SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-K
(Mark One)
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1996.
|_| 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: 1-11144
Regency Health Services, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 33-0210226
(State of incorporation) (I.R.S. Employer Identification No.)
2742 Dow Avenue
Tustin, California 92780
(Address of principal executive offices)
Registrant's telephone number, including area code: (714) 544-4443
Securities registered pursuant to Section 12(b) of the Act:
Title of Securities Name of Exchange on which Registered
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. []
Based on the closing price of $10 5/8 per share on February 28, 1997,
the aggregate market value of the registrant's voting stock held by
non-affiliates was $106,661,000. Solely for purposes of this computation, the
registrant's directors and executive offers have been deemed to be affiliates.
Such treatment is not intended to be, and should not be construed to be, an
admission by the registrant or such directors and officers that any of such
persons are "affiliates," as that term is defined under the Securities Act of
1934.
The number of shares of common stock outstanding as of February 28, 1997 was
15,792,157.
Documents Incorporated by Reference:
Portions of Regency's 1996 Annual Report to Shareholders are incorporated by
reference into Part II of this Form 10-K.
Portions of Regency's Notice of Annual Meeting of Stockholders and Proxy
Statement to be held May 8, 1997 are incorporated by reference into Part
III of this Forms 10-K.
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TABLE OF CONTENTS
PART I
ITEM 1 BUSINESS 1
ITEM 2 PROPERTIES 16
ITEM 3 LEGAL PROCEEDINGS 17
ITEM 4 SUBMISSION OF MATTERS
TO A VOTE OF SECURITY HOLDERS 17
PART II
ITEM 5 MARKET FOR REGENCY HEALTH
SERVICES, INC. COMMON STOCK
AND RELATED STOCKHOLDER MATTERS 18
ITEM 6 SELECTED FINANCIAL DATA 18
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 19
ITEM 8 FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA 30
ITEM 9 CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 55
PART III
ITEM 10 DIRECTORS AND EXECUTIVE
OFFICERS OF REGENCY HEALTH
SERVICES, INC. 56
ITEM 11 EXECUTIVE COMPENSATION 56
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 56
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS 56
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K 57
SIGNATURES 64
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PART I
ITEM 1. BUSINESS
General
This Annual Report on Form 10-K of Regency Health Services, Inc. ("the
Company" or "Regency") contains statements which constitute "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements appear in a number of places in this Annual Report
including, without limitation, under the headings General, Business Strategy,
Business Units, Manner of Operation, Sources of Payment, Regulation, Competition
and Tax Audits of the Section entitled "Business" and in Management's
Discussion and Analysis of Financial Condition and Results of Operations. Such
forward looking statements include the views, opinions and expectations of the
Company, its officers and directors with respect to the matters there discussed,
and as to the intent, belief and anticipation of such persons expressed in
this Annual Report. Readers are cautioned that any such forward looking
statements involve risks, uncertainties and factors that may impact on the
actual results or activities of the Company. These risks and items are discussed
below in greater detail in the portion of this Annual Report entitled "Factors
Which May Affect the Company".
Regency is a national provider of an array of healthcare services from acute
rehabilitation to home health care. As of February 28, 1997, the Company
delivered care from 116 Company operated inpatient facilities in five states.
These facilities provide a spectrum of services including acute rehabilitation,
neurological care, subacute treatment, basic and intermediate skilled nursing
care, assisted living and ancillary services such as rehabilitation and pharmacy
services. Additionally, the Company provides outpatient rehabilitation through
10 clinics. It also continues to expand its contract rehabilitation therapy,
pharmacy and home health operations. As of February 28, 1997, the Company
provided contract rehabilitation therapy services in 15 states to 63 affiliated
and 116 non-affiliated facilities, pharmacy services in four states to 70
affiliated and 84 non-affiliated facilities and home health care services
through 28 operating locations in California and Ohio.
In order to meet the challenges of healthcare reform, industry consolidation
and other changes, the Company plans to enhance the continuum of care it
provides in defined markets to suit the needs of those markets. The Company
believes adding various inpatient and outpatient services to the continuum,
while expanding the availability of current services like subacute care, will
attract managed care organizations seeking to build relationships with
integrated delivery systems. The Company expects the more diverse services
offered will provide "one stop" shopping for payors and will bring patients into
the Company's delivery system sooner, often either immediately following or in
lieu of invasive treatment. The Company also sees strategic joint operating
relationships with tertiary care institutions, payors and physicians as enabling
it to establish closer ties to the medical community.
Regency was incorporated in Delaware in 1986 and grew rapidly through
acquisitions. In April 1994, Regency merged with Care Enterprises, Inc. ("Care")
in a stock transaction accounted for as a pooling of interests ("the Merger").
The Merger more than doubled the number of facilities and beds operated by the
Company and made the Company a leading provider of long-term and specialty
healthcare services in California. It established a presence for Regency in West
Virginia, Ohio and New Mexico. Additionally, it provided a significant base for
the expansion of both the ancillary services offered by Regency and the home
health care services offered by Care. Following the Merger, management focused
on integrating Regency and Care operations. This included instituting
standardized systems, operating procedures and cost controls. The Company added
several experienced senior officers. Others were replaced, along with a number
of administrators at under-performing facilities. During 1995, the Company
exchanged leasehold interests in three nursing facilities in New Mexico for
leasehold interests in four nursing facilities in Ohio which were operated by
another company; opened a newly constructed facility; and acquired SCRS &
Communicology, Inc. ("SCRS"), a contract rehabilitation therapy company. In
1996, the Company disposed of 7 healthcare facilities in California. It also
acquired 19 healthcare facilities in Tennessee and North Carolina; pharmacy
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operations in California, Tennessee and North Carolina, and entered into a joint
venture with a pharmacy in Ohio. To complete the roster of contract
rehabilitation services provided by SCRS, the subsidiary acquired a respiratory
therapy company. In early 1997, the Company acquired four acute rehabilitation
hospitals, six neurological treatment centers and eleven outpatient
rehabilitation clinics in California.
Industry Overview
Healthcare is one of the largest industries in the United States,
representing total expenditures of approximately $884.0 billion or 13.9% of the
1993 gross domestic product, according to the Health Care Financing
Administration ("HCFA"). This 1993 figure represents a 7.8% increase over 1992
expenditures of $820.0 billion recorded by HCFA. Historically, these increases
have outpaced inflation. This is due, in part, to the increased availability and
use of high-technology medicine and to the diverse medical needs of an aging
population.
The post-acute care industry encompasses a broad range of healthcare
services, including basic and intermediate skilled nursing, assisted living,
ambulatory businesses, subacute care, rehabilitation therapy including acute
rehabilitation, home healthcare and pharmacy services provided to patients with
medically complex needs who can be cared for outside of the acute care hospital
environment. The Company's management believes that demand for these services
will increase substantially during the next decade, primarily due to emphasis on
healthcare cost containment and to the growing senior population.
The senior population is growing at a faster rate than the overall population
as a result of the baby boom and advances in medical technology that extend
life. According to the United States Census Bureau ("the Census Bureau"), the
number of individuals in the United States over 64 has grown from approximately
25.6 million in 1980, or approximately 11.3% of the population, to approximately
31.1 million in 1990, or approximately 12.5% of the population. Census Bureau
projections indicate that the number of individuals in this age group is
expected to increase to approximately 34.9 million, to approximately 12.7% of
the population, by the year 2000. Additionally, individuals 85 years of age and
older are one of the fastest growing segments of the population. The Census
Bureau projects that the number of individuals in that age group will increase
from approximately 3.0 million in 1990 to approximately 4.3 million by the year
2000.
Cost containment procedures that encourage reduced lengths of stay in acute
care hospitals are prevalent. In 1983, the federal government changed the
reimbursement for acute care hospitals from a retrospective cost-based system to
a prospective reimbursement system based upon rates established for diagnosis
related groups ("DRGs"). Additionally, many private insurers limit acute care
reimbursement to "reasonable and customary" charges while health maintenance
organizations ("HMOs") and preferred-provider organizations ("PPOs") attempt to
contain costs by negotiating reduced rates for acute care hospital services.
