and payable immediately without further action or notice.
Holders may not enforce the Indenture or the Securities except as provided in
the Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Securities. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Securities may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders notice of any continuing default (except a default in
payment of principal or interest or that resulted from the failure of the
Company to comply with its obligations with respect to Holders' rights to
require repurchase of Securities upon a Change in Control) if it determines that
withholding notice is in their interests. The Company must furnish an annual
compliance certificate to the Trustee.
14. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not Trustee.
15. NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Holder by accepting a Security waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Securities.
16. ERISA MATTERS. Each Holder of Securities, by its acceptance
thereof, will be deemed to certify that (i) no part of the funds used by such
Holder to purchase the Securities constitutes assets of an employee benefit plan
or (ii) the acquisition and continued holding of the Securities will be covered
by a U.S. Department of Labor class exemption (with respect to prohibited
transactions set forth under Section 406(a) of ERISA).
17. AUTHENTICATION. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
18. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (--tenants in common), TEN ENT
(--tenants by the entireties), JT TEN (--joint tenants with right of
survivorship and not as tenants in common), CUST (--Custodian), and U/G/M/A
(--Uniform Gifts to Minors Act).
B-6
<PAGE>
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Request may be made to:
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Secretary
B-7
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign
and transfer this Security to
- ---------------------------------------------------------------
(Insert assignee's Soc. Sec. or Tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________ to transfer
this Security on the books of the Company. The agent may substitute another to
act for him.
Date:
--------------------
Your Signature:
------------------------------------------
(Sign exactly as your name appears on the
face of this Security)
Signature Guarantee:
----------------------------
B-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 3.8 or 4.10 of the Indenture, check the appropriate box:
[ ] Section 3.8 [ ] Section 4.10
If you want to elect to have only part of the Security purchased by
the Company pursuant to Section 3.8 or 4.10 of the Indenture, state the amount
you elect to have purchased:
$-------------------------
Date:
--------------------
Your Signature:
--------------------------------------
(Sign exactly as your name appears on the
face of this Security)
Signature Guarantee:
--------------------
B-9
<PAGE>
[FORM OF SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITIES*]
The following exchanges of a part of this Global Security for Definitive
Securities have been made.
<TABLE>
<CAPTION>
Amount of Amount of Principal Amount of
decrease in increase in this Global Security
Principal Amount Principal Amount following such Signature of
of this Global of this Global decrease (or authorized officer
Date of Exchange Security Security increase) of Trustee
---------------- --------------- ---------------- -------------------- ------------------
<S> <C>
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
</TABLE>
- ------------------------
* This schedule should be included only if the Security is issued in global
form.
B-10
<PAGE>
EXHIBIT C
[FORM OF CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION
OF TRANSFER OF RULE 144A NOTES]
CERTIFICATE FOR EXCHANGE OR TRANSFER
Re: 9 1/4% Senior Subordinated Notes due 2008 ("Rule 144A Notes")
This Certificate relates to $_________ Principal amount of
Securities held in *__________ book-entry or *__________ definitive form by
_________________ (the "Transferor").
The Transferor*:
[ ] has requested the Trustee by written order to deliver in
exchange for its beneficial interest in the Global Security held by the
Depositary a Security or Securities in definitive, registered form of authorized
denominations and an aggregate principal amount equal to its beneficial interest
in such Global Security (or the portion thereof indicated above); or
[ ] has requested the Trustee by written order to exchange or
register the transfer of a Security or Securities.
In connection with such request and in respect of each such
security, the Transferor does hereby certify that Transferor is familiar with
the Indenture relating to the above-captioned Notes and as provided in Section
2.5 of such Indenture, the transfer of this Security does not require
registration under the Securities Act (as defined below) because:
[ ] Such Security is being acquired for the Transferor's own
account, without transfer (in satisfaction of Section 2.5(a)(ii)(A) or Section
2.5(d)(i)(A) of the Indenture).
[ ] Such Security is being transferred to a "qualified
institutional buyer" (as defined in rule 144A under the Securities Act of 1933,
as amended (the "Securities Act") in reliance on Rule 144A (in satisfaction of
Section 2.5(a)(ii)(B), section 2.5(b)(i) or Section 2.5(d)(i)(B) of the
Indenture).
[ ] 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.
[ ] Such Security is being transferred in reliance and in
compliance with an exemption from the registration requirements of the
Securities Act, other than Rule 144A or 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.
- ------------------------------------------------------
[INSERT NAME OF TRANSFEROR]
By:
---------------------------------------------------
Date:
------------------------
- -----------------------------
- -----------------------------
* Check applicable box.
<PAGE>
FORM OF PURCHASE LETTER FOR
INSTITUTIONAL ACCREDITED INVESTORS
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: General Counsel
Dear Sirs:
In connection with our purchase of $ principal amount of 9 1/4% Senior
Subordinated Notes due 2008 (the "Notes") of Integrated Health Services, Inc.
(the "Company"), we represent, warrant and agree as follows:
1. The notes have not been registered under the U.S. Securities Act of 1933,
as amended (the "Securities Act"), or any state securities laws, and may not be
offered or sold except pursuant to an exemption from, or in a transaction not
subject to the registration requirements of the Securities Act and any
applicable state securities laws.
2. We are an institutional investor that is an "accredited investor" (as
defined in Rule 501(a)(1), (a)(2), (a)(3) or (a)(7) under the Securities Act).
We have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of an investment in the Notes, and we
and each account for which we are acting are each able to bear the economic risk
of our or its investments.
3. We are acquiring the Notes purchased by us for our own account or for one
or more accounts (each of which is an institutional "accredited investor"), as
to each of which we exercise sole investment discretion and for each of which we
are acquiring not less than $250,000 total principal amount of Notes.
4. We have received adequate information concerning the Company and the Notes
to make an informed investment decision with respect to our purchase of the
Notes.
5. We understand that the Notes are being sold to us pursuant to an
exemption from, or in a transaction not subject to the registration requirements
of the Securities Act. Subject to paragraph 6 hereof, we are not purchasing the
Notes with a view to the resale, distribution or other disposition thereof.
6. If, within two years after the original issuance of the Notes, we
should decide to dispose of any Notes bearing the legend set forth in the
Offering Memorandum dated September 8, 1997, under the caption "Notice to
Investors," we shall not offer, sell, transfer, pledge, hypothecate or otherwise
dispose of any Notes except:
(a) to the Company;
(b) inside the United States to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act) in compliance with Rule 144A;
(c) to an institutional "accredited investor" within the meaning of
subparagraph (a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501 under the Securities
Act that is purchasing for its own account or for the account of such an
institutional "accredited investor";
(d) pursuant to any other available exemption from the registration
requirements of the Securities Act; or
(e) pursuant to an effective registration statement under the Securities
Act. We shall provide to any person purchasing any Notes from us a notice
advising such purchaser that transfers of the Notes are restricted as set forth
herein.
7. We understand that, prior to any proposed transfer of any Notes to
an institutional "accredited investor" within two years after the original
issuance of the Notes, we shall be required to furnish to First Union National
Bank, as Trustee, and the Company such certifications, legal opinions or other
information as they may reasonably require to confirm that the proposed transfer
is being made pursuant to an exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act and any applicable state
securities laws.
8. We understand that the certificates representing the Notes will, until
the second anniversary of the original issuance of the Notes, bear a legend
substantially to the effect set forth in paragraphs (1), (6) and (7) hereof.
9. We shall preserve copies of this letter and all related letters,
certifications, legal opinions, notices and other documents, and upon request
shall furnish you with the copies thereof. You are
C-2
<PAGE>
entitled to rely on such documents and we irrevocably authorize you to produce
such documents in connection with an administrative or legal proceeding or
official inquiry with respect to the matters covered hereby.
Very truly yours,
----------------------------------
(Name of Purchaser)
By:
-------------------------------
Date:
-----------------------------
Upon transfer the Notes would be registered in the name of the new beneficial
owner as follows:
Name:
----------------------------------------
Address:
--------------------------------------
Taxpayer ID Number:
---------------------------
C-3
$500,000,000
INTEGRATED HEALTH SERVICES, INC.
9 1/4% SENIOR SUBORDINATED NOTES DUE 2008
PURCHASE AGREEMENT
------------------
September 8, 1997
SMITH BARNEY INC.
MORGAN STANLEY & CO. INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CITICORP SECURITIES, INC.
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Integrated Health Services, Inc., a Delaware corporation (the
"Company"), proposes, upon the terms and conditions set forth herein, to issue
and sell to you, as the initial purchasers (the "Initial Purchasers"),
$500,000,000 aggregate principal amount of its 9 1/4% Senior Subordinated Notes
due 2008 (the "Notes"). The Notes will be issued pursuant to the provisions of
an Indenture, to be dated as of September 11, 1997 (the "Indenture"), between
the Company and First Union National Bank, as Trustee (the "Trustee").
The Company wishes to confirm as follows its agreement with
the Initial Purchasers in connection with the purchase and resale of the Notes.
1. Preliminary Offering Memorandum and Offering Memorandum.
The Notes will be offered and sold to the Initial Purchasers without
registration under the Securities Act of 1933, as amended (the "Act"), in
reliance on an exemption pursuant to Section 4(2) under the Act. The Company has
prepared a preliminary offering memorandum, dated August 26, 1997 (the
"Preliminary Offering Memorandum"), and an offering memorandum, dated September
8, 1997 (the "Offering Memorandum"), setting forth information regarding the
Company and the Notes. Any references herein to the Preliminary Offering
Memorandum and the Offering Memorandum shall be deemed to include all amendments
and supplements thereto and any documents filed under the Securities Exchange
Act of 1934, as amended, and the rules and regulations of the Securities and
Exchange Commission (the "Commission") thereunder (collectively, the "Exchange
Act") which are incorporated by reference therein. As used herein, the term
"Incorporated Documents" means the documents which at the time are incorporated
by reference in the Preliminary Offering Memorandum, the Offering Memorandum
<PAGE>
or any amendment or supplement thereto. The Company hereby confirms that it has
authorized the use of the Preliminary Offering Memorandum and the Offering
Memorandum in connection with the offering and resale of the Notes by the
Initial Purchasers.
The Company understands that the Initial Purchasers propose to
make offers and sales (the "Exempt Resales") of the Notes purchased by the
Initial Purchasers hereunder only on the terms and in the manner set forth in
the Offering Memorandum and Section 2 hereof, as soon as the Initial Purchasers
deem advisable after this Agreement has been executed and delivered to persons
whom the Initial Purchasers reasonably believe to be qualified institutional
buyers ("Qualified Institutional Buyers") as defined in Rule 144A under the Act,
as such rule may be amended from time to time ("Rule 144A"), in transactions
under Rule 144A (such persons being referred to herein as the "Eligible
Purchasers").
It is understood and acknowledged that upon original issuance
thereof, and until such time as the same is no longer required under the
applicable requirements of the Act, the Notes (and all securities issued in
exchange therefor or in substitution thereof) shall bear the following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN 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 UNDER
SUCH LAWS.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE
"RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE
LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE
COMPANY OR ANY AFFILIATED PERSON OF THE COMPANY WAS THE OWNER OF THIS
SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) UNLESS SUCH OFFER, SALE
OR OTHER TRANSFER IS (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT,
(C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A, TO A PERSON THE HOLDER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT
THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (a)(2), (a)(3) OR
(a)(7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE
SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (E) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
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<PAGE>
REQUIREMENTS OF THE SECURITIES ACT, AND IN EACH OF THE FOREGOING CASES
SUCH OFFER, SALE OR OTHER TRANSFER IS IN COMPLIANCE WITH ANY APPLICABLE
STATE SECURITIES LAWS, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT
PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D) OR
(E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF
THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM PROVIDED FOR
IN THE INDENTURE (A COPY OF WHICH MAY BE OBTAINED FROM THE TRUSTEE) IS
COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND
WILL BE REMOVED UPON THE REQUEST OF THE THEN HOLDER OF THIS SECURITY
AFTER THE RESALE RESTRICTION TERMINATION DATE. ANY TRANSFEREE OF THIS
SECURITY SHALL BE DEEMED TO HAVE REPRESENTED EITHER (A) THAT IT IS NOT
USING THE ASSETS OF AN EMPLOYEE BENEFIT PLAN SUBJECT TO THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT ("ERISA") OR THE INTERNAL REVENUE CODE
(THE "CODE") TO PURCHASE THIS SECURITY OR (B) THAT ITS PURCHASE AND
CONTINUED HOLDING OF THE SECURITY WILL BE COVERED BY A U.S. DEPARTMENT
OF LABOR CLASS EXEMPTION WITH RESPECT TO PROHIBITED TRANSACTIONS UNDER
SECTION 406(a) OF ERISA.