These factors have resulted in reduced lengths of stay in acute care hospitals,
with many patients being discharged to lower level facilities where their
skilled needs can be met more cost-effectively. Accordingly, the Company
believes that the healthcare industry will experience increased demand for
post-acute care. The Company is well positioned to benefit from these
developments due to its expanding capability to provide post-acute and subacute
specialty services. Additionally, industry consolidation is expected to present
the Company with opportunities for growth and expansion of its continuum of
care.
Although the Company believes that the demand for the services it provides
will increase over the next decade, it anticipates competition to meet this
demand. In addition, the regulatory framework in which healthcare providers will
operate, including parameters for payment of services, is uncertain. Depending
on the nature of such regulation, the healthcare industry may be subject to
increased pressure to lower operating costs and may face more stringent
requirements regarding reimbursement.
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Business Strategy
The Company's strategy is to enhance its position as an integrated delivery
provider recognized for cost-effective, high-quality healthcare services in
selected geographic areas. Implementation of this strategy means adding certain
inpatient and outpatient services along with growing ancillary businesses
based on the needs of the markets where it currently has operations, and
involves certain risks. See "Factors Which May Affect Company". In addition, the
Company plans to develop the information technology infrastructure necessary to
support the cost-effective operation of this integrated delivery system. The
fundamental elements of the Company's strategy include:
o expanding the continuum of care and overall scope of services provided
by the Company through such means as strategic alliances, diversifying
services in inpatient facilities, increasing outpatient ambulatory
business and growth of home healthcare services;
o in-sourcing ancillary services such as pharmacy and rehabilitation
services;
o increasing the Company's marketing of ancillary services to third party
facilities;
o acquiring new businesses to complete the continuum in selected markets
where the Company currently operates;
o eengineering operating models and investment in information technology
to reduce administrative and operating costs and develop an integrated
delivery system.
Management believes Regency has certain competitive strengths which support
its strategy. Foremost among these is the Company's market position and
experience operating long-term care facilities in California. The California
market is characterized by a high degree of regulatory oversight and cost
controls imposed by third party payors. With 64% of its revenues in this
environment, the Company has considerable experience controlling operating costs
while continuing to deliver high-quality healthcare. The Company believes it
will be able to utilize this experience as a competitive advantage as it
broadens the continuum of care offered to its patients in existing markets and
expands its ancillary service businesses in new markets. The Company has reduced
revenues from Medi-Cal from 32.3% of total revenues in 1995 to 21.7% (pro-forma
for the acquisition of four acute rehabilitation hospitals, six neurological
care centers and 10 outpatient clinics on January 1, 1997 and the disposition of
six long term care facilities in 1996 and one on January 1, 1997) for 1996.
Expanding the Continuum of Care. A significant component of Regency's growth
strategy is expanding the continuum of care. By increasing its scope of
services, the Company believes that it will attract additional managed care
payors and other insurers as participants in its regional, integrated delivery
systems. Given the current industry consolidation, the Company believes this
strategy is necessary to establish a significant market position in the
geographic areas it has targeted for expansion. Moreover, expanding the
continuum of care should increase business for higher margin ancillary services
and attract greater numbers of patients whose care is reimbursed by other than
government sources.
An important component of this strategy is supplementing current services
offered by the Company. The Company intends to do so through strategic alliances
or by developing new programs. A prime example of a strategic alliance to
reinforce the continuum is the joint venture relationship the Company now enjoys
with two acute medical centers in California. Subacute services also continue to
grow. As of February 28, 1997, 46 of the Company's facilities had subacute
programs in place, up from 42 at the end of 1995. Additionally, the Company
intends to continue to emphasize the growth of its home health care division.
The provision of home health care services complements the Company's
facility-based services and substantially broadens the continuum of care which
it is able to provide. Furthermore, the Company will emphasize the growth in
outpatient services. The Company believes that its ability to package a broad
array of services in this manner is attractive to managed care payors.
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Another important industry factor prompting the Company to expand its
continuum is the growing marketing penetration of managed care organizations
both across the nation and in the regions where the Company operates. As managed
care market share increases, it is important for healthcare providers like the
Company to enter into managed care contracts in order to maintain and build
their patient base. In determining which providers to contract with, payors
consider, among other factors, quality of care, range of services, geographic
coverage and the cost-effectiveness of the care. These payors control costs
through stringent utilization review systems, increased use of discounted and
capitated fee arrangements and, when appropriate, directing patients to lower
acuity alternatives along the continuum of patient care. The Company believes
that development of its integrated delivery system in selected regions gives it
the scope of services, quality of care, geographic coverage and cost control
that will enable it to compete more effectively for managed care contracts.
As of January 1, 1997, the Company added 4 acute rehabilitation hospitals, 6
neurological care centers and 10 outpatient clinics to its roster of operations.
With this, it formed a new division, Regency Rehabilitation and Specialty
Services, to mark the significance of rehabilitation services in the strategic
development of the continuum of care.
To implement its strategy, the Company intends to: (i) continue to enhance
the continuum of services it offers; (ii) develop market concentration for its
continuum of inpatient, outpatient and home health services in targeted states
and regions to parallel increasing payor consolidation; (iii) consider strategic
alliances with managed care payors, hospital groups, physicians and other
healthcare providers; (iv) explore acquisitions which could further expand the
services provided by the Company; and (v) upgrade its management information
systems to develop connections between systems and geographic locations which
will assist in integrating financial and clinical data across all business lines
in order to meet the future information needs the managed care environment will
require.
In-Sourcing Patient Services. Regency expects to continue to in-source such
patient services as pharmacy and rehabilitation services. The Company's existing
facilities provide a ready market and could generate additional growth for the
Company's ancillary service businesses. The Company believes that continued
in-sourcing of these services could enhance revenues and solidify its market
position by broadening the base of potential patients from which it is able to
draw and by creating stronger platforms from which it can offer additional
services. Moreover, these types of services should enhance the Company's
profitability by attracting greater numbers of patients who pay directly for
services without the benefit of government assistance programs. Generally, the
profitability of caring for these patients is higher than for patients under
government assistance programs. Historically, the Company has realized higher
profit margins on the ancillary services it is targeting for in-sourcing.
The August 1996 acquisition of Managed Respiratory Care Services by SCRS
enabled the Company to insource additional respiratory therapy rehabilitation
that was previously furnished by non-affiliated providers. During 1996, the
Company acquired Assist A Care pharmacy to expand the growth in the delivery of
pharmacy services in California. The Company expects to complete development of
a hub and satellite network for distribution within its California pharmacy
operations during 1997. The acquisition of Executive Pharmacy provided for the
in-sourcing of pharmacy services to the Company's facilities in Tennessee and
North Carolina and expanded the Company's pharmacy services to non-affiliated
facilities as well. In 1996, a strategic alliance was initiated with Vrable
pharmacy to enable the Company to in-source pharmacy services in Ohio. The
Company believes that continued expansion of the pharmacy network outside of
California and to non-related facilities both in California and in other states
will occur primarily through acquisitions.
Marketing Ancillary Services. In addition to expanding the range of ancillary
services provided directly to its patients, Regency intends to expand the
marketing of its ancillary services to third party facilities. The development
and marketing of ancillary services should enable the Company to serve greater
numbers of higher revenue patients. Expansion of ancillary services marketed to
non-affiliated facilities is an important component of the Company's goal to
increase the quality of its payor mix. Moreover, management believes the
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selective acquisition and marketing of ancillary services supports the continued
growth of the Company in targeted market segments and locations and should
produce synergies as the Company expands both the number of facilities it
operates and the continuum of care it provides to its patients.
Expanding Through Acquisition. Regency has grown primarily through the
selective acquisition of new facilities and ancillary service providers. The
Company expects to continue to grow principally through such acquisitions and
the synergies these new facilities and ancillary services may provide. The
Company intends to focus its acquisition and expansion efforts in those markets
where the Company already has a presence that provide an attractive opportunity
for the expansion, geographic and otherwise, of the continuum of care the
Company offers to its patients. By such expansion, the Company intends to
develop a significant market presence, which will enable it to better take
advantage of the opportunities for synergies provided by new acquisitions and to
enhance further the range of services provided to its patients. The Company will
continue to assess the viability of expansion into other areas as economically
attractive acquisitions become available. The Company actively seeks acquisition
opportunities in the ordinary course of its business and is currently reviewing
prospective acquisitions.