It is also understood and acknowledged that holders (including
subsequent transferees) of the Notes will have the registration rights set forth
in the registration rights agreement (the "Registration Rights Agreement"), to
be dated the date hereof, in substantially the form of Exhibit A hereto.
Pursuant to the Registration Rights Agreement, the Company will agree (i) to
file with the Commission, under the circumstances set forth therein, a
registration statement on the appropriate form under the Act relating to a
proposed exchange offer (the "Registered Exchange Offer") to the holders of the
Notes to issue and deliver to such holders, in exchange for the Notes, a like
principal amount of debt securities of the Company identical in all material
respects to the Notes (the "New Notes") and (ii) to use its reasonable best
efforts to cause such registration statement to be declared effective. If (a)
the Company is not permitted to effect the Registered Exchange Offer because the
Registered Exchange Offer would violate any applicable law or the applicable
interpretations of the Commission's staff or because of any change in currently
prevailing interpretations of the Commission's staff or (b) the Registered
Exchange Offer has not been consummated for any other reason within 240 days
after the Closing Date (as defined herein), then the Company shall file and use
its reasonable best efforts to cause to be declared effective a registration
statement on an appropriate form under the Act relating to the offer and sale of
the Notes by the holders thereof from time to time in accordance with the
methods of distribution set forth in such registration statement and Rule 415
under the Act. The registration statement to be filed under the Act pursuant to
the Registration Rights Agreement is hereinafter referred to as the
"Registration Statement." This Agreement, the Indenture and the Registration
Rights Agreement are hereinafter referred to collectively as the "Operative
Documents".
Capitalized terms used herein without definition have the
respective meanings specified therefor in the Indenture or the Offering
Memorandum.
2. Agreements to Sell, Purchase and Resell. (a) The Company
hereby agrees, subject to all the terms and conditions set forth herein, to
issue and sell to each Initial Purchaser and, upon the basis of the
representations, warranties and agreements of the
3
<PAGE>
Company herein contained and subject to all the terms and conditions set forth
herein, each Initial Purchaser agrees, severally and not jointly, to purchase
from the Company, at a purchase price of 97.375% of the principal amount
thereof, the principal amount of Notes set forth opposite the name of such
Initial Purchaser in Schedule I hereto.
(b) The Initial Purchasers have advised the Company that they
propose to offer the Notes for sale upon the terms and conditions set forth in
this Agreement and in the Offering Memorandum. Each Initial Purchaser hereby
represents and warrants to, and agrees with, the Company that such Initial
Purchaser (i) is purchasing the Notes pursuant to a private sale exempt from
registration under the Act, (ii) will not solicit offers for, or offer or sell,
the Notes by means of any form of general solicitation or general advertising or
in any manner involving a public offering within the meaning of Section 4(2) of
the Act, and (iii) will solicit offers for the Notes only from, and will offer,
sell or deliver the Notes as part of its initial offering, only to persons whom
the Initial Purchasers reasonably believe to be Qualified Institutional Buyers,
or if any such person is buying for one or more institutional accounts for which
such person is acting as fiduciary or agent, only when such person has
represented to the Initial Purchasers that each such account is a Qualified
Institutional Buyer, to whom notice has been given that such sale or delivery is
being made in reliance on Rule 144A and in each case, in transactions under Rule
144A. The Initial Purchasers have advised the Company that they will offer the
Notes to Eligible Purchasers at a price initially equal to 100% of the principal
amount thereof, plus accrued interest, if any, from the date of issuance of the
Notes. Such price may be changed by the Initial Purchasers at any time
thereafter without notice.
The Initial Purchasers understand that the Company and, for
purposes of the opinions to be delivered to the Initial Purchasers pursuant to
Sections 7(c)(xiii) and 7(e) hereof, counsel to the Company and counsel to the
Initial Purchasers, will rely upon the accuracy and truth of the foregoing
representations and agreements and the Initial Purchasers hereby consent to such
reliance.
3. Delivery of the Notes and Payment Therefor. Delivery to the
Initial Purchasers of and payment for the Notes shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New
York City time, on September 11, 1997 (the "Closing Date"). The place of closing
for the Notes and the Closing Date may be varied by agreement between the
Initial Purchasers and the Company.
The Notes will be delivered to the Initial Purchasers against
payment of the purchase price therefor by wire transfer of federal or other same
day funds to an account or accounts designated by the Company. The Notes will be
evidenced by one or more global securities in definitive form (the "Global
Note") and will be registered in the name of Cede & Co. as nominee of The
Depository Trust Company ("DTC"). The Notes to be delivered to the Initial
Purchasers shall be made available to the Initial Purchasers in New York City
for inspection not later than 9:30 a.m., New York City time, on the business day
next preceding the Closing Date.
4. Agreements of the Company. The Company agrees with the
Initial Purchasers as follows:
(a) The Company will advise the Initial Purchasers promptly
and, if requested by them, will confirm such advice in writing, within the
period of time referred to in paragraph (e) below, of any change in the
Company's condition (financial or other), business, prospects, properties, net
worth or results of operations, or of the happening of any event,
4
<PAGE>
which makes any statement made in the Offering Memorandum (as then amended or
supplemented) untrue or which requires the making of any additions to or changes
in the Offering Memorandum (as then amended or supplemented) in order to make
the statements therein not misleading, or of the necessity to amend or
supplement the Offering Memorandum (as then amended or supplemented) to comply
with any law.
(b) The Company will furnish to the Initial Purchasers,
without charge, as of the date of the Offering Memorandum, such number of copies
of the Offering Memorandum as may then be amended or supplemented as they may
reasonably request.
(c) The Company will not make any amendment or supplement to
the Preliminary Offering Memorandum or to the Offering Memorandum of which the
Initial Purchasers shall not previously have been advised or to which they shall
reasonably object after being so advised or file any document which upon filing
becomes an Incorporated Document, without delivering a copy of such document to
the Initial Purchasers, prior to or concurrently with such filing.
(d) Prior to the execution and delivery of this Agreement, the
Company has delivered or will deliver to the Initial Purchasers, without charge,
in such quantities as the Initial Purchasers shall have requested or may
hereafter reasonably request, copies of the Preliminary Offering Memorandum. The
Company consents to the use, in accordance with the securities or Blue Sky laws
of the jurisdictions in which the Notes are offered by the Initial Purchasers
and by dealers, prior to the date of the Offering Memorandum, of each
Preliminary Offering Memorandum so furnished by the Company. The Company
consents to the use of the Offering Memorandum (and of any amendment or
supplement thereto) in accordance with the securities or Blue Sky laws of the
jurisdictions in which the Notes are offered by the Initial Purchasers and by
all dealers to whom Notes may be sold, in connection with the offering and sale
of the Notes.
(e) If, at any time prior to completion of the distribution of
the Notes by the Initial Purchasers to Eligible Purchasers, any event shall
occur that in the judgment of the Company or in the opinion of counsel for the
Initial Purchasers should be set forth in the Offering Memorandum (as then
amended or supplemented) in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading, or if it is
necessary to supplement or amend the Offering Memorandum, or to file under the
Exchange Act any document which upon filing becomes an Incorporated Document, to
comply with any law, the Company will forthwith prepare an appropriate
supplement or amendment thereto or such document, and will expeditiously furnish
to the Initial Purchasers and dealers a reasonable number of copies thereof. In
the event that the Company and the Initial Purchasers agree that the Offering
Memorandum should be amended or supplemented, or that a document should be filed
under the Exchange Act which upon filing becomes an Incorporated Document, the
Company, if requested by the Initial Purchasers, will promptly issue a press
release announcing or disclosing the matters to be covered by the proposed
amendment or supplement or such document.
(f) The Company will cooperate with the Initial Purchasers and
with their counsel in connection with the qualification of the Notes for
offering and sale by the Initial Purchasers and by dealers under the securities
or Blue Sky laws of such jurisdictions as the Initial Purchasers may designate
and will file such consents to service of process or other documents necessary
or appropriate in order to effect such qualification; provided that in no event
shall the Company be obligated to qualify to do business in any jurisdiction
where it is
5
<PAGE>
not now so qualified or to take any action which would subject it to service of
process in suits, other than those arising out of the offering or sale of the
Notes, in any jurisdiction where it is not now so subject.
(g) So long as any of the Notes are outstanding, the Company
will furnish to the Initial Purchasers (i) as soon as available, a copy of each
report of the Company mailed to stockholders or filed with the Commission, and
(ii) from time to time such other information concerning the Company as the
Initial Purchasers may request.
(h) If this Agreement shall terminate or shall be terminated
after execution and delivery pursuant to any provisions hereof (otherwise than
pursuant to Section 10 hereof or by notice given by the Initial Purchasers
terminating this Agreement pursuant to Section 9 or Section 11 hereof) or if
this Agreement shall be terminated by the Initial Purchasers because of any
failure or refusal on the part of the Company to comply with the terms or
fulfill any of the conditions of this Agreement, the Company agrees to reimburse
the Initial Purchasers for all out-of-pocket expenses (including fees and
expenses of its counsel) reasonably incurred by it in connection herewith, but
without any further obligation on the part of the Company for loss of profits or
otherwise.
(i) The Company will apply the net proceeds from the sale of
the Notes to be sold by it hereunder substantially in accordance with the
description set forth in the Offering Memorandum.
(j) Except as stated in this Agreement and in the Preliminary
Offering Memorandum and Offering Memorandum, the Company has not taken, nor will
it take, directly or indirectly, any action designed to or that might reasonably
be expected to cause or result in stabilization or manipulation of the price of
the Notes to facilitate the sale or resale of the Notes. Except as permitted by
the Act, the Company will not distribute any offering material in connection
with the Exempt Resales.
(k) The Company will use its best efforts to cause the Notes
to be eligible for trading on The PORTAL Market.
(l) From and after the Closing Date, so long as any of the
Notes are outstanding and are "Restricted Securities" within the meaning of the
Rule 144(a)(3) under the Act or, if earlier, until two years after the Closing
Date, and during any period in which the Company is not subject to Section 13 or
15(d) of the Exchange Act, the Company will furnish to holders of the Notes and
prospective purchasers of Notes designated by such holders, upon request of such
holders or such prospective purchasers, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Act to permit compliance with Rule 144A in
connection with resale of the Notes.
(m) The Company agrees not to sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
the Act) that would be integrated with the sale of the Notes in a manner that
would require the registration under the Act of the sale to the Initial
Purchasers or the Eligible Purchasers of the Notes.
(n) The Company agrees to comply with all of the terms and
conditions of the Registration Rights Agreement, and all agreements set forth in
representation letters of the Company to DTC relating to the approval of the
Notes by DTC for "book entry" transfer.
6
<PAGE>
(o) The Company agrees that prior to any registration of the
Notes pursuant to the Registration Rights Agreement, or at such earlier time as
may be so required, the Indenture shall be qualified under the Trust Indenture
Act of 1939 (the "1939 Act") and will cause to be entered into any necessary
supplemental indentures in connection therewith.
5. Representations and Warranties of the Company. The Company
represents and warrants to the Initial Purchasers that:
(a) The Preliminary Offering Memorandum and Offering
Memorandum with respect to the Notes have been prepared by the Company for use
by the Initial Purchasers in connection with the Exempt Resales. No order or
decree preventing the use of the Preliminary Offering Memorandum or the Offering
Memorandum or any amendment or supplement thereto, or any order asserting that
the transactions contemplated by this Agreement are subject to the registration
requirements of the Act, has been issued and no proceeding for that purpose has
commenced or is pending or, to the knowledge of the Company, is contemplated.
(b) The Preliminary Offering Memorandum and the Offering
Memorandum as of their respective dates and the Offering Memorandum as of the
Closing Date, did not or will not at any time contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, except that this
representation and warranty does not apply to statements in or omissions from
the Preliminary Offering Memorandum and Offering Memorandum made in reliance
upon and in conformity with information relating to the Initial Purchasers
furnished to the Company in writing by or on behalf of the Initial Purchasers
expressly for use therein.
(c) The Incorporated Documents heretofore filed were filed in
a timely manner and, when they were filed (or, if any amendment with respect to
any such document was filed, when such document was filed), conformed in all
material respects to the requirements of the Exchange Act and did not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
and any further Incorporated Documents will, when so filed, be filed in a timely
manner and conform in all material respects to the requirements of the Exchange
Act and will not contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(d) The Indenture has been duly and validly authorized by the
Company and, upon its execution, delivery and performance by the Company and
assuming due authorization, execution, delivery and performance by the Trustee,
will be a valid and binding agreement of the Company, enforceable in accordance
with its terms, except as enforcement thereof may be limited by bankruptcy,
insolvency or other similar laws affecting creditors' rights generally, and
conforms in all material respects to the description thereof in the Offering
Memorandum; and no qualification of the Indenture under the 1939 Act is required
in connection with the offer and sale of the Notes contemplated hereby or in
connection with the Exempt Resales.
(e) The Notes have been duly authorized by the Company and,
when executed by the Company and authenticated by the Trustee in accordance with
the Indenture and delivered to the Initial Purchasers against payment therefor
in accordance with the terms hereof, will have been validly issued and
delivered, and will constitute valid and binding obligations of the Company
entitled to the benefits of the Indenture and enforceable in accordance with
their terms, except as enforcement thereof may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally, and the
7
<PAGE>
Notes will conform in all material respects to the description thereof in the
Offering Memorandum.
(f) All the outstanding shares of capital stock of the Company
have been duly authorized and validly issued, are fully paid and nonassessable
and are free of any preemptive or, except as set forth in the Offering
Memorandum, similar rights and were issued and sold in compliance with all
applicable Federal and state securities laws; and the authorized capital stock
of the Company conforms to the description thereof in the Offering Memorandum.
(g) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Offering Memorandum, and is duly
registered and qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of its
business requires such registration or qualification, except where the failure
so to register or qualify does not have a material adverse effect on the
condition (financial or other), business, prospects, properties, net worth or
results of operations of the Company and the Subsidiaries (as hereinafter
defined) taken as a whole (a "Material Adverse Effect").
(h) All the Company's subsidiaries (as defined in the Act)
included in Exhibit 21 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, together with those subsidiaries of the Company
identified in Schedule II to this Agreement, are referred to herein individually
as a "Subsidiary" and collectively as the "Subsidiaries." Each Subsidiary is a
corporation or limited partnership duly organized, validly existing and in good
standing in the jurisdiction of its organization, with full corporate or
partnership power and authority to own, lease and operate its properties and to
conduct its business as described in the Offering Memorandum, and is duly
registered and qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of its
business requires such registration or qualification, except where the failure
so to register or qualify or be in good standing does not have a Material
Adverse Effect. None of the subsidiaries of the Company other than the
Subsidiaries is engaged in any business activities or operations or has any
material assets or liabilities. All the outstanding shares of capital stock of
each of the Subsidiaries which is a corporation have been duly authorized and
validly issued, are fully paid and nonassessable, and are wholly owned by the
Company directly or indirectly through one of the other Subsidiaries, free and
clear of any lien, adverse claim, security interest, equity or other
encumbrance, except as described in the Offering Memorandum and except for the
shares of capital stock of certain Subsidiaries pledged to Citibank, N.A., as
administrative agent ("Citibank"), in connection with the Company's Revolving
Credit Agreement dated as of May 15, 1996 with Citibank and the lenders from
time to time party thereto (the "Credit Agreement") and/or to Meditrust Mortgage
Investments, Inc. and/or any of its affiliates (collectively, "Meditrust"). Each
limited partnership agreement pursuant to which the Company or a Subsidiary
holds a general partnership interest in a limited partnership which is a
Subsidiary is in full force and effect and constitutes the legal, valid and
binding agreement of the parties thereto, enforceable against such parties in
accordance with the terms thereof, except as enforcement thereof may be limited
by bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles; and there has
been no material breach of or default under, and no event which with notice or
lapse of time would constitute a material breach of or default under, such
agreements by the Company or any Subsidiary or, to the Company's best knowledge,
any other party to such agreements.
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(i) There are no legal or governmental proceedings pending or,
to the knowledge of the Company, threatened, against the Company or any of the
Subsidiaries, or to which the Company or any of the Subsidiaries, or to which
any of their respective properties, is subject, that are not disclosed in the
Offering Memorandum and which, if adversely decided, are reasonably likely to
cause a Material Adverse Effect or materially affect the issuance of the Notes
or the consummation of the transactions contemplated by the Operative Documents.
There are no material agreements, contracts, indentures, leases or other
instruments that are not described in the Offering Memorandum or that are
required to be filed as an exhibit to any Incorporated Document that are not so
filed. Neither the Company nor any Subsidiary is involved in any strike, job
action or labor dispute with any group of employees, and, to the Company's
knowledge, no such action or dispute is threatened, which is reasonably likely
to have a Material Adverse Effect.
(j) Neither the Company nor any of the Subsidiaries is (i) in
violation of its certificate or articles of incorporation or by-laws or other
organizational documents, or of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or any of the
Subsidiaries or of any decree of any court or governmental agency or body having
jurisdiction over the Company or any of the Subsidiaries, except where any such
violation or violations in the aggregate would not have a Material Adverse
Effect or (ii) in default in any material respect in the performance of any
obligation, agreement or condition contained in any bond, debenture, note or any
other evidence of indebtedness or in any material agreement, indenture, lease or
other instrument to which the Company or any of the Subsidiaries is a party or
by which any of them or any of their respective properties may be bound, except
as may be disclosed in the Offering Memorandum.
(k) Neither the issuance, offer, sale or delivery of the
Notes, the execution, delivery or performance of this Agreement, the Indenture
or the Registration Rights Agreement by the Company nor the consummation by the
Company of the transactions contemplated hereby or thereby (i) requires any
consent, approval, authorization or other order of, or registration or filing
with, any court, regulatory body, administrative agency or other governmental
body, agency or official (except such as may be required in connection with the
registration under the Act of the Notes and/or the New Notes in accordance with
the Registration Rights Agreement, the qualification of the Indenture under the
1939 Act and except for compliance with the securities or Blue Sky laws of
various jurisdictions) or conflicts or will conflict with or constitutes or will
constitute a breach of, or a default under, the certificate or articles of
incorporation or bylaws, or other organizational documents, of the Company or
any of the Subsidiaries or (ii) conflicts or will conflict with or constitutes
or will constitute a breach of, or a default under, in any material respect, any
material agreement, indenture, lease or other instrument to which the Company or
any of the Subsidiaries is a party or by which any of them or any of their
respective properties may be bound, or violates or will violate in any material
respect any statute, law, regulation or filing or judgment, injunction, order or
decree applicable to the Company or any of the Subsidiaries or any of their
respective properties, or will result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any of the
Subsidiaries pursuant to the terms of any agreement or instrument to which any
of them is a party or by which any of them may be bound or to which any of the
property or assets of any of them is subject.
(l) The accountants, KPMG Peat Marwick LLP and Deloitte &
Touche LLP, who have certified or shall certify the financial statements
included as part of the Offering Memorandum (or any amendment or supplement
thereto), are independent certified public
9
<PAGE>
accountants under Rule 101 of the AICPA's Code of Professional Conduct, and its
interpretation and rulings.
(m) The historical financial statements, together with the
related schedules and notes forming part of the Offering Memorandum (and any
amendment or supplement thereto), comply as to form with the requirements of the
Exchange Act and present fairly in all material respects the consolidated
financial position, results of operations and changes in stockholders' equity
and cash flows of each of the Company and its Subsidiaries, First American
Health Care of Georgia, Inc. ("First American") and RoTech Medical Corporation
("RoTech") on the basis stated in the Offering Memorandum at the respective
dates or for the respective periods to which they apply; such statements and
related schedules and notes have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, except as disclosed therein; and the other financial and statistical
information and data set forth in the Offering Memorandum (and any amendment or
supplement thereto) is accurately presented and, to the extent such information
and data is derived from the financial books and records of the Company and its
Subsidiaries, First American or RoTech, as the case may be, is prepared on a
basis consistent with such financial statements and the books and records. The
pro forma financial statements and other pro forma financial information
included or incorporated by reference in the Offering Memorandum have been
prepared in accordance with the Commission's rules and guidelines with respect
to pro forma financial information and have been properly compiled on the basis
described therein, and the assumptions used in the preparation thereof are, in
the Company's opinion, reasonable.
(n) The Company has all requisite power and authority to
execute, deliver and perform its obligations under this Agreement and the
Registration Rights Agreement; the execution and delivery of, and the
performance by the Company of its obligations under, this Agreement and the
Registration Rights Agreement have been duly and validly authorized by the
Company, and this Agreement and the Registration Rights Agreement have been duly
executed and delivered by the Company and constitute the valid and legally
binding agreements of the Company, enforceable against the Company in accordance
with their terms, except as the enforcement hereof and thereof may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and subject to the applicability of general
principles of equity, and except as rights to indemnity and contribution
hereunder and thereunder may be limited by Federal or state securities laws or
principles of public policy.
(o) Except as disclosed in the Offering Memorandum (or any
amendment or supplement thereto), subsequent to the date as of which such
information is given in the Offering Memorandum (or any amendment or supplement
thereto), neither the Company nor any of the Subsidiaries has incurred any
liability or obligation, direct or contingent, or entered into any transaction,
not in the ordinary course of business, that is material to the Company and the
Subsidiaries taken as a whole, and there has not been any material change in the
capital stock, or material increase in the short-term or long-term debt, of the
Company or any of the Subsidiaries, or any material adverse change, or any
development involving or which could reasonably be expected to involve a
prospective material adverse change, in the condition (financial or other),
business, properties, net worth or results of operations of the Company and the
Subsidiaries taken as a whole.
(p) Each of the Company and the Subsidiaries has good and
marketable title to all property (real and personal) described in the Offering
Memorandum as being owned by it, free and clear of all liens, claims, security
interests or other encumbrances except such as are described in the Offering
Memorandum or in an Incorporated Document or exhibit thereto,
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<PAGE>
and all the property described in the Offering Memorandum as being held under
lease by each of the Company and the Subsidiaries is held by it under valid,
subsisting and enforceable leases, with only such exceptions as in the aggregate
are not materially burdensome and do not interfere in any material respect with
the conduct of the business of the Company and the Subsidiaries taken as a
whole.
(q) Except as permitted by the Act, the Company has not
distributed and, prior to the later to occur of the Closing Date and completion
of the distribution of the Notes, will not distribute any offering material in
connection with the offering and sale of the Notes other than the Preliminary
Offering Memorandum and Offering Memorandum.
(r) Each of the Company and the Subsidiaries and, to the
Company's knowledge, the owners of the facilities and other businesses managed
by the Company or any Subsidiary have such permits, licenses, franchises,
certificates and other approvals or authorizations of governmental or regulatory
authorities ("Permits") as are necessary under applicable law to own their
respective properties and to conduct their respective business in the manner
described in the Offering Memorandum (including, without limitation, such
Permits as are required under such federal, state and other health care laws,
and under such HMO or similar licensure laws and such insurance laws and
regulations, as are applicable thereto), and with respect to those facilities
and other businesses that participate in Medicare and/or Medicaid, to receive
reimbursement under Medicare and Medicaid, subject in each case to such
qualifications as may be set forth in the Offering Memorandum and except to the
extent that the failure to have such Permits would not have a Material Adverse
Effect; the Company and each of the Subsidiaries have fulfilled and performed in
all material respects, all their respective material obligations with respect to
the Permits, and no event has occurred which allows, or after notice or lapse of
time would allow, revocation or termination thereof or results in any other
material impairment of the rights of the holder of any such Permit, subject in
each case to such qualification as may be set forth in the Offering Memorandum
and except to the extent that any such revocation or termination would not have
a Material Adverse Effect; and, except as described in the Offering Memorandum,
none of the Permits contains any restriction that is materially burdensome to
the Company or any of the Subsidiaries.