Business Units
The Company's business operations consist of four basic units: long-term care
facilities including subacute specialty units, rehabilitation services, pharmacy
services and home healthcare.
Nursing Center Operations. As of February 28, 1997, 103 of the Company's
healthcare facilities are licensed as skilled nursing facilities and provide
skilled nursing care for patients who do not require more extensive treatment at
an acute care hospital. Seven of these facilities and one additional facility
are also approved by the California Department of Health Services to provide
mental health services. The Company's skilled nursing facilities provide 24-hour
nursing care, room and board, social services and activity programs, as well as
special diets and other services that may be specified by a patient's physician.
Patients at these facilities often have been discharged from acute care
hospitals and require substantial medical attention. In some cases, the
facilities also provide assisted living arrangements. In addition to skilled
nursing facilities, the Company operates three facilities for the
developmentally disabled, one of which is also licensed as a skilled nursing
facility and is included above. The Company believes that its substantial
California presence, together with the expansion of its continuum of services
and greater market penetration for its ancillary services, will increase
the Company's ability to obtain contracts and referrals from managed care
companies. For the year ended December 31, 1996, approximately 5.1% of the
Company's revenues were attributable to managed care; management expects this
percentage to increase.
As of February 28, 1997, 25 of the Company's skilled nursing facilities were
accredited by the Joint Commission on Accreditation of Healthcare Organizations
("JCAHO"), an independent organization that reviews facilities and accredits
those that achieve certain standards for quality control and assurance. The
Company has applied for accreditation at additional facilities.
As of February 28, 1997, 46 of the Company's healthcare facilities included
subacute specialty units which serve the needs of patients of all ages who have
medically complex conditions which require ongoing nursing and medical
supervision and access to specialized equipment and services, but do not require
many of the other services provided by acute care hospitals. The Company
increased the number of its facilities containing dedicated subacute units to 46
during 1996 from 42 at the end of 1995. The units provide such services as
respiratory therapy, ventilator care, oncology services, infusion therapy,
post-surgical wound management and care to patients with auto-immune deficiency
syndrome (AIDS). In addition, as of February 28, 1997, the Company provided
specialized services at three of its facilities to patients diagnosed with
Alzheimer's disease. Based upon its experience within the industry and its
knowledge of acute care hospital rates, as disclosed by such institutions,
management believes that it is able to provide subacute care at rates
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substantially below the rates typically charged by acute care hospitals for
comparable services and still earn higher average revenues per patient day than
it receives for basic nursing services.
Rehabilitation Services. Ninety-six of the Company's skilled nursing
facilities provide special rehabilitation services including physical, speech,
occupational, and respiratory therapy. These ancillary services are administered
by licensed therapists and rehabilitation aides. Currently, these services are
provided by several contract therapy providers, including SCRS.
The objective of these programs is to help patients achieve their highest
level of functional independence. Rehabilitation services are instrumental in
lowering the overall cost of care by reducing the length of a patient's stay and
improving a patient's quality of life. Specialized management staff oversee
these rehabilitation programs to ensure high-quality service delivery, program
compliance and achievement of maximum outcomes for the patient.
In August 1996, the Company's rehabilitation services subsidiary, SCRS,
acquired Managed Respiratory Care Services, a respiratory therapy provider.
Beyond the services it provides the Company, as of February 28, 1997, SCRS
delivers rehabilitation services at 116 non-affiliated healthcare facilities in
14 states and to home healthcare patients under four contracts with
non-affiliated healthcare providers.
As of January 1, 1997, the Company added four acute rehabilitation hospitals,
six neurological care centers and 10 outpatient clinics to the continuum of
rehabilitation services it offers. The Company believes this enhancement
increases its appeal to managed care payors seeking providers who are able to
effectively manage the cost and quality of care delivered to their patients.
Pharmacy Services. For the past six years, the Company has operated its own
institutional pharmacy, First Class Pharmacy, Inc. In 1996, the Company acquired
or opened four additional pharmacy operations to expand its service to
Company-operated facilities and non-affiliated facilities in California, Ohio,
Tennessee and North Carolina. As of December 31, 1996, the Company's pharmacy
operations provided prescription services and basic pharmaceutical dispensing
programs to 68 Company-operated facilities with approximately 7,257 licensed
beds and to 84 non-affiliated facilities with approximately 7,428 licensed beds.
In addition, the Company's pharmacy operations provide certain specialty
services such as infusion therapy, enteral nutrition, and urological and ostomy
supply programs. The Company has also developed certain specialty consulting and
ancillary programs to help each facility comply with state and federal
regulations. Additionally, the Company is pursuing development of an automated
hub and satellite network of pharmacy operations within California to reduce the
cost of supplying pharmacy services.
Home Health Services. The Company provides home health care services in
selected areas in California and Ohio through two operating divisions, Care Home
Health and Care At Home. The Company has provided home health care services
since 1983. Care Home Health primarily serves Medicare patients while Care At
Home provides services to private pay, managed care and Medicaid patients. The
services offered include skilled nursing, rehabilitation services, infusion
therapy, ventilator care, care for patients with AIDS, and other specialty
services.
Manner of Operation
Nursing Center Operations. Each healthcare facility operated by the Company
is supervised by a licensed administrator who is responsible for all aspects of
facility operations. A facility administrator typically oversees a director of
nursing, a director of admissions and other department supervisors. The director
of nursing supervises a staff of registered nurses, licensed practical nurses
and nurses' aides. The director of admissions is responsible for developing
local marketing strategies and programs. To supervise the medical management of
patients, the Company also contracts with licensed physicians to act as medical
directors at each facility. The Company's corporate staff provides support to
facility administrators in, among other things, quality improvement, management
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reporting, marketing, management training, legal services, human resources, risk
management, reimbursement, data processing, cash management, and accounting.
The Company has a professional services department which includes field
consultants who represent the corporate philosophy to each professional
discipline providing patient care. The department coordinates the development
and implementation of corporate and administrative policies and procedures and
authors most clinical manuals used in direct patient care. To ensure regulatory
compliance and high-quality clinical services, the department is actively
involved in location-specific and Company-wide quality improvement activities
and education through interdisciplinary consulting services to all of the
Company's operational areas. In 1996, the department introduced a continuous
quality improvement program to the division that is designed to identify
opportunities to improve quality before negative outcomes can occur.
Contract Rehabilitation Therapy Operations. The Company's contract
rehabilitation therapy operations are directed by the senior vice president of
Rehabilitation and managed by two divisional executive vice presidents; one who
oversees field operations, clinical services, corporate support, finance and a
recruiting division known separately as Therapy International and one who
oversees all sales, marketing and the PulsePoint Technologies information
service. Field operations are controlled by divisional vice presidents who
supervise state regional directors and a team of area clinical managers who
typically oversee three to seven facilities each.
Pharmacy Operations. The Company's pharmacy operations are managed by the
senior vice president of Home Health and Pharmacy Operations, who is responsible
for all aspects of home health and pharmacy operations. Each pharmacy is managed
by either a general manager or pharmacy manager, who is a pharmacist, and
supported by a business manager who oversees the billing department staff, a
professional staff of consulting and dispensing pharmacists, nurses and
dietitians, and a support staff of technicians and delivery personnel. The
division corporate staff includes a regional controller, regional vice
presidents of operations, a vice president of business development, a vice
president of acquisitions, and a director of pharmacy support services who
provide financial accounting, management oversight, new program implementation,
acquisitions, marketing, sales support, new business assimilation, and other
management support services to each pharmacy manager.
Home Health Operations. The Company's home health operations are divided
geographically into two regions, each managed by a regional vice president. The
regional vice presidents report to the senior vice president of Home Health and
Pharmacy Services and are supported by regional directors of quality
improvement, consumer education, finance and Infusion. Each of the Medicare
certified agencies is managed by a director of professional services.
Sources of Payment
The Company receives payment for healthcare services from (i) the federally
assisted Medicaid program, (ii) the federal Medicare program, (iii) private
sources, including HMOs and commercial insurance, and (iv) other sources,
including special programs sponsored by local governments and the Veterans
Administration. Because private and Medicare reimbursement rates historically
have been higher than Medicaid reimbursement rates, the Company has targeted the
private-pay market and has worked to make available Medicare-eligible services
in its healthcare facilities. Changes in the mix of the Company's patient
population between Medicaid and a combination of Medicare, private and other
sources can significantly affect profitability. Governmental reimbursement
programs are subject to change, which also can affect profitability.
As of February 28, 1997, 102 of the Company's facilities are certified for
participation in Medicaid. Medicaid is a medical assistance program for the
indigent and is operated by state governments with financial assistance
(approximately 50% of the funds available) from the federal government under a
matching program. Medicaid is subject to federally imposed requirements.
Medi-Cal, California's version of Medicaid, currently provides for reimbursement
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at established daily rates, as determined by the California Department of Health
Services, based on median costs of nursing facilities, classified by number of
licensed beds and geographic location. Medi-Cal primarily pays for long-term
custodial care for patients who qualify for welfare benefits. In Ohio and West
Virginia Medicaid reimbursement is a prospective cost-based system with an
adjustment factor to account for patient acuity. Medicaid reimbursement is
primarily provided under a prospective cost-based system in Tennessee and in
North Carolina is provided under a system that has both a cost reimbursement
component, subject to limitations, as well as a prospective cost-based
component. Twelve of the Company's home healthcare agencies are eligible to
participate in the Medicare program and all of the Company's home healthcare
agencies are eligible to participate in the Medicaid program.
As of February 28, 1997, 96 of the Company's skilled nursing facilities are
certified for participation in Medicare. Medicare is a health insurance program
operated by the federal government for the aged and certain chronically disabled
individuals. Medicare reimbursement rates for the Company's healthcare
facilities are regulated by the federal government and generally utilize a
cost-based reimbursement system, subject to geographic cost limits. Medicare
pays both the allowed direct costs and allowed overhead costs related to
services provided to patients covered by the Medicare program. Medicare specific
rates are dependent upon the cost and volume of the services provided as
calculated on the cost reports that each facility is required to submit annually
to Medicare. Reimbursement from Medicare is subject to retrospective adjustment
to reconcile payments made to a facility on an interim basis with subsequently
determined allowable costs. Overpayments may be recovered directly from the
facility at the time the adjustment is made or by reducing future payments to
the facility or other facilities operated by the Company.
The Company's cost of care for its Medicare patients sometimes exceeds
regional reimbursement limits established by Medicare. The Company submits
exception requests for its excess costs annually. Exception requests for all
cost report periods through December 31, 1994 have been filed. The Company's
final rates as approved by the Health Care Financing Administration ("HCFA")
represent, on average, approximately 84% of the requested rates as submitted in
the exception requests. During 1994, the Company recognized 50% of the 1994
estimated exception requests anticipated to be received, which represented
revenues of approximately $1,550,000. Commencing January 1, 1995, the Company
recognized 70% of the estimated exception requests anticipated to be received,
which represented revenues of approximately $3,563,000 and $3,001,000 for 1996
and 1995, respectively. Amounts received in respect of exception requests
relating to periods prior to December 31, 1994 will continue to be recorded on
the cash basis. The Company believes that it will be able to recover its excess
costs under any pending exception requests or under any exception requests that
may be submitted in the future; however, there can be no assurance that it will
be able to do so.
The Company has a broad customer base. There are no customers or related
groups of customers that account for a significant portion of the Company's
revenue. The loss of a single customer or group of related customers would not
have a material adverse effect on the operations of the Company taken as a
whole. However, two non-affiliated healthcare providers represented 24% of SCRS
total revenues during 1996. For a detail of revenue by business unit, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Reimbursement rates for HMOs are negotiated by the Company and the
organization. Charges for other private-pay patients are established by the
Company from time to time and are determined by market conditions and costs.
Veterans Administration contracts are generally at negotiated daily rates. The
Company also receives reimbursement, generally at negotiated daily rates,
pursuant to five contracts with county governments relating to certain of the
Company's facilities which provide services to the mentally disordered. These
contracts may be terminated by either party upon 60 days', or less, prior
notice.
8
<PAGE>
The following table sets forth the Company's percentage of net operating
revenue provided by source of payor for the periods indicated:
<TABLE>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Medicaid 40.6% 39.9% 42.7%
Medicare 29.3 31.9 31.3
Private 11.6 13.6 15.2
Managed care 5.1 5.4 4.6
Other 13.4 9.2 6.2
========= ========= =========
Total 100.0% 100.0% 100.0%
========= ========= =========
</TABLE>
As of February 28, 1997, the Company had in effect agreements with nearly all
major HMOs operating in California to provide skilled nursing care and ancillary
services to patients at its facilities who are enrolled as members in the HMO.
Payment by HMOs for services provided by the Company is based on negotiated
contract rates that vary by HMO. Reimbursement is based upon the level of
patient acuity, irrespective of the actual services provided. Thus, if a patient
requires a greater level of healthcare services than that normally provided a
patient of the agreed acuity level, the Company will not be reimbursed for such
additional services.
Contract Rehabilitation Therapy Services to Non-affiliates. Revenues from
contract rehabilitation services to non-affiliates are generally received
directly from the long-term care facility where the patient being treated
resides, which in turn are paid by Medicare or other payors. These revenues are
included in other sources of revenue. Revenue from contract rehabilitation
therapy services provided to Regency operated facilities are included in the
Medicaid, Medicare and private pay sources of revenues for Regency for each of
the applicable facilities. Charges to non-affiliates, though not directly
regulated, are effectively limited by regulatory reimbursement policies imposed
on the long-term care facilities that receive these therapy services, as well as
competitive market factors.
Pharmacy Services to Non-affiliates. Revenue from the Company's pharmacy
services are derived from the provision of such services to patients at
long-term care facilities not operated by Regency and patients at Regency
facilities billed directly to third-party payors. Regency enters into
non-exclusive contracts with non-affiliated facilities, and personnel at such
facilities submit prescriptions to Regency on behalf of patients at such
facilities. Regency is in most cases paid directly by Medicare, Medicaid or
private pay sources, and not by the long-term care facility. The amounts that
can be charged for prescriptions are often limited by Medicaid regulations.
Home Health Operations. Revenue from the Company's home health operations
come from a variety of payors including the Medicare and Medicaid programs,
commercial insurance, health maintenance organizations, private sources and
special county/state programs. In January 1996, two of the Company's California
home health agencies entered the HCFA "Prospective Pay" pilot program. This is a
three year program under which reimbursement will be determined on an "episode"
basis not on a fee for service (per visit) basis. An "episode" is defined as a
120 day period of home health benefit, inclusive of all necessary services
(including ancillary services).
Related Party Transactions. Medicare regulations that apply to transactions
between related parties, such as Regency and its subsidiaries, are relevant to
the amount of Medicare reimbursement that the Company is entitled to receive for
contract rehabilitation therapy and pharmacy services that it provides to
Regency operated facilities. These Medicare regulations generally require that,
among other things, (i) the Company's rehabilitation therapy and pharmacy
subsidiaries must each be a bona fide separate organization; (ii) a substantial
part of the contract rehabilitation therapy services or pharmacy services, as
the case may be, of the relevant subsidiary must be transacted with
non-affiliated entities, and there is an open, competitive market for the
relevant services; (iii) contract rehabilitation therapy services and pharmacy
9
<PAGE>
services, as the case may be, are services that commonly are obtained by
long-term care facilities from other organizations and are not a basic element
of patient care ordinarily furnished directly to patients by such long-term care
facilities; and (iv) the prices charged to the Company's long-term care
facilities by its contract rehabilitation therapy operations subsidiary and
pharmacy operations subsidiaries are in line with the charges for such services
in the open market and no more than the prices charged by its contract
rehabilitation therapy operations subsidiary and pharmacy operations
subsidiaries under comparable circumstances to non-affiliated long-term care
facilities. Regency believes that each of the foregoing requirements are
presently being satisfied with respect to its contract rehabilitation therapy
and pharmacy subsidiaries, and therefore, Regency believes it presently
satisfies the requirements of these regulations. Consequently, it has claimed
and received reimbursement under Medicare for contract rehabilitation therapy
services (since the acquisition of SCRS in July 1995) and pharmacy services
(beginning in January 1996) provided to patients in its own facilities at a
higher rate than if it did not satisfy these requirements. If the Company is
unable to satisfy these regulations, the reimbursement the Company receives for
contract rehabilitation therapy and pharmacy services provided to its own
facilities would be materially adversely affected. If, upon audit by relevant
reimbursement agencies such agencies find that each of these regulations has not
been satisfied, and if, after appeal, such findings are sustained, the Company
could be required to refund some or all of the difference between its cost of
providing these services and the higher amount actually received. While the
Company believes that it has satisfied and will continue to satisfy these
regulations, there can be no assurance that its position would prevail if
contested by relevant reimbursement agencies.