(s) The business practices of the Company and each of its
Subsidiaries do not violate in any material respect any applicable provisions of
federal or state law governing Medicare or any state Medicaid program, including
without limitation, Sections 1320a-7a and 1320a-7b of Title 42 of the United
States Code, and no individual with an ownership or control interest, as defined
in 42 U.S.C. ss.1320a-3(a)(3), in the Company or any of its Subsidiaries, or who
is an officer, director, or managing employee, as defined in 42 U.S.C.
ss.1320a-5(b), of the Company or any of its Subsidiaries is a person described
in 42 U.S.C. ss.1320a-7(b)(8)(B), and the Company's and each of its
Subsidiaries' business practices do not violate in any material respect any
applicable provisions of federal or state law regarding physician ownership of,
or financial relationship with, or referral to entities providing health care
related goods or services, or laws requiring disclosure of financial interests
held by physicians in entities to which they may refer patients for the
provision of health care related goods or services.
(t) The information presented in the Offering Memorandum under
the caption "Business of RoTech" fairly presents the information purported to be
shown and does not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
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<PAGE>
(u) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(v) Neither the Company nor any of the Subsidiaries nor, to
the Company's knowledge, any employee or agent of the Company or any Subsidiary
has made any payment of funds of the Company or any Subsidiary or received or
retained any funds in violation of any law, rule or regulation, which violation
would have a Material Adverse Effect.
(w) Except as disclosed in the Offering Memorandum, the
Company and each of the Subsidiaries have filed all tax returns required to be
filed, which returns are true and correct in all material respects, and neither
the Company nor any Subsidiary is in default in the payment of any taxes which
were payable pursuant to said returns or any assessments with respect thereto,
except where the failure to file such returns and make such payments would not
have a Material Adverse Effect.
(x) The Company and the Subsidiaries own or possess all
patents, trademarks, trademark registration, service marks, service mark
registrations, trade names, copyrights, licenses, inventions, trade secrets and
rights described in the Offering Memorandum as being owned by any of them or
necessary for the conduct of their respective businesses, and the Company is not
aware of any claim to the contrary or any challenge by any other person to the
rights of the Company and the Subsidiaries with respect to the foregoing.
(y) The Company is not and, upon sale of the Notes to be
issued and sold thereby in accordance herewith and the application of the net
proceeds to the Company of such sale as described in the Offering Memorandum
under the caption "Use of Proceeds," will not be an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(z) When the Notes are issued and delivered pursuant to this
Agreement, such Notes will not be of the same class (within the meaning of Rule
144A(d)(3) under the Act) as any security of the Company that is listed on a
national securities exchange registered under Section 6 of the Exchange Act or
that is quoted in a United States automated interdealer quotation system.
(aa) Neither the Company nor any affiliate (as defined in Rule
501(b) of Regulation D ("Regulation D") under the Act) of the Company has
directly, or through any agent (provided that no representation is made as to
the Initial Purchasers or any person acting on their behalf), (i) sold, offered
for sale, solicited offers to buy or otherwise negotiated in respect of, any
security (as defined in the Act) which is or will be integrated with the
offering and sale of the Notes in a manner that would require the registration
of the Notes under the Act or (ii) engaged in any form of general solicitation
or general advertising (within the meaning of Regulation D) in connection with
the offering of the Notes.
(ab) The Company is not required to deliver the information
specified in Rule 144A(d)(4) in connection with the offering and resale of the
Notes by the Initial Purchasers.
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<PAGE>
(ac) Assuming (i) that the representations and warranties in
Section 2 hereof are true, (ii) the Initial Purchasers comply with the covenants
set forth in Section 2 hereof and (iii) that each person to whom the Initial
Purchasers offer, sell or deliver the Notes is a Qualified Institutional Buyer,
the purchase and sale of the Notes pursuant hereto (including the Initial
Purchasers' proposed offering of the Notes on the terms and in the manner set
forth in the Offering Memorandum and Section 2 hereof) is exempt from the
registration requirements of the Act.
(ad) The execution and delivery of this Agreement, the other
Operative Documents and the sale of the Notes to the Initial Purchasers or by
the Initial Purchasers to Eligible Purchasers will not involve any prohibited
transaction within the meaning of Section 406 of ERISA or Section 4975 of the
Code. The representation made by the Company in the preceding sentence is made
in reliance upon and subject to the accuracy of, and compliance with, the
representations and covenants made or deemed made by the Eligible Purchasers as
set forth in the Offering Memorandum under the section entitled "Notice to
Investors."
6. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Initial Purchaser and each person, if any, who
controls any Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, liabilities and expenses (including reasonable costs of investigation)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in the Preliminary Offering Memorandum or Offering
Memorandum or in any amendment or supplement thereto, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information relating to such Initial
Purchaser furnished in writing to the Company by or on behalf of such Initial
Purchaser expressly for use in connection therewith; provided, however, that the
indemnification contained in this paragraph (a) with respect to the Preliminary
Offering Memorandum shall not inure to the benefit of any Initial Purchaser (or
to the benefit of any person controlling any Initial Purchaser) on account of
any such loss, claim, damage, liability or expense arising from the sale of the
Notes by such Initial Purchaser to any person if the untrue statement or alleged
untrue statement or omission or alleged omission of a material fact contained in
the Preliminary Offering Memorandum was corrected in the Offering Memorandum and
such Initial Purchaser sold Notes to that person without sending or giving at or
prior to the written confirmation of such sale, a copy of the Offering
Memorandum (as then amended or supplemented) if the Company has previously
furnished sufficient copies thereof to such Initial Purchaser. The foregoing
indemnity agreement shall be in addition to any liability which the Company may
otherwise have.
(b) If any action, suit or proceeding shall be brought against
any Initial Purchaser or any person controlling any Initial Purchaser in respect
of which indemnity may be sought against the Company, such Initial Purchaser or
such controlling person shall promptly notify the parties against whom
indemnification is being sought (the "indemnifying parties"), and such
indemnifying parties shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. Such Initial Purchaser or any
such controlling person shall have the right to employ separate counsel in any
such action, suit or proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Initial
Purchaser or such controlling person unless (i) the indemnifying
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<PAGE>
parties have agreed in writing to pay such fees and expenses, (ii) the
indemnifying parties have failed to assume the defense and employ counsel, or
(iii) the named parties to any such action, suit or proceeding (including any
impleaded parties) include both such Initial Purchaser or such controlling
person and the indemnifying parties and such Initial Purchaser or such
controlling person shall have been advised by its counsel that representation of
such indemnified party and any indemnifying party by the same counsel would be
inappropriate under applicable standards of professional conduct (whether or not
such representation by the same counsel has been proposed) due to actual or
potential differing interests between them (in which case the indemnifying party
shall not have the right to assume the defense of such action, suit or
proceeding on behalf of such Initial Purchaser or such controlling person). It
is understood, however, that the indemnifying parties shall, in connection with
any one such action, suit or proceeding or separate but substantially similar or
related actions, suits or proceedings in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time for all such Initial Purchasers and controlling persons not
having actual or potential differing interests with the Initial Purchasers or
among themselves, which firm shall be designated in writing by Smith Barney
Inc., and that all such fees and expenses shall be reimbursed as they are
incurred. The indemnifying parties shall not be liable for any settlement of any
such action, suit or proceeding effected without their written consent, but if
settled with such written consent, or if there be a final judgment for the
plaintiff in any such action, suit or proceeding, the indemnifying parties agree
to indemnify and hold harmless any Initial Purchaser, to the extent provided in
paragraph (a), and any such controlling person from and against any loss, claim,
damage, liability or expense by reason of such settlement or judgment.
(c) Each Initial Purchaser agrees, severally and not jointly,
to indemnify and hold harmless the Company, and its directors and officers, and
any person who controls the Company within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act to the same extent as the indemnity from the
Company to each Initial Purchaser set forth in paragraph (a) hereof, but only
with respect to information relating to such Initial Purchaser furnished in
writing by or on behalf of such Initial Purchaser expressly for use in the
Preliminary Offering Memorandum or Offering Memorandum or any amendment or
supplement thereto. If any action, suit or proceeding shall be brought against
the Company, any of its directors or officers, or any such controlling person
based on the Preliminary Offering Memorandum or Offering Memorandum, or any
amendment or supplement thereto, and in respect of which indemnity may be sought
against such Initial Purchaser pursuant to this paragraph (c), such Initial
Purchaser shall have the rights and duties given to the Company by paragraph (b)
above (except that if the Company shall have assumed the defense thereof such
Initial Purchaser shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at such Initial Purchaser's expense), and the
Company, its directors and officers, and any such controlling person shall have
the rights and duties given to the Initial Purchasers by paragraph (b) above.
The foregoing indemnity agreement shall be in addition to any liability which
the Initial Purchasers may otherwise have.
(d) If the indemnification provided for in this Section 6 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Initial Purchasers on the other hand from the
offering of the Notes, or (ii) if the allocation
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<PAGE>
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company on the one
hand and the Initial Purchasers on the other in connection with the statements
or omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Initial Purchasers on
the other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total discounts and commissions received by the Initial Purchasers, in each
case as set forth in the table on the cover page of the Offering Memorandum. The
relative fault of the Company on the one hand and the Initial Purchasers on the
other hand shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or by the Initial Purchasers on the other hand and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(e) The Company and the Initial Purchasers agree that it would
not be just and equitable if contribution pursuant to this Section 6 were
determined by a pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to in paragraph
(d) above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities and expenses referred to in paragraph (d)
above shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 6, no Initial
Purchaser shall be required to contribute any amount in excess of the amount by
which the total price of the Notes purchased and resold by it as contemplated
hereby exceeds the amount of any damages which such Initial Purchaser has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(f) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 6 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 6 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Initial Purchaser or any person
controlling any Initial Purchaser, the Company, its directors or officers or any
person controlling the Company, (ii) acceptance of any Notes and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Initial Purchaser or any person controlling any Initial Purchaser, or to the
Company, its directors or officers or any person controlling the Company, shall
be entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 6.
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<PAGE>
7. Conditions of the Initial Purchasers' Obligations. The
several obligations of the Initial Purchasers to purchase the Notes hereunder
are subject to the following conditions:
(a) At the time of execution of this Agreement and on the
Closing Date, no order or decree preventing the use of the Offering Memorandum
or any amendment or supplement thereto, or any order asserting that the
transactions contemplated by this Agreement are subject to the registration
requirements of the Act shall have been issued and no proceedings for that
purpose shall have been commenced or shall be pending or, to the knowledge of
the Company, be contemplated. No stop order suspending the sale of the Notes in
any jurisdiction designated by the Initial Purchasers shall have been issued and
no proceedings for that purpose shall have been commenced or shall be pending
or, to the knowledge of the Company, shall be contemplated.
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, properties, net worth, or results of operations of the Company or the
Subsidiaries not contemplated by the Offering Memorandum, which in the opinion
of the Initial Purchasers, would materially adversely affect the market for the
Notes, or (ii) any event or development relating to or involving the Company or
any officer or director of the Company which makes any statement made in the
Offering Memorandum untrue or which, in the opinion of the Company and its
counsel or the Initial Purchasers and their counsel, requires the making of any
addition to or change in the Offering Memorandum in order to state a material
fact required by any law to be stated therein or necessary in order to make the
statements therein not misleading, if amending or supplementing the Offering
Memorandum to reflect such event or development would, in the opinion of the
Initial Purchasers, materially adversely affect the market for the Notes.