Marketing
Recognizing the growing influence of managed care upon healthcare delivery,
the Company's Marketing and Managed Care departments were combined in 1996. The
integration of these areas allows a synergistic approach to marketing the
Company's services to payors, providers and patients. Long-term strategies and
Company-wide marketing programs are developed by the corporate Marketing &
Managed Care staff. However, primary marketing responsibility rests with field
personnel for each of the Company's business lines.
The Company has developed various marketing and managed care training
programs and manuals for use by staff who are involved in service delivery.
Software programs, statistical data, and field interview responses aid in
development of materials to support marketing efforts. Recognizing that
healthcare decisions are made at the local level by physicians, case managers,
discharge planners, family members and patients, the Company attempts to
identify, develop and maintain relationships with the primary referral sources
in each of the areas it serves. Marketing personnel also research, analyze and
advise the Company concerning opportunities in each of its local market areas.
From this, the Company's marketing staff seeks to develop programs to maximize
occupancy and financial performance in each of the Company's facilities.
Complementing these efforts, Managed Care staff identify and pursue
opportunities to develop relationships with managed care providers.
Quality Management
The Company believes that an essential element of its business strategy is to
focus on the quality of service provided. This depends in large measure on the
existence of a trained and educated work force. The Company views quality
management as a two-pronged system: Continuous Quality Improvement and Total
Quality Management.
In 1996, the Company introduced a Continuous Quality Improvement program into
its long-term care operations. This program places the responsibility for
quality improvement in the hands of those who most greatly impact quality - the
facility staffs. It is a facility-based system of identifying opportunities to
improve quality before negative events can occur. As system weaknesses are
identified, they are resolved through a problem-solving procedure that is based
on Total Quality Management.
10
<PAGE>
With initial assistance from the Richard Rodgers Consulting Group, the
Company has, since 1993, trained over 9,000 employees in the principles of Total
Quality Management ("TQM"). In addition, certain executive and mid-level
managers have been trained in the use of Statistical Process Control and data
analysis in sound business decision-making.
In implementing its TQM initiative, the Company did not create additional
layers of bureaucracy, but instead developed and communicated to its employees
the simple message that the Company's vision, mission and culture are dedicated
to meeting and exceeding the expectations of its customers.
Because the Company believes that quality planning is an important component
of the strategic planning process and integral to the successful realization of
its strategic objectives, TQM is results-oriented. At all levels of the Company,
rewards are tied to specific agreed-upon result statements that directly support
the Company's strategic objectives. Employee performance is evaluated based upon
achievement of stated quantitative measures. In this way, the Company's focus is
continually directed back to its strategic objectives.
Regulation
The healthcare industry is subject to extensive federal, state and local
statutes and regulations. The regulations include licensure requirements,
reimbursement rules and standards and levels of services of care. Changes in
applicable laws and regulations or new interpretations of existing laws and
regulations could have a material adverse effect on licensure of Company
facilities, eligibility for participation in federal and state programs,
permissible activities, costs of doing business, or the levels of reimbursement
from governmental, private, and other sources. To date such changes have not had
a material adverse effect on the Company's business. However, there can be no
assurance that regulatory authorities will not adopt changes or interpretations
that adversely affect the Company's business.
Licensing. The Company's healthcare facilities and pharmacy services are
subject to licensing requirements by state and local authorities. The Company's
healthcare facilities are licensed by each state's licensing agency. In granting
licenses, an agency considers, among other factors, the physical condition of
the facility, the qualifications of the administrative and nursing staffs, the
quality of care, and compliance with applicable statutes and regulations. The
failure to maintain or renew any required regulatory approvals or licenses could
prevent the Company from offering its existing services or from obtaining
reimbursement.
As of February 28, 1997, 96 of the Company's skilled nursing facilities are
certified for participation in Medicare and 102 of the Company's facilities are
certified for participation in Medicaid. Twelve of the home healthcare agencies
operated by the Company are eligible to participate in the Medicare program and
all of the Companies home healthcare agencies are eligible to participate in the
Medicaid program. The Company, through its subsidiaries, holds licenses to
operate long-term care facilities in California, West Virginia, Ohio, Tennessee
and North Carolina. Ohio does not require that a new license be issued on a
yearly basis. The Company, through its subsidiaries, participates in the
Medicare and Medicaid programs in California, West Virginia, Ohio, Tennessee and
North Carolina.
Most states in which SCRS operates permit a corporation to provide
rehabilitation services provided that the individual therapist is licensed. The
Company's rehabilitation services at facilities not operated by the Company are
offered under the individual license of Sherri L. Medina, the Company's Senior
Vice President-Rehabilitation Services and through the licenses of individual
therapists. In California and Indiana, services are provided either through Ms.
Medina's professional corporation or through a professional corporation of
another employee. The failure by Ms. Medina to maintain her individual license
would prevent the Company from offering such services to other facilities until
a replacement supervising officer were employed.
11
<PAGE>
In certain states, statutes require that a state agency approve certain
acquisitions, the addition of beds and services and certain capital
expenditures. Such state approvals generally require implementation of the item
being approved within a specified time period. The failure to obtain the state
approval can result in the inability to make the acquisition, to add the
service, to operate the facility or complete the addition or other change
requested, and can result in the imposition of sanctions or adverse
reimbursement action.
The Omnibus Budget Reconciliation Act of 1987 ("OBRA") was implemented
effective October 1, 1990. Among other things, OBRA eliminated the different
certification standards for "skilled" and "intermediate care" nursing facilities
under the Medicaid program in favor of a single "nursing facility" standard.
OBRA also mandated an increase in the level of services nursing facilities must
provide to participate in Medicare and Medicaid. This change, the cost of which
was partially offset by reimbursement rate increases for Medicaid and an
increase in the routine cost limits under Medicare, thus far has not had a
significant impact on the Company.
Effective July 1, 1995, new regulations under OBRA dealing with enforcement
policies and procedures and a new survey process became operative. These
regulations provide for a variety of penalties for noncompliance with other
substantive regulations and minimum standards of care, including required
preparation and submission of plans of correction, new patient admission
moratoriums, denial of reimbursement, decertification of Medicare reimbursement
eligibility, delicensing, forced facility shutdown and loss of provider status.
While the Company believes that it is in substantial compliance with the current
requirements of OBRA, it is unable to predict how the enforcement regulations
will be implemented, or how future interpretations of current regulations or
future regulations promulgated under OBRA may affect it. In addition, there can
be no assurance that the Company's facilities and the provision of services and
supplies by the Company now or in the future will initially meet or continue to
meet the requirements for participation in Medicare or Medicaid programs.
The Company and its healthcare facilities are subject to routine inspections,
at any time, to monitor compliance with government regulations. Based on such
inspections, the Company receives, from time to time in the ordinary course of
its business, notices of failure to comply with various requirements. The
Company endeavors to take prompt corrective action and, in most cases, the
Company and the reviewing agency agree on remedial steps. The reviewing agency
may take action against a facility, which can include the imposition of fines,
recovery of Medicare payments paid with respect to deficient care, temporary
suspension of admission of new patients to the facility, decertification from
participation in the Medicare or Medicaid programs and, in extreme
circumstances, revocation of the facility's license. In certain circumstances,
failure of compliance at one facility may affect the ability of the Company to
obtain or maintain licenses or approvals under Medicare and Medicaid programs at
other Company facilities.