(c) The Initial Purchasers shall have received on the Closing
Date an opinion of Fulbright & Jaworski L.L.P., counsel for the Company, dated
the Closing Date and addressed to the Initial Purchasers, to the effect that:
(i) The Company is a corporation duly incorporated and
validly existing in good standing under the laws of the State of Delaware with
full corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Offering Memorandum (and any
amendment or supplement thereto);
(ii) Each Significant Subsidiary (as defined in Section
1.02(w) of Regulation S-X promulgated under the Act) is a corporation validly
existing and in good standing under the laws of the jurisdiction of its
organization, with full corporate power and authority to own, lease, and operate
its properties and to conduct its business as described in the Offering
Memorandum (and any amendment or supplement thereto); and all the outstanding
shares of capital stock of each of the Significant Subsidiaries have been duly
authorized and validly issued, are fully paid and nonassessable, and to the
knowledge of such counsel, are wholly owned by the Company directly, or
indirectly through one of the other Subsidiaries, free and clear of any security
interest, lien, adverse claim, equity or other encumbrance, except as described
in the Offering Memorandum and except for the shares of capital stock of certain
Subsidiaries pledged to Citibank as agent in connection with the Credit
Agreement and/or to Meditrust;
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<PAGE>
(iii) The authorized capital stock of the Company is as
set forth under the caption "Capitalization" in the Offering Memorandum;
(iv) The Company has corporate power and authority to
enter into this Agreement and the Registration Rights Agreement and to issue,
sell and deliver the Notes to be sold by it to the Initial Purchasers as
provided herein, and this Agreement and the Registration Rights Agreement have
been duly authorized, executed and delivered by the Company and are valid, legal
and binding agreements of the Company, enforceable against the Company in
accordance with their terms, except (A) as enforcement of rights to indemnity
and contribution hereunder and thereunder may be limited by Federal or state
securities laws or principles of public policy and (B) subject to the
qualification that the enforceability of the Company's obligations hereunder and
thereunder may be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights generally and by general equitable principles;
(v) The Indenture has been duly and validly authorized,
executed and delivered by the Company and, assuming due authorization, execution
and delivery by the Trustee, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, subject to the qualification that the
enforceability of the Company's obligations thereunder may be limited by
bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, and
other laws relating to or affecting creditors' rights generally and by general
equitable principles; and no qualification of the Indenture under the 1939 Act
is required in connection with the offer and sale of the Notes contemplated
hereby or in connection with the Exempt Resales;
(vi) The Notes have been duly and validly authorized by
the Company and when executed by the Company in accordance with the Indenture
and, assuming due authentication of the Notes by the Trustee, upon delivery to
the Initial Purchasers against payment therefor in accordance with the terms
hereof, will have been validly issued and delivered, and will constitute valid
and binding obligations of the Company entitled to the benefits of the
Indenture, subject to the qualification that the enforceability of the Company's
obligations thereunder may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium, and other laws relating to or affecting
creditors' rights generally and by general equitable principles;
(vii) Neither the offer, sale or delivery of the Notes,
the execution, delivery or performance by the Company of this Agreement, the
Registration Rights Agreement or the Indenture, compliance by the Company with
the provisions hereof or thereof nor consummation by the Company of the
transactions contemplated hereby or thereby constitutes or will constitute a
breach or violation of, or a default under, in any material respect, the
certificate or articles of incorporation or bylaws or other organizational
documents of the Company or any of the Significant Subsidiaries or any material
agreement, indenture, lease or other instrument to which the Company or any of
the Significant Subsidiaries is a party or by which any of them or any of their
respective properties is bound that is an exhibit to any Incorporated Document
or is known to such counsel, or will result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any of
the Significant Subsidiaries pursuant to the terms of any material agreement or
instrument to which any of them is a party or by which any of them may be bound
or to which any of the property or assets of any of them is subject that is an
exhibit to any Incorporated Document or is known to such counsel, nor will any
such action result in any violation in any material respect of any existing law,
or any regulation, ruling (assuming compliance with all applicable state
securities
17
<PAGE>
and Blue Sky laws and, in the case of the Registration Rights Agreement, the Act
and the Exchange Act and the 1939 Act), judgment, injunction, order or decree
known to such counsel, applicable to the Company or the Significant Subsidiaries
or any of their respective properties;
(viii) No consent, approval, authorization or other
order of, or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency, or official is
required on the part of the Company (except as have been obtained under the
Exchange Act, or such as may be required under state securities or Blue Sky laws
governing the purchase and distribution of the Notes, or such as may be required
to qualify the Indenture under the 1939 Act, and such as may be required in
connection with the performance by the Company of its obligations under the
Registration Rights Agreement, as to which such counsel need not express an
opinion) for the valid issuance and sale of the Notes to the Initial Purchasers
as contemplated by this Agreement;
(ix) The Incorporated Documents (except for the
financial statements and the notes thereto and the schedules and other financial
and statistical data included therein, as to which such counsel need not express
any opinion), at the time they were filed, appear on their face to have complied
as to form in all material respects with the requirements of the Exchange Act;
(x) To the knowledge of such counsel, (A) there are no
legal or governmental proceedings pending or threatened against the Company or
any of the Subsidiaries, or to which the Company or any of the Subsidiaries, or
any of their property, are subject, which are not disclosed in the Offering
Memorandum and which, if adversely decided, are reasonably likely to cause a
Material Adverse Effect or materially affect the issuance of the Notes or the
consummation of the transactions contemplated by the Operative Documents and (B)
there are no material agreements, contracts, indentures, leases or other
instruments, that are not described in the Offering Memorandum (or any amendment
or supplement thereto) or that are required to be filed as an exhibit to any
Incorporated Document that are not filed as required;
(xi) The statements in the Offering Memorandum, insofar
as they are descriptions of contracts, agreements or other legal documents, or
refer to statements of law or legal conclusions, are accurate in all material
respects and present fairly the information described therein;
(xii) When the Notes are issued and delivered pursuant
to this Agreement, such Notes will not be of the same class (within the meaning
of Rule 144A(d)(3) under the Act) as any security of the Company that is listed
on a national securities exchange registered under Section 6 of the Exchange Act
or that is quoted in a United States automated interdealer quotation system;
(xiii) No registration of the Notes under the Act is
required for the sale of the Notes to the Initial Purchasers as contemplated in
this Agreement or for the Exempt Resales (assuming (A) that any Eligible
Purchaser who buys the Notes in the Exempt Resales is a Qualified Institutional
Buyer and (B) the accuracy of the Initial Purchasers' representations and those
of the Company in this Agreement regarding the absence of general solicitation
in connection with the Exempt Resales);
(xiv) The Company is not required to deliver the
information specified in Rule 144A(d)(4) in connection with the offering and
resale of the Notes by the Initial Purchasers; and
18
<PAGE>
(xv) Although such counsel has not undertaken, except as
otherwise indicated in their opinion, to determine independently, and does not
assume any responsibility for, the accuracy, completeness or fairness of the
statements in the Offering Memorandum, such counsel has participated in the
preparation of the Offering Memorandum, including review and discussion of the
contents thereof, and has reviewed the Incorporated Documents, and, relying as
to materiality to a large extent upon the opinions of officers and other
representatives of the Company, nothing has come to the attention of such
counsel that has caused them to believe that the Offering Memorandum, as of its
date and as of the Closing Date contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading or that any amendment or supplement to the Offering
Memorandum, as of its respective date, and as of the Closing Date contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading (it being
understood that such counsel need express no opinion with respect to the
financial statements and the notes thereto and the schedules and other financial
and statistical data included or incorporated by reference in the Offering
Memorandum and information furnished by or on behalf of the Initial Purchasers).
The opinion of such counsel shall be limited to the laws of
the United States, the State of New York and the internal corporation law of the
State of Delaware.
(d) The Initial Purchasers shall have received on the Closing
Date an opinion of Marshall A. Elkins, Esq., General Counsel of the Company,
dated the Closing Date and addressed to the Initial Purchasers to the effect
that:
(i) The Company is duly registered and qualified to
conduct its business and is in good standing as a foreign corporation in each
jurisdiction or place where the nature of its properties or the conduct of its
business requires such registration or qualification, except where the failure
so to register or qualify or to be in good standing does not have a Material
Adverse Effect;
(ii) All the shares of capital stock of the Company
outstanding prior to the issuance of the Notes have been duly authorized and
validly issued, are fully paid and nonassessable;
(iii) Each Subsidiary is duly registered and qualified
to conduct its business and is in good standing as a foreign corporation or
limited partnership in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify or to be in
good standing does not have a Material Adverse Effect;
(iv) Neither the Company nor any of the Subsidiaries is
in violation in any material respect of its respective certificate or articles
of incorporation or bylaws, or other organizational documents, or to the best
knowledge of such counsel after reasonable inquiry, is in default in any
material respect in the performance of any material obligation, agreement or
condition contained in any bond, debenture, note or other evidence of
indebtedness or in any material agreement, indenture, lease or other instrument
to which the Company or any of the Subsidiaries is a party or by which any of
them or any of their respective properties may be bound, except as disclosed in
the Offering Memorandum and except to the extent that any such violation or
default would not have a Material Adverse Effect;
19
<PAGE>
(v) Such counsel has no reason to believe that the
Company and its Subsidiaries do not have all Permits (including, without
limitation, such Permits as are necessary under such federal and state health
care laws and under such HMO and similar licensure laws and such insurance laws
and regulations as are applicable to the Company and its Subsidiaries) as are
necessary to own, lease and operate its properties and conduct its business,
except to the extent that the failure to have such Permits would not have a
Material Adverse Effect; and to the best knowledge of such counsel after
reasonable inquiry there are no proceedings pending or threatened against the
Company or any of its Subsidiaries that may cause any such Permit that is
material to the conduct of the business of the Company or any of its
Subsidiaries to be revoked, withdrawn, cancelled, suspended or not renewed;
(vi) Such counsel has no reason to believe that (a) the
business practices of the Company or any of its Subsidiaries violate in any
material respect any applicable provisions of federal or state law governing
Medicare or any state Medicaid program, including without limitation, Sections
1320a-7a and 1320a-7b of Title 42 of the United States Code, or that any
individual with an ownership or control interest, as defined in 42 U.S.C.
ss.1320a-3(a)(3), in the Company or any of its Subsidiaries or who is an
officer, director, or managing employee as defined in 42 U.S.C. ss.1320a-5(b),
of the Company or any of its Subsidiaries is a person described in 42 U.S.C.
ss.1320a-7(b)(8)(B), or that (b) the Company's or any Subsidiary's business
practices violate in any material respect any applicable provisions of federal
or state law regarding physician ownership of, or financial relationship with,
or referral to entities providing health care related goods or services, or laws
requiring disclosure of financial interests held by physicians in entities to
which they may refer patients for the provision of health care related goods or
services; and to the best knowledge of such counsel after reasonable inquiry,
neither the Company nor any of its Subsidiaries is in violation of any other
law, ordinance, administrative or governmental rule or regulation applicable to
the Company or any of its Subsidiaries or of any decree of any court or
governmental agency or body having jurisdiction over the Company or any of its
Subsidiaries, except to the extent that any such violation would not have a
Material Adverse Effect; and
(vii) Although such counsel has not undertaken, except
as otherwise indicated in such counsel's opinion, to determine independently,
and does not assume any responsibility for, the accuracy, completeness or
fairness of the statements in the Offering Memorandum, such counsel has
participated in the preparation of the Offering Memorandum and the Incorporated
Documents, and nothing has come to the attention of such counsel that has caused
such counsel to believe that the Offering Memorandum, as of its date and as of
the Closing Date, contained an untrue statement of material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading or that any amendment or supplement to the Offering Memorandum,
as of its respective date, and as of the Closing Date contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading (it being
understood that such counsel need express no opinion with respect to the
financial statements and the notes thereto and the schedules and other financial
and statistical data included or incorporated by reference in the Offering
Memorandum and information furnished by or on behalf of the Initial Purchasers).
(e) The Initial Purchasers shall have received on the Closing
Date an opinion of Dewey Ballantine, counsel for the Initial Purchasers, dated
the Closing Date, and addressed to the Initial Purchasers, with respect to the
matters referred to in clauses (iv), (v), (vi), (xiii)
20
<PAGE>
and (xv) of the foregoing paragraph (c) and such other related matters as the
Initial Purchasers may request.
(f) The Initial Purchasers shall have received letters
addressed to the Initial Purchasers, and dated the date hereof and the Closing
Date from KPMG Peat Marwick LLP and Deloitte & Touche LLP, independent certified
public accountants, substantially in the forms heretofore approved by the
Initial Purchasers.