Reimbursement. Governmental reimbursement programs are subject to statutory
and regulatory changes, administrative rulings and interpretations, government
funding restrictions, and retroactive reimbursement adjustments, all of which
could materially increase or decrease the services covered or the rates paid to
the Company for its services. There have been and the Company expects that there
will continue to be, a number of proposals to limit governmental programs such
as Medicare and Medicaid reimbursement for healthcare services. The Company
cannot predict at this time whether any of these proposals will be adopted or,
if adopted and implemented, what effect such proposals would have on the
Company. There can be no assurance that payments under governmental programs
will remain at levels comparable to present levels or will be sufficient to
cover the cost allocable to patients eligible for reimbursement pursuant to such
programs. In addition, governmental reimbursement programs require strict
compliance with both patient eligibility and acuity requirements, and timely
payment requests. The failure to adhere to these requirements is a basis for
denial of reimbursement or for a required refund, with interest, of any sums
paid by the program.
In addition, the Company's cash flow could be adversely affected by periodic
government program funding delays, shortfalls, or other difficulties, such as
that which occurred in 1995 when the State of California failed to adopt a new
12
<PAGE>
budget prior to the end of the 1994-1995 fiscal year and, as a result, Medi-Cal
delayed reimbursement payments for several weeks. Medi-Cal also delayed payments
and rate increases for several weeks in 1990 and 1991. Medi-Cal has on a number
of recent occasions delayed payments and rate increases, including for several
weeks in each of 1990, 1991 and 1995. The Company has mitigated the effects of
such payment delays by monitoring the related activities of the California
legislature, expediting billings through its electronic billing arrangement and
agreeing with creditors to extend the due date for payables. See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." There can be no assurance,
however, that the Company will be able to mitigate the effects of any future
funding delays. During 1996, the Company averaged approximately $8.1 million per
month in cash receipts from the Medi-Cal program.
Antifraud and Self-Referral Regulations. Various Federal and state laws
regulate the relationship between providers of health care services and
physicians or others able to refer medical services, including employment or
service contracts, leases and investment relationships. These laws include the
fraud and abuse provisions of the Medicare and Medicaid and similar state
statutes (the "Fraud and Abuse Laws"), which prohibit the payment, receipt,
solicitation or offering of any direct or indirect remuneration intended to
induce the referral of Medicare and Medicaid patients or for the ordering or
providing of Medicare or Medicaid covered services, items or equipment.
Violations of these provisions may result in civil and criminal penalties and/or
exclusion from participation in the Medicare and Medicaid programs and from
state programs containing similar provisions relating to referrals of privately
insured patients. The United States Department of Health and Human Services
("HHS") has interpreted these provisions broadly to include the payment of
anything of value to influence the referral of Medicare or Medicaid business.
HHS has issued regulations which set forth certain "safe harbors," representing
business relationships and payments that can safely be undertaken without
violation of the Fraud and Abuse Laws. In addition, certain Federal and state
requirements generally prohibit certain providers from referring patients to
certain types of entities in which such provider has an ownership or investment
interest or with which such provider has a compensation arrangement, unless an
exception is available. The Company considers all applicable laws in planning
marketing activities and exercises care in an effort to structure its
arrangements with health care providers to comply with these laws. However,
because there is no procedure for obtaining advisory opinions from government
officials, the Company is unable to provide assurances that all of its existing
or future arrangements will withstand scrutiny under the Fraud and Abuse Laws,
safe harbor regulations or other state or federal legislation or regulations,
nor can it predict the effect of such rules and regulations on these
arrangements in particular or on the Company's operations in general. The
Company systematically reviews its operations on a periodic basis and has
adopted policies intended to ensure that it complies with the Fraud and Abuse
Laws and similar state statutes.
Environmental Regulations. The Company's healthcare operations generate
medical waste that must be disposed of in compliance with Federal, state and
local environmental laws, rules and regulations. The Company's operations are
also subject to compliance with various other environmental laws, rules and
regulations. Such compliance does not, and the Company anticipates that such
compliance will not, materially affect the Company's capital expenditures,
earnings or competitive position.
Competition
The Company, and the healthcare industry in general, faces the challenge of
continuing to provide quality patient care while contending with rising costs,
strong competition for patients and a general reduction of reimbursement rates
by both private and public payors. As both private and public payors reduce the
scope of services which may be reimbursed and reduce reimbursement levels for
covered services, national and state efforts to reform the healthcare system may
further impact reimbursement rates. Changes in medical technology, existing and
future legislation, regulations, contracting innovations and industry
consolidation may require changes in the Company's facilities, equipment,
personnel, rates and/or services in the future.
13
<PAGE>
The Company competes with a variety of other providers of healthcare
services, including other rehabilitation hospitals, other skilled nursing
facilities, other home health providers, hospitals offering long-term care
services and personal care or residential facilities. Competition has become
more intense as alternatives for nursing and rehabilitation patients has
increased. Many hospitals now have skilled nursing units and home health
agencies. Community-based programs such as assisted living and congregate living
centers also compete for residents with the Company's skilled nursing facilities
and congregate living centers. With the movement from `institutional', skilled
nursing facilities to residential living facilities and congregate living
centers, maintaining occupancy rates becomes increasingly difficult.
As of February 28, 1997, the Company operated 83 inpatient facilities
(including 4 acute rehabilitation facilities and 6 neurological care centers)
with 7,521 licensed beds in California. The Company estimates that there are
approximately 1,300 free-standing long-term care facilities with approximately
125,000 licensed beds in California. The Company also operates 33 facilities
with 3,943 beds in West Virginia, Ohio, Tennessee, and North Carolina. The
Company's competitive position varies across statewide and local markets. Some
of the significant factors relating to individuals' selection of the Company's
healthcare facilities include quality of care, reputation, physical appearance,
services offered, family preferences, benefit plan preferences and price. The
Company's facilities and home health agencies operate in communities that are
served by similar entities. Some competing facilities, home health agencies and
pharmacies offer services not offered by the Company. Furthermore, competitors
may benefit from greater financial resources, longer operating histories,
charitable endowments, favorable tax status and other resources not available to
the Company. There can be no assurance that the Company will not encounter
increased competition in the future that would adversely affect the Company's
results of operations.
Contract therapy services, like those offered by SCRS, are provided by other
rehabilitation service companies, many of whom are larger and have greater
resources than the Company. In addition, many of SCRS's existing customers have
begun to develop the capability of directly providing such services, rather than
contracting with other providers for these services.
The long term care pharmacy market is rapidly consolidating and this has
resulted in numerous large institutional pharmacies. These pharmacies are larger
and have greater resources than the Company.
Employees
As of February 28, 1997, the Company had approximately 16,170 full-time and
part-time employees. Of these employees, approximately 12,080 were employed at
its healthcare facilities, approximately 850 at its home health agencies,
approximately 240 in its pharmacy operations, approximately 2,680 in
rehabilitation services and approximately 320 at its regional administrative and
corporate offices. Approximately 1,600 of the employees were covered by 12
collective bargaining agreements. The Company believes that it maintains
productive relations with its employees in general and with the 12 collective
bargaining units. The Company is subject to both federal and state minimum wage
and wage and hour laws and maintains various employee benefit plans.
Tax Audits
A State of Ohio income tax audit for the years 1991 through 1994 is ongoing
and a California Franchise Tax Board income tax audit for 1994 is pending.
Although it is not possible to predict with certainty the outcomes of the
audits, in the opinion of the Company, adequate provision for the matters under
review has been made, and the results of the audits are not expected to have a
material adverse effect on the Company's consolidated financial position.
14
<PAGE>
Insurance
The Company maintains general and professional liability insurance on a
claims-made basis subject to a $100,000 per occurrence self-insured retention
limited to an aggregate stop loss of $500,000. All-risk property insurance,
including earthquake and flood, is carried for all Company operations.