(g) (i) There shall not have been any material change in the
capital stock of the Company nor any material increase in the short-term or
long-term debt of the Company (other than in the ordinary course of business)
from that set forth or contemplated in the Offering Memorandum (or any amendment
or supplement thereto); (ii) there shall not have been, since the respective
dates as of which information is given in the Offering Memorandum (or any
amendment or supplement thereto), except as may otherwise be stated in the
Offering Memorandum (or any amendment or supplement thereto), any material
adverse change in the condition (financial or other), business, prospects,
properties, net worth or results of operations of the Company and the
Subsidiaries taken as a whole; (iii) the Company and the Subsidiaries shall not
have any liabilities or obligations, direct or contingent (whether or not in the
ordinary course of business), that are material to the Company and the
Subsidiaries, taken as a whole, other than those reflected in the Offering
Memorandum (or any amendment or supplement thereto); and (iv) all the
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects on and as of the date hereof and on
and as of the Closing Date as if made on and as of the Closing Date, and the
Initial Purchasers shall have received a certificate, dated the Closing Date and
signed by the chief executive officer and the chief accounting officer of the
Company (or such other officers as are acceptable to the Initial Purchasers), to
the effect set forth in this Section 7(g) and in Section 7(h) hereof.
(h) The Company shall not have failed at or prior to the
Closing Date to have performed or complied with any of its agreements herein
contained and required to be performed or complied with by it hereunder at or
prior to the Closing Date.
(i) The Initial Purchasers shall have received certificates
dated the date hereof and the Closing Date signed by the chief accounting
officer of the Company substantially in the forms heretofore approved by the
Initial Purchasers, respecting the Company's compliance with the financial
covenants set forth in each of the Company's indentures, the Credit Agreement
and certain other agreements of the Company.
(j) There shall not have been any announcement by any
"nationally recognized statistical rating organization," as defined for purposes
of Rule 436(g) under the Act, that (i) it is downgrading its rating assigned to
any class of securities of the Company, or (ii) except as disclosed in the
Offering Memorandum, it is reviewing its ratings assigned to any class of
securities of the Company with a view to possible downgrading, or with negative
implications, or direction not determined.
(k) The Notes shall have been approved for trading on PORTAL.
(l) Prior to the date of this Agreement, the Company shall
have received and shall have furnished to the Initial Purchasers copies of the
requisite written consent of the lenders party to the Credit Agreement to the
consummation by the Company of the transactions contemplated by the Operative
Documents and the Offering Memorandum.
21
<PAGE>
(m) The Company shall have furnished or caused to be furnished
to the Initial Purchasers such further certificates and documents as the Initial
Purchasers shall have requested.
All such opinions, certificates, letters and other documents
will be in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to the Initial Purchasers and counsel for the
Initial Purchasers.
Any certificate or document signed by any officer of the
Company and delivered to the Initial Purchasers, or to counsel for the Initial
Purchasers, shall be deemed a representation and warranty by the Company to the
Initial Purchasers as to the statements made therein.
8. Expenses. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing or reproduction of the
Offering Memorandum (including financial statements thereto), and each amendment
or supplement thereto; (ii) the printing (or reproduction) and delivery
(including postage, air freight charges and charges for counting and packaging)
of such copies of the Offering Memorandum, the Preliminary Offering Memorandum,
the Incorporated Documents, and all amendments or supplements to any of them as
may be reasonably requested for use in connection with the offering and sale of
the Notes; (iii) the preparation, printing, authentication, issuance and
delivery of certificates for the Notes, including any stamp taxes in connection
with the original issuance and sale of the Notes; (iv) the printing (or
reproduction) and delivery of this Agreement, the Indenture, the Registration
Rights Agreement, the preliminary and supplemental Blue Sky Memoranda and all
other agreements or documents printed (or reproduced) and delivered in
connection with the offering of the Notes; (v) the application for quotation of
the Notes on PORTAL; (vi) the qualification of the Notes for offer and sale
under the securities or Blue Sky laws of the several states as provided in
Section 4(f) hereof (including the reasonable fees, expenses and disbursements
of counsel for the Initial Purchasers relating to the preparation, printing or
reproduction, and delivery of the preliminary and supplemental Blue Sky
Memoranda and such qualification); (vii) the performance by the Company of its
obligations under the Registration Rights Agreement; (viii) the fees and
expenses of the Company's accountants and the fees and expenses of counsel
(including local and special counsel) for the Company; and (ix) the
transportation and other expenses incurred by or on behalf of Company
representatives in connection with presentations to prospective purchasers of
the Notes. The Company hereby agrees that it will pay in full on the Closing
Date the fees and expenses referred to in clause (vi) of this Section 8 by
delivering to counsel for the Initial Purchasers on such date a check payable to
such counsel in the requisite amount.
9. Effective Date of Agreement. This Agreement shall become
effective upon the execution and delivery hereof by all the parties hereto.
Until such time as this Agreement shall have become effective, it may be
terminated by the Company, by notifying the Initial Purchasers, or by the
Initial Purchasers, by notifying the Company.
Any notice under this Section 9 may be given by telegram,
telecopy or telephone but shall be subsequently confirmed by letter.
10. Default by an Initial Purchaser. If any Initial Purchaser
shall fail or refuse to purchase the Notes which it is obligated to purchase on
the Closing Date, and arrangements satisfactory to the non-defaulting Initial
Purchasers and the Company for the
22
<PAGE>
purchase of such Notes by the non-defaulting Initial Purchasers or by another
party or parties satisfactory to the non-defaulting Initial Purchasers and the
Company are not made within thirty-six (36) hours after such default, this
Agreement shall terminate without liability on the part of the non-defaulting
Initial Purchasers or the Company. In any such case which does not result in
termination of this Agreement, either the non-defaulting Initial Purchasers or
the Company shall have the right to postpone the Closing Date, but in no event
for longer than seven (7) days, in order that the required changes, if any, in
the Offering Memorandum or any other documents or arrangements may be effected.
Any action taken under this paragraph shall not relieve a defaulting Initial
Purchaser from liability in respect of such default under this Agreement. The
term "Initial Purchaser" as used in this Agreement includes, for all purposes of
this Agreement, any party not identified in this Agreement who purchases Notes
which a defaulting Initial Purchaser is obligated, but fails or refuses, to
purchase.
11. Termination of Agreement. This Agreement shall be subject
to termination in the absolute discretion of the Initial Purchasers, without
liability on the part of the Initial Purchasers to the Company, by notice to the
Company, if prior to the Closing Date (i) trading in securities generally on the
New York Stock Exchange, American Stock Exchange or the Nasdaq National Market
shall have been suspended or materially limited, (ii) a general moratorium on
commercial banking activities in New York shall have been declared by either
Federal or state authorities, or (iii) there shall have occurred any outbreak or
escalation of hostilities or other international or domestic calamity, crisis or
change in political, financial or economic conditions, the effect of which on
the financial markets of the United States is such as to make it, in the
judgment of the Initial Purchasers, impracticable or inadvisable to commence or
continue the offering of the Notes on the terms set forth on the cover page of
the Offering Memorandum or to enforce contracts for the resale of the Notes by
the Initial Purchasers. Notice of such termination may be given to the Company
by telegram, telecopy or telephone and shall be subsequently confirmed by
letter.
12. Information Furnished by the Initial Purchasers. The
statements set forth in the stabilization legend on the inside front cover, the
last paragraph on the cover page and in the third and seventh paragraphs under
the caption "Plan of Distribution" in the Preliminary Offering Memorandum and
Offering Memorandum, constitute the only information furnished by or on behalf
of the Initial Purchasers as such information is referred to in Sections 5(b)
and 6 hereof, except that each of Smith Barney Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and Citicorp Securities, Inc. has furnished the
information relating to them contained in the eighth paragraph, and Citicorp
Securities, Inc. has furnished the information contained in the ninth paragraph,
under the caption "Plan of Distribution" contained in the Preliminary Offering
Memorandum and the Offering Memorandum.
13. Miscellaneous. Except as otherwise provided in Sections 4,
9 and 11 hereof, notice given pursuant to any provision of this Agreement shall
be in writing and shall be delivered (i) if to the Company, at the office of the
Company at 10065 Red Run Boulevard, Owings Mills, MD 21117, Attention: General
Counsel, with a copy to Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York,
NY 10103, Attention: Roy L. Goldman, Esq. or (ii) if to the Initial Purchasers,
to Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, Attention:
Manager, Investment Banking Division, with a copy to Dewey Ballantine, 1301
Avenue of the Americas, New York, NY 10019, Attention: Frederick W. Kanner, Esq.
This Agreement has been and is made solely for the benefit of
the Initial Purchasers, the Company, its directors, its officers and the
controlling persons referred to in Section 6 hereof and their respective
successors and assigns, to the extent provided herein, and
23
<PAGE>
no other person shall acquire or have any right under or by virtue of this
Agreement. Neither the term "successor" nor the term "successors and assigns" as
used in this Agreement shall include a purchaser from the Initial Purchasers of
any of the Notes in his status as such purchaser.
14. Applicable Law; Counterparts. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed within the State of New York
without giving effect to the choice of laws or conflict of laws principles
thereof.
This Agreement may be signed in various counterparts which
together constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
24
<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement between the Company and the Initial Purchasers.
Very truly yours,
INTEGRATED HEALTH SERVICES, INC.
By: /s/ Eleanor J. Harding
---------------------------------
Name: Eleanor J. Harding
Title: Executive Vice President-
Finance
Accepted in New York, New York
September 8, 1997
Confirmed as of the date first above mentioned.
SMITH BARNEY INC.
MORGAN STANLEY & CO. INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CITICORP SECURITIES, INC.
By: SMITH BARNEY INC.
By: /s/ Benjamin R. Lorello
-------------------------------
Name: Benjamin R. Lorello
Title: Managing Director
II
<PAGE>
SCHEDULE I
INTEGRATED HEALTH SERVICES, INC.
Principal Amount
Initial Purchaser of Notes
- ----------------- ----------------
Smith Barney Inc......................................... $250,000,000
Morgan Stanley & Co. Incorporated........................ 100,000,000
Donaldson, Lufkin & Jenrette
Securities Corporation................................. 75,000,000
Citicorp Securities, Inc................................. 75,000,000
------------
Total.................................................... $500,000,000
============
<PAGE>
SCHEDULE II
-----------
<TABLE>
<CAPTION>
========================================================================================================================
STATE OF STATE(S)
COMPANY INCORPORATION QUALIFIED TO DO BUSINESS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTH CARE INDUSTRIES Florida
- ------------------------------------------------------------------------------------------------------------------------
IHS ACQUISITION XX, INC. California
- ------------------------------------------------------------------------------------------------------------------------
IHS NETWORK SERVICES, INC. Delaware Florida
- ------------------------------------------------------------------------------------------------------------------------
INTEGRATED HEALTH SERVICES OF
KURT, INC. Delaware Washington
- ------------------------------------------------------------------------------------------------------------------------
SYMPHONY RESPIRATORY SERVICES, INC. Delaware Arkansas
Arizona
California
District of Columbia
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kentucky
Louisiana
Maine
Maryland
Michigan
Minnesota
Missouri
Mississippi
North Carolina
Nebraska
New Hampshire
New Jersey
New York
Ohio
Oklahoma
Pennsylvania
South Carolina
Tennessee
Texas
Virginia
Wisconsin
West Virginia
Wyoming
- ------------------------------------------------------------------------------------------------------------------------
TEXAS LPC, INC. Texas
- ------------------------------------------------------------------------------------------------------------------------
WEST COAST CAMBRIDGE, INC. California
- ------------------------------------------------------------------------------------------------------------------------
WOODRIDGE CONVALESCENT CENTER, INC.
CENTER, INC. Texas
========================================================================================================================
</TABLE>
$500,000,000
INTEGRATED HEALTH SERVICES, INC.
9 1/4% Senior Subordinated Notes due 2008
REGISTRATION RIGHTS AGREEMENT
-----------------------------
September 8, 1997
SMITH BARNEY INC.
MORGAN STANLEY & CO. INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CITICORP SECURITIES, INC.