The Company self-insures its workers' compensation programs for its nursing
facilities in California and Ohio, pharmacy operations, home health operations
and its corporate office employees. For all other operations, the Company
purchases insurance for this risk. The Company is required to maintain standby
letters of credit with the state insurance departments for its self-insurance
workers' compensation programs, which as of December 31, 1996 aggregated
approximately $8.4 million. These letters of credit assure that benefits payable
by the Company to its covered employees (which estimated benefits are reflected
as liabilities on the Company's books and records) are paid when required. The
Company has not defaulted in its workers' compensation benefit payment
obligations since the Company began its self-insurance program in 1983.
Factors Which May Affect Company
The following important factors, among others, in the past have affected and
in the future could affect, the financial results, business strategy, and
business operations of healthcare providers including the Company, and could
materially impact the various forward looking statements contained elsewhere in
this Annual Report. Readers are cautioned to review such forward looking
statements in the context of these factors. A number of these items are
summarized as follows:
Dependence on Reimbursement from Medicare and Medicaid. The Company's
business is dependent upon its ability to obtain and maintain reimbursement from
Medicare and Medicaid. These government-sponsored healthcare programs are highly
regulated and are subject to budgetary and other constraints. In addition, these
government programs have instituted cost-containment measures designed to limit
payments made to healthcare providers. Furthermore, government reimbursement
programs are subject to statutory and regulatory changes, administrative rulings
and interpretations, determinations of intermediaries, government funding
restrictions and retroactive reimbursement adjustments, all of which could
materially increase or decrease the services covered by such programs, the rates
paid to healthcare providers for their services, or the eligibility of providers
to receive reimbursement. In addition, there can be no assurance that the
Company's facilities and the provisions of services by the Company in the future
will continue to meet the requirements for participation in Medicare or Medicaid
programs as presently enacted or as they may be changed.
Governmental Regulation. The long-term care industry is subject to extensive
federal, state and local licensure and certification laws. Long-term care
facilities and home health agencies are subject to annual and routine interim
inspections to monitor compliance with governmental regulations. Certain laws
establish minimum healthcare standards and provide for significant remedies for
non-compliance including fines, refunds of prior payments, new patient admission
moratoriums, federal or state monitoring of operations, and closure of
facilities.
The Company is also subject to federal and state laws that govern financial
and other arrangements involving healthcare providers. These laws often prohibit
certain direct and indirect payments or fee-splitting arrangements between
healthcare providers that are designed to induce or encourage the referral of
patients to, or the recommendation of, a particular provider for medical
products and services. Possible sanctions for violations of any of these or
similar restrictions or prohibitions, include loss of eligibility to participate
in reimbursement programs, as well as civil and criminal penalties. Changes in
interpretation or manner of enforcement of these laws or regulations could
adversely affect the Company.
Dependence on California. A substantial portion of the Company's billings are
to the California Medicaid program, Medi-Cal. California has a less generous and
15
<PAGE>
more heavily regulated healthcare reimbursement system that typically provides
for lower reimbursement rates than do a majority of other states. And,
California historically has enforced its regulations more strictly than most
other jurisdictions. In addition, California has a higher applicable minimum
wage and higher workers' compensation costs than most other states. The Company
may be materially and adversely affected by the failure of Medi-Cal
reimbursement rates to increase in proportion to cost increases, by any
reduction in the levels of reimbursement, or by healthcare reform measures that
substantially increase its operating costs. Further, there have been, and there
are likely to continue to be, strong legislative pressures to avoid increases
in Medi-Cal reimbursement levels and to impose reductions in such payments.
Uncertainty of Litigation. The Company regularly is made a defendant in
lawsuits by or on behalf of patients at one or more of its facilities or to whom
healthcare services were provided seeking to recover for injuries sustained as a
result of alleged errors and omissions. Often these suits also allege that the
injuries resulted from intentional actions or omissions of healthcare personnel
for whom the Company is asserted to have legal responsibility, and consequently
seek awards of punitive damages. The Company also on a regular basis, is sued by
persons claiming that their employment by the Company was improperly terminated,
that they were denied employment or promotions because of their race, creed,
religion, gender, ethnic origin or sexual orientation, or that they suffered
sexual harassment or other tortuous conduct, which suits seek awards of
compensatory, incidental and punitive damages. Although the Company maintains
insurance for its professional errors and omissions, it is not insured for
damages sustained as a result of intentional torts committed, for punitive
damages or for awards of damages in wrongful termination cases. The Company's
financial condition and results of operations could be adversely affected by a
significant award for damages that is not covered by insurance.
ITEM 2. PROPERTIES
The following table sets forth information regarding the healthcare
facilities owned or leased by the Company as of February 28, 1997:
<TABLE>
<CAPTION>
Facilities Beds
----------------------------------------- ------------------------------------------
Owned Leased Managed Total Owned Leased Managed Total
--------- --------- ------------ -------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California 32 50 1 83 2,098 5,175 248 7,521
Ohio 4 4 -- 8 402 461 -- 863
North Carolina 1 10 -- 11 86 1,278 -- 1,364
Tennessee -- 8 -- 8 -- 1,097 -- 1,097
West Virginia 5 1 -- 6 554 65 -- 619
--------- --------- ------------ -------- --------- --------- ------------ ---------
42 73 1 116 3,140 8,076 248 11,464
========= ========= ============ ======== ========= ========= ============ =========
</TABLE>
Nine of the Company's healthcare facilities are encumbered by deeds of trusts
or mortgages.
The Company's home health subsidiaries, Home Health Services, Inc. and
Americare Homecare, Inc. lease office space aggregating 51,549 square feet
for its 28 home health locations in California and Ohio.
The Company's pharmacy subsidiaries, First Class Pharmacy, Inc. and Assist-
A-Care, Inc. lease approximately 51,934 square feet for its locations in
California, North Carolina and Tennessee.
The Company's rehabilitation subsidiary, South Coast Rehabilitation
Services, Inc. leases an 8,035 square foot office in Aliso Viejo, California.
16
<PAGE>
The Company leases office space aggregating 65,608 square feet for its
corporate and regional offices in California and West Virginia.
The Company also leases space for its outpatient clinics aggregating
approximately 16,500 square feet in California.
In the facilities that are leased, subleased, or managed, the Company's
rights as lessee or sublessee could be subject to termination if the lessor or
sublessor of a facility fails to pay its rent, taxes, loan obligations that are
secured by the facility, if any, or other similar obligations. The Company has
not experienced any such lease terminations, although there can be no assurance
that the Company's rights to operate its leased or subleased facilities will not
be so affected in the future.
The Company's facilities are subject to various governmental zoning and use
restrictions. One of the Company's facilities that provides services for the
mentally disordered is currently operating pursuant to a deemed to be approved
conditional use permit. In July 1992, the facility filed an application for a
conditional use permit and is currently appealing the recent denial of said
application. A mediator has been appointed to monitor this matter. Although
there can be no assurance, the Company believes it will prevail with its appeal
and that the conditional use permit will be renewed.
ITEM 3. LEGAL PROCEEDINGS
In 1995, a class action lawsuit, captioned Standish and Miriam Mallory and
Claire Bauman vs. Regency Health Services, Inc., which had been filed against
the Company in July 1994, was settled for $9,000,000. The Company's portion of
this settlement, together with related legal fees and other costs, resulted in a
pre-tax charge of $3,098,000, which is included in the consolidated statement of
operations for the year ended December 31, 1995.
Additionally, the Company is subject to claims and legal actions by patients
and others in the ordinary course of business. The Company has insurance
policies in varying amounts covering most of the outstanding lawsuits. If a
judgment were awarded in excess of the insurance coverage, the burden would fall
on the Company. The Company does not expect that the ultimate outcome of an
unfavorable judgment in any of the pending legal matters would result in a
material adverse effect on the Company's consolidated financial position or
results of operations. However, there can be no assurances that an unfavorable
judgment in future claims and legal actions would not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
17
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded under the symbol "RHS" on the New York
Stock Exchange.