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Integrated Health Services, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to Smith Barney Inc., Morgan Stanley &
Co. Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and
Citicorp Securities, Inc. (the "Initial Purchasers"), upon the terms set forth
in a purchase agreement of even date herewith (the "Purchase Agreement"), an
aggregate of $500,000,000 principal amount of its 9 1/4% Senior Subordinated
Notes due 2008 (the "Notes"). The Notes will be issued pursuant to an indenture
(the "Indenture") dated as of September 11, 1997, between the Company and First
Union National Bank, as trustee (the "Trustee"). As an inducement to the Initial
Purchasers to enter into the Purchase Agreement and in satisfaction of a
condition to the obligations of the Initial Purchasers thereunder, the Company
agrees with the Initial Purchasers, for the benefit of the holders of the Notes
(including, without limitation, the Initial Purchasers), as follows:
1. Registered Exchange Offer. The Company shall prepare and,
as promptly as reasonably practicable after the date on which the Company
delivers the Notes to the Initial Purchasers (the "Closing Date"), file with the
Securities and Exchange Commission (the "Commission") a registration statement
on an appropriate form under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to a proposed offer (the "Registered Exchange
Offer") to the holders of the Notes to issue and deliver to such holders, in
exchange for the Notes, a like principal amount of debt securities of the
Company identical in all material respects to, and entitled to substantially the
same benefits of, the Notes (the "New Notes"), shall use all reasonable efforts
to cause such registration statement to become effective under the Securities
Act and, following the declaration of the effectiveness of that registration
statement, shall use all reasonable efforts to commence the Registered Exchange
Offer and shall cause the same to remain open for a period of not less than the
period required under applicable Federal and state securities laws, and to be
conducted in accordance with such procedures as may be required by the
applicable provisions of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), it being the objective of such Registered Exchange Offer to
enable each holder of Notes electing to
<PAGE>
exchange Notes for New Notes (assuming that such holder is not an affiliate of
the Company within the meaning of the Securities Act, acquires the New Notes in
the ordinary course of such holder's business and has no arrangements with any
person to participate in the distribution of the New Notes) to trade such New
Notes from and after their receipt without any limitations or restrictions under
the Securities Act (subject to any applicable requirement that broker-dealers
deliver a prospectus meeting the requirements of the Securities Act in
connection with sales of New Notes received by them in the Registered Exchange
Offer). In connection with such Registered Exchange Offer, the Company shall
take such other action, including, without limitation, appropriate filings under
state securities laws, as may be necessary to realize the foregoing objective.
The New Notes may be issued in the Registered Exchange Offer under (i) the
Indenture or (ii) an indenture substantially similar to the Indenture, and will
not be subject to the transfer restrictions described in the Offering Memorandum
(subject to any applicable requirement that broker-dealers deliver a prospectus
meeting the requirements of the Securities Act in connection with sales of New
Notes received by them in the Registered Exchange Offer), and the New Notes and
the Notes will vote and consent together on all matters as one class and neither
the New Notes nor the Notes will have the right to vote or consent as a separate
class on any matter. The Company agrees that for a period of 90 days after
consummation of the Registered Exchange Offer it will make available a
prospectus meeting the requirements of the Securities Act (which may be the
prospectus used in connection with the Registered Exchange Offer) to any
broker-dealer for use in connection with any resale of New Notes acquired by
such broker-dealer in the Registered Exchange Offer.
2. Shelf Registration. If, because the Registered Exchange
Offer would violate any applicable law or the applicable interpretations of the
Commission's staff or because of any change in currently prevailing
interpretations of the Commission's staff, the Company is not permitted to
effect the Registered Exchange Offer as contemplated by Section 1 hereof or in
the event the Registered Exchange Offer is not for any other reason consummated
within 240 days after the Closing Date, the Company shall take the following
actions:
(a) The Company shall, as promptly as reasonably practicable
after (i) the Closing Date, in the event the Company is not permitted to effect
the Registered Exchange Offer as contemplated by Section 1 hereof because the
Registered Exchange Offer would violate an applicable law or an applicable
interpretation of the Commission's staff or because of a change in a currently
prevailing interpretation of the Commission's staff or (ii) 240 days after the
Closing Date, if the Registered Exchange Offer is not for any other reason
consummated by such date, file with the Commission and thereafter shall use all
reasonable efforts to cause to be declared effective a registration statement on
an appropriate form under the Securities Act relating to the offer and sale of
the Notes by the holders thereof from time to time in accordance with the
methods of distribution set forth in such registration statement and Rule 415
under the Securities Act (hereafter, the "Shelf Registration").
(b) The Company shall use all reasonable efforts to keep the
registration statement relating to the Shelf Registration continuously effective
in order to permit the prospectus included therein to be usable by the holders
of the Notes for a period of two years from the date the registration statement
is declared effective or such shorter period that will terminate when all the
Notes covered by the registration statement have been sold pursuant to such
registration statement; provided, that the Company shall be deemed not to have
used all reasonable efforts to keep the registration statement effective during
the requisite period if it voluntarily takes any action that would result in
holders of Notes covered thereby not being able to offer and sell such
securities during that period, unless such action is required by applicable law,
including, but not limited to, reasonable periods necessary to prepare
appropriate disclosure. The foregoing proviso shall not apply to actions taken
(or contemplated to be taken) by the Company in good faith and for business
reasons (a "Suspension Event"), including, without limitation, the
2
<PAGE>
acquisition or divestiture of assets or the offering or sale of securities, so
long as the Company promptly thereafter complies with the requirements of
Section 3(h) hereof, if applicable. Any such period during which the Company
fails to keep the registration statement effective and usable for offers and
sales of Notes is referred to as a "Suspension Period." A Suspension Period
shall commence on and include the date that the Company gives notice that the
registration statement is no longer effective or the prospectus included therein
is no longer usable for offers and sales of Notes and shall end on the date when
each seller of Notes covered by such registration statement either receives the
copies of the supplemented or amended prospectus contemplated by Section 3(h)
hereof or is advised in writing by the Company that use of the prospectus may be
resumed.
(c) Notwithstanding any other provisions of this Agreement to
the contrary, the Company shall cause the registration statement and the related
prospectus and any amendment or supplement thereto, as of the effective date of
such registration statement, amendment or supplement, (i) to comply in all
material respects with the applicable requirements of the Securities Act and the
rules and regulations of the Commission and (ii) not to 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 therein not misleading other
than statements or omissions made in reliance upon and in conformity with
information furnished to the Company in writing by the Initial Purchasers
expressly for use in such registration statement and the related prospectus and
any amendment or supplement thereto.
3. Registration Procedures. In connection with any Shelf
Registration contemplated by Section 2 hereof and, to the extent applicable, the
Registered Exchange Offer contemplated by Section 1 hereof, the following
provisions shall apply:
(a) The Company shall furnish to the Initial Purchasers, prior
to the filing thereof with the Commission, a copy of the registration statement
and each amendment thereof and each supplement, if any, to the prospectus
included therein and shall obtain the consent (which shall not be unreasonably
withheld or delayed) of the Initial Purchasers to any such filing.
(b) The Company shall advise the Initial Purchasers and the
holders of the Notes and the New Notes (to the extent applicable) in writing:
(i) when the registration statement and any amendment
thereto has been filed with the Commission and when the registration
statement or any post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or
supplements to the registration statement or the prospectus included
therein or for additional information;
(iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Notes and
New Notes for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose; and
(v) of the happening of any event (other than a
Suspension Event, in which case the Company need only notify the
Initial Purchasers and the holders of the Notes that a Suspension Event
exists) that requires the Company to make changes in the registration
statement
3
<PAGE>
or the prospectus in order to make the statements therein not
misleading (which advice shall be accompanied by an instruction that
such notice constitutes material nonpublic information, and to suspend
the use of the prospectus until the requisite changes have been made,
and which instruction shall require that such holders shall not
communicate such material nonpublic information to any third party and
shall not sell or purchase, or offer to sell or purchase, any
securities of the Company after receipt of such advice and prior to the
effectiveness of any action required to be taken by the Company
pursuant to Section 3(h) hereof).
(c) The Company shall use all reasonable efforts to prevent
the issuance or obtain the withdrawal of any order suspending the effectiveness
of the registration statement at the earliest possible time.
(d) The Company shall furnish to each holder of Notes included
within the coverage of the Shelf Registration, without charge, at least one copy
of the registration statement and any post-effective amendment thereto,
including financial statements and schedules, and, if the holder so requests in
writing, all exhibits (including those incorporated by reference).
(e) The Company shall deliver to each holder of Notes included
within the coverage of the Shelf Registration, if any, without charge, as many
copies of the prospectus (including each preliminary prospectus) included in the
registration statement with respect to the Shelf Registration and any amendment
or supplement thereto as such persons may reasonably request. The Company
consents, subject to the provisions of the Agreement, to the use of the
prospectus or any amendment or supplement thereto by each of the selling holders
of Notes in connection with the offering and sale of the Notes covered by the
prospectus, or any amendment or supplement thereto, included in such
registration statement.
(f) Prior to any public offering of Notes pursuant to the
Shelf Registration, the Company shall register or qualify or cooperate with the
holders of securities included therein and their respective counsel in
connection with the registration or qualification of such Notes for offer and
sale under the securities or blue sky laws of such jurisdictions in the United
States as any holder of Notes reasonably requests in writing and do any and all
other acts or things necessary or advisable to enable the offer and sale in such
jurisdictions of the securities covered by the Shelf Registration; provided that
the Company shall not be required to (i) qualify generally to do business in any
jurisdiction where it is not then so qualified, (ii) take any action that would
subject it to the service of process in suits, other than as to matters and
transactions relating to the Shelf Registration, in any jurisdiction where it is
not now subject or (iii) take any action which would subject it to general
service of process or to taxation in any jurisdiction where it is not then so
subject.
(g) The Company shall cooperate with the holders of the Notes
to facilitate the timely preparation and delivery of certificates representing
Notes to be sold in the Shelf Registration free of any restrictive legends and
in such denominations and registered in such names as the holders may request a
reasonable period of time prior to sales of Notes pursuant to the Shelf
Registration.
(h) Upon the occurrence of any event contemplated by Section
3(b)(v) above (including, without limitation, any Suspension Event), the Company
shall, as promptly as reasonably practicable, prepare a post-effective amendment
to the registration statement or a supplement to the related prospectus or file
any other required document so that, as thereafter delivered to purchasers of
the Notes, the prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
not misleading.
4
<PAGE>
(i) Not later than the effective date of the applicable
registration statement, the Company will provide a CUSIP number for the New
Notes and provide the applicable trustee with printed certificates for the Notes
or New Notes, as the case may be, in a form eligible for deposit with The
Depository Trust Company.
(j) The Company will use all reasonable efforts to comply with
all rules and regulations of the Commission to the extent and so long as they
are applicable to the Registered Exchange Offer or the Shelf Registration and
will make generally available to its security holders (or otherwise provide in
accordance with Section 11(a) of the Securities Act) an earnings statement
satisfying the provisions of Section 11(a) of the Securities Act, no later than
45 days after the end of a 12-month period (or 90 days, if such period is a
fiscal year) beginning with the first month of the Company's first fiscal
quarter commencing after the effective date of the Shelf Registration, which
statement shall cover such 12-month period.
(k) The Company shall cause the Indenture (or an indenture
substantially identical to the Indenture in the case of a Registered Exchange
Offer) to be qualified under the Trust Indenture Act of 1939, as amended.
(l) The Company may require each holder of Notes to be sold
pursuant to the Shelf Registration to furnish to the Company such information
regarding the holder and the distribution of such Notes as the Company may from
time to time reasonably require for inclusion in the registration statement. The
Company may also require each holder of Notes participating in the Registered
Exchange Offer to represent to the Company that at the time of the consummation
of the Registered Exchange Offer (i) such holder is not an affiliate of the
Company, (ii) any New Notes received by such holder will be acquired in the
ordinary course of its business and (iii) such holder will have no arrangement
or understanding with any person to participate in the distribution of the Notes
or the New Notes within the meaning of the Securities Act. Each holder agrees by
acquisition of Notes that, upon receipt of any notice from the Company of the
existence of any fact of the kind described in Section 3(b)(v) hereof, such
holder will forthwith discontinue disposition of Notes until such holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 3(h) hereof, or until it is advised in writing by the Company that the
use of the prospectus may be resumed, and has received copies of any additional
or supplemental filings with respect to the Prospectus. If so directed by the
Company, each holder will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in such holder's possession, of
the prospectus covering such Notes current at the time of receipt of such
notice.
4. Registration Expenses. The Company shall bear all expenses
incurred in connection with the performance of its obligations under Sections 1
through 3 hereof and, in the event of a Shelf Registration, shall bear or
reimburse the holders of the Notes for the reasonable fees and disbursements of
one firm of counsel designated by the holders of a majority in principal amount
of the Notes to act as counsel for the holders of the Notes in connection
therewith.
5. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless (i) each
Initial Purchaser, (ii) each holder of Notes and/or New Notes (including
broker-dealers receiving New Notes in the Registered Exchange Offer) (each a
"Holder"), (iii) each person, if any, who controls (within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act) any Initial Purchaser
or any Holder (any of the persons referred to in this clause (iii) being
hereinafter referred to as a "controlling person") and (iv) the
5
<PAGE>
respective officers, directors, partners, employees, representatives and agents
of any Initial Purchaser or any Holder or any controlling person (any person
referred to in clause (i), (ii), (iii) or (iv) may hereinafter be referred to as
a "Non-Company Indemnitee"), to the fullest extent lawful, from and against any
and all losses, claims, damages, liabilities and judgments caused by any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus (or any amendments or supplements thereto)
prepared in accordance with this Agreement, including any document incorporated
by reference therein, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except, with respect to any Non-Company
Indemnitee, insofar as such losses, claims, damages, liabilities or judgments
(1) are caused by any such untrue statement or omission or alleged untrue
statement or omission based upon information furnished in writing to the Company
by such Non-Company Indemnitee expressly for use therein or (2) with respect to
any preliminary prospectus, result from the fact that such Non-Company
Indemnitee sold Notes or New Notes to a person to whom there was not sent or
given, at or prior to the written confirmation of such sale, a copy of the final
prospectus, as amended or supplemented, if required under the Securities Act and
if the Company shall have previously furnished copies thereof to such
Non-Company Indemnitee in accordance with this Agreement and the final
prospectus, as amended or supplemented, would have corrected such untrue
statement or omission.
(b) In case any action shall be brought against any
Non-Company Indemnitee based upon any registration statement or prospectus, or
any amendment or supplement thereto, and with respect to which indemnity may be
sought against the Company, such Non-Company Indemnitee shall promptly notify
the Company in writing and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Non-Company
Indemnitee and payment of all fees and expenses. Such Non-Company Indemnitee
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of counsel shall
be paid by such Non-Company Indemnitee, unless (i) the employment of such
counsel shall have been specifically authorized in writing by the Company, (ii)
the Company shall have failed to assume the defense and employ counsel or (iii)
the named parties to any such action (including any impleaded parties) include
both such Non-Company Indemnitee and the Company and such Non-Company Indemnitee
shall have been advised by counsel that it would be inappropriate for the same
counsel to represent such Non-Company Indemnitee and the Company (in which case
the Company shall not have the right to assume the defense of such action on
behalf of such Non-Company Indemnitee, it being understood, however, that the
Company shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for the Non-Company Indemnitees, which firm shall be designated in
writing by the Non-Company Indemnitees and whose fees and expenses reasonably
incurred shall be reimbursed as they are incurred). The Company shall not be
liable for any settlement of any such action effected without the written
consent of the Company, but if settled with the written consent of the Company,
the Company agrees to indemnify and hold harmless any Non-Company Indemnitee
from and against any amounts payable pursuant to such written consent in
connection with such settlement. Notwithstanding the immediately preceding
sentence, if in any case where the fees and expenses of counsel are at the
expense of the Company and a Non-Company Indemnitee shall have requested the
Company to reimburse such Non-Company Indemnitee for such fees and expenses of
counsel as incurred, the Company agrees that it shall be liable for any
settlement of any action effected without its written consent if (i) such
settlement is entered into more than 30 business days after the receipt by the
Company of the aforesaid request and (ii) the Company shall have failed to
reimburse such Non-Company Indemnitee in accordance with such request for
reimbursement prior to the date of such settlement. The Company shall not,
without the prior written consent of such Non-Company Indemnitee, effect any
settlement of any pending or threatened proceeding
6
<PAGE>
in respect of which such Non-Company Indemnitee is or could have been a party
and indemnity could have been sought hereunder by such Non-Company Indemnitee,
unless such settlement includes an unconditional release of such Non-Company
Indemnitee from all liability on claims that are the subject matter of such
proceeding.
(c) Each Holder agrees to indemnify and hold harmless (i) the
Company, (ii) each of the Initial Purchasers, (iii) each other Holder, (iv) any
person controlling (within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act) the Company, any Initial Purchaser and each other Holder and
(v) the respective officers, directors, partners, employees, representatives and
agents of each of the parties referred to in clauses (i), (ii), (iii) and (iv),
to the same extent as the foregoing indemnity from the Company to each of the
Non-Company Indemnitees, but only with respect to information relating to such
Holder that was furnished in writing by such Holder expressly for use in any
registration statement (or any amendment or supplement thereto) prepared in
accordance with this Agreement. In no event shall the liability of any Holder
hereunder be greater in amount than the dollar amount of the proceeds received
by such Holder upon the sales of the Notes or New Notes giving rise to such
indemnification obligation.
(d) If the indemnification provided for in this Section 5 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to herein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments in such proportion as is appropriate to
reflect the relative fault of the indemnifying party, on the one hand, and the
indemnified party, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
fault of the indemnifying party, on the one hand, and the indemnified party, on
the other hand, shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
indemnifying party, on the one hand, or the indemnified party, on the other
hand, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company, each Initial Purchaser and each Holder agree that
it would not be just and equitable if contribution pursuant to this Section 5(d)
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The losses, claims, damages, liabilities or
judgments of an indemnified party referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim prior to
the indemnifying party's assumption of the defense thereof or subsequent thereto
to the extent permitted by the second sentence of Section 5(b) hereof.
Notwithstanding the provisions of this Section 5, none of the Holders shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the total amount received by such Holder with respect to the sale of Notes
or New Notes exceeds the amount of any damages which such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations of Holders to contribute pursuant to this
Section 5(d) are several in proportion to the respective principal amount of
Notes and/or New Notes held by each of the Holders hereunder and not joint.
7
<PAGE>
6. Additional Interest Under Certain Circumstances.
-----------------------------------------------
(a) Additional interest (the "Penalty Interest") shall be
assessed as follows:
(i) If a registration statement with respect to a
Registered Exchange Offer or a Shelf Registration is not filed with the
Commission within 90 days following the Closing Date, then commencing
on the 91st day after the Closing Date, Penalty Interest shall be
accrued on the Notes over and above the accrued interest at a rate of
.25% per annum for the first 90 days immediately following the 90th day
after the Closing Date, such Penalty Interest rate increasing by an
additional .25 % per annum at the beginning of each subsequent 90-day
period;
(ii) If a registration statement with respect to a
Registered Exchange Offer or a Shelf Registration is filed as
contemplated by subsection 6(a)(i) above and is not declared effective
by the Commission within 180 days following the Closing Date, then,
commencing on the 181st day after the Closing Date, Penalty Interest
shall be accrued on the Notes over and above the accrued interest at a
rate of .25% per annum for the first 90 days immediately following the
180th day after the Closing Date, such Penalty Interest rate increasing
by an additional .25 % per annum at the beginning of each subsequent
90-day period; and
(iii) If either (A) the Company has not exchanged New
Notes for all Notes validly tendered in accordance with the terms of
the Registered Exchange Offer on or prior to 40 days after the date on
which the registration statement with respect to the Registered
Exchange Offer was declared effective, or (B) if applicable, a
registration statement with respect to a Shelf Registration has been
declared effective and such registration statement ceases to be
effective prior to two years from its original effective date (other
than by reason of the occurrence of a Suspension Event), then Penalty
Interest shall be accrued on the Notes over and above the accrued
interest at a rate of .25% per annum for the first 60 days immediately
following (x) the 40th day after such effective date in the case of (A)
above, or (y) the day such registration statement with respect to a
Shelf Registration ceases to be effective (other than by reason of the
occurrence of a Suspension Event) in the case of (B) above, such
Penalty Interest rate increasing by an additional .25% per annum at the
beginning of each subsequent 60-day period;
provided, however, that the Penalty Interest rate on the Notes may not exceed
1.0% per annum at any time; and provided, further, that (1) upon the filing of
the registration statement with respect to a Registered Exchange Offer or a
Shelf Registration (in the case of (i) above), (2) upon the effectiveness of the
registration statement filed with respect to a Registered Exchange Offer or a
Shelf Registration (in the case of (ii) above), or (3) upon the exchange of New
Notes for all Notes validly tendered in accordance with the terms of the
Registered Exchange Offer, or upon the effectiveness of the registration
statement filed with respect to a Shelf Registration which had ceased to remain
effective prior to two years from its original effective date (in the case of
(iii) above), Penalty Interest on the Notes as a result of such clause (i),
(ii), or (iii) shall immediately cease to accrue. The Penalty Interest specified
in this Section 6(a) shall be payable by the Company to the holders of Notes at
the times, in the manner and subject to the same terms and conditions set forth
in the Indenture, as nearly as may be, as though the rate set out in the Notes
had been increased, which payments shall be calculated pursuant to Section 6(b)
below. The interest rate on the Notes, inclusive of Penalty Interest, shall in
no event exceed 10 1/4% per annum.
(b) Any amounts of Penalty Interest due pursuant to clause
(i), (ii), or (iii) of Section 6(a) above will be payable in cash on the
interest payment dates of the Notes.
8
<PAGE>
The amount of Penalty Interest will be determined by
multiplying the applicable Penalty Interest rate by the principal amount of the
Notes, multiplied by a fraction, the numerator of which is the number of days
such Penalty Interest rate was applicable during such period (determined on the
basis of a 360-day year comprised of twelve 30-day months), and the denominator
of which is 360.
(v) If the Company effects the Registered Exchange Offer, the Company will be
entitled to close the Registered Exchange Offer provided that it has accepted
all Notes theretofore validly tendered in accordance with the terms of the
Registered Exchange Offer. Notes not tendered in the Registered Exchange Offer
shall bear interest at the same rates in effect at the time of issuance of the
Notes.
7. Miscellaneous.
-------------
(a) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, unless the Company has
obtained the written consent of holders of a majority in aggregate principal
amount of the Notes.
(b) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telex, telecopier or air courier which guarantees overnight delivery:
(1) If to a holder of Notes or New Notes, at the
most current address given by such holder to the Company in
accordance with the provisions of this Section 7(b), which
address initially is, with respect to each holder, the address
of such holder to which confirmation of the sale of Notes or
New Notes to such holder was first sent, with a copy in like
manner to the Initial Purchasers c/o Smith Barney Inc. at 388
Greenwich Street, New York, New York 10013.
(2) If to an Initial Purchaser, to the address
specified in 7(b)(1);
(3)If to the Company, at the following address:
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: General Counsel
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; three
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt acknowledged by recipient's
telecopy operator, if telecopied; and on the day delivered, if sent by overnight
air courier guaranteeing next day delivery.
(c) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without limitation, and without the need for an express
assignment, subsequent holders of the Notes and the New Notes.
9
<PAGE>
(d) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(f) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to its conflicts of laws rules.
(g) Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
10
<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement between the Company and the Initial Purchasers.
Very truly yours,
INTEGRATED HEALTH SERVICES, INC.
By: /s/ Eleanor C. Harding
------------------------------
Name: Eleanor C. Harding
Title: Executive Vice President-
Finance
Confirmed as of the date first
above mentioned.
SMITH BARNEY INC.
MORGAN STANLEY & CO. INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CITICORP SECURITIES, INC.
By: SMITH BARNEY INC.
By: /s/ Benjamine R. Lorello
------------------------------
Name: Benjamin R. Lorello
Title: Managing Director
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