The quarterly price range of common stock for 1996 and 1995 are included on
page 47 of the 1996 Regency Annual Report under the caption "Stock Market
Information" and are incorporated herein by reference.
At February 28, 1997, 15,792,157 shares of Company common stock were held of
record by approximately 1,000 stockholders as reported by the Company's
transfer agent.
The Company has not declared or paid cash dividends on common stock since its
inception, and does not currently plan to declare or pay any dividends in the
foreseeable future. Covenants in a note agreement between the Company and its
lenders limit the payment of cash dividends on Company common stock. Among such
restrictions is a provision limiting the payment of dividends and other
restricted payments, as defined, to no more than 50% of consolidated net income
from and after January 1, 1996, on a cumulative basis, plus $5,000,000.
ITEM 6. SELECTED FINANCIAL DATA
On April 4, 1994, Regency and Care completed their merger ("Merger")
accounted for as a pooling-of-interests. Consequently, the historical financial
statements for periods prior to the Merger are restated as though the companies
had been merged since inception. The calculation of income per share for each
period presented prior to the Merger reflects the issuance of .71 of a share of
Regency common stock for each share of common and common equivalent share of
Care common stock.
The following consolidated financial data as of and for the years ended
December 31, 1996, 1995, 1994, 1993 and 1992, have been derived from the
Company's audited Consolidated Financial Statements. The selected consolidated
financial data set forth below should be read in conjunction with Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Consolidated Financial Statements and the notes thereto
included elsewhere in this Report.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1996 (2) 1995 (3) 1994 (4) 1993 1992 (5)
-------- -------- -------- ---- --------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Net operating revenue (1).................... $558,050 $416,093 $377,336 $336,954 $295,340
Income (loss) before extraordinary item...... 6,399 4,454 (800) 11,790 10,419
Net income (loss)............................ 5,206 2,845 (800) 11,742 10,330
Income (loss) per common share before
extraordinary item (fully diluted)........ .39 .27 (.05) .69 .76
Net income (loss) per common share (fully
diluted).................................. .32 .17 (.05) .69 .75
Total assets................................. 353,576 338,942 250,896 242,300 164,403
Total long-term debt......................... 184,908 183,986 101,941 103,245 53,638
- ------
<FN>
(1) In 1994, the Company changed its policy on recognizing revenue from
exception requests filed with the Health Care Financing Administration
("HCFA"). Previously, no revenue was recognized until payment in respect of
the exception request was actually received. In 1994, the Company began
recognizing 50% of the estimated exception requests anticipated to be filed
for the applicable period. In 1995 and 1996, the Company recognized 70% of
the estimated exception requests anticipated to be received for the
applicable period.
18
<PAGE>
(2) In 1996, the Company redeemed all $48.9 million of its outstanding
Convertible Subordinated Debentures resulting in an extraordinary loss on
extinguishment of debt of $1,459,000 ($868,000 net of tax) and refinanced
three of its Industrial Revenue Bond Issues (IRBs) with a principal balance
of $7,560,000 resulting in an extraordinary loss of $546,000 ($325,000 net
of tax). In addition, the Company recorded an $11,283,000 ($6,769,000 net
of tax) charge, primarily related to severance, the write-off of property
which will have no value under the Company's new operating model,
allowances for certain notes and non-patient receivables and a reduction of
the reserve for assets held for sale recorded in 1995.
(3) In 1995, a class action lawsuit, which had been filed against the Company
in July 1994, was settled for $9,000,000. The Company's portion of this
settlement, together with related legal fees and other costs, resulted in a
pre-tax charge of $3,098,000 ($1,921,000 net of tax), which is included in
the consolidated statement of operations for the year ended December 31,
1995. In addition, the Company repaid its $30 million, 8.10% Senior Secured
Notes resulting in costs and a prepayment penalty of $2,681,000 ($1,609,000
net of tax), classified as an extraordinary item and the Company recorded a
$9,000,000 ($8,200,000 net of tax) charge, primarily related to the
disposition of certain facilities (see Note 14 to the Company's
Consolidated Financial Statements).
(4) As required under the pooling-of-interests accounting method, all fees and
expenses related to the Merger and restructuring of the combined companies
were reflected in the Consolidated Statement of Operations of the Company
for the year ended December 31, 1994, resulting in a pre-tax charge of
$14,700,000 ($10,600,000 net of tax), including a reserve for losses
associated with the disposal of duplicate facilities. Additionally, in 1994
the Company recorded a pre-tax charge of approximately $1,600,000 ($975,000
net of tax) related to the closure of a facility damaged by the Northridge,
California earthquake in 1994.
(5) During Care's reorganization period (prior to emergence from bankruptcy
proceedings on December 31, 1990), Care established a reserve for losses on
discontinuance of certain operations. These losses were originally included
as part of an overall provision/(credit) for reorganization items. During
the year ended December 31, 1992, the Company recognized pre-tax gains
resulting from the reversal of reserves for losses on the discontinuance of
certain operations of $461,000 and the reversal of reserves for expenses and
fees resulting from Care's Chapter 11 proceedings of $75,000. Additionally,
in 1992 the Company recognized a gain of $1,000,000 on the disposal of a
nursing facility.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Overview of Strategic Plan
The healthcare industry continues to change as the government, commercial
payors and healthcare providers like the Company focus on rising healthcare
costs. It is the Company's belief, as well as that of the government and
commercial payors, that the most effective delivery system for reducing costs is
a regionally oriented market based model within the context of the evolving
managed care system. Presently, only 5.1% of the Company's revenues are
generated from managed care payors, however, management and other members of the
industry believe the Medicare system will be adopting a prospective pay system
in the coming years for skilled nursing facilities. Furthermore, the Company
believes more Medicare participants will be entering managed care plans as they
typically offer more services at a fixed price.
Considering the anticipated changes in the industry, the Company believes
19
<PAGE>
that the most successful business strategy in the future will be to provide both
payors and patients, collectively the customers, cost effective delivery of care
with high customer satisfaction. This will mean significant changes in the
current delivery system. The Company believes its future delivery system will
need to have the following components:
o Focus on customers through a fully integrated delivery system which will
allow for "one-stop shopping". This means that the Company will need to
provide multiple low cost services across the continuum of care in each of
the regions in which it provides care. In the future, acquisitions will
focus on completing the continuum of care within the Company's various
regional markets.
o Name recognition as customers must be convinced that the Company provides
consistent service throughout the continuum of care.
o Regionally focus to ensure that diverse services are available in each
market and that those services are integrated rather than the traditional
focus on separate business lines.
o Focus on placing the patient in the most effective setting with the lowest
cost while demonstrating positive outcomes from the delivery of medicine
and care. Basically, the Company will strive to provide high quality
service across the continuum of care at a low cost.
o Focus on a low overhead cost structure. Reengineering to eliminate non-value
added services and investments in information technology will be required
in order to reduce costs and enable the Company to provide consistent,
integrated, low cost services. The investment in information technology
will also provide management critical information in a timely manner to
effectively manage its business in the managed care environment.
During 1996 the Company developed and began to implement its strategic plan
to address these issues. In connection with this plan, the Company acquired four
acute rehabilitation hospitals, ten outpatient rehabilitation clinics and six
neurological treatment centers effective January 1, 1997. The purchase price was
$43.0 million, made up of a cash payment of $36.3 million and notes payable
totaling $6.7 million. This acquisition was one of many steps in the Company's
plan to complete the continuum of care in its various regional markets. The
Company has also hired two individuals with extensive experience in acquisitions
to focus on the acquisition of home health agencies and outpatient clinics,
primarily in our existing nursing operations markets to complete the continuum
of care in those markets.
During 1996, the Company recorded a restructuring and other non-recurring
charge of $11.3 million primarily related to initiatives designed to reengineer
the operating model through which the Company manages its business and lower its
operating costs. Also included in the charge were amounts for consulting and
other obligations for which there is no future benefit, reductions in the assets
held for sale reserve established in 1995, additional reserves for notes and
non-patient receivables and a charge for the impairment of other long-term
assets.
A major component of the reengineering, in terms of importance and cost, will
involve integrating the Company's information systems to allow for the
integrated delivery of patient care across all service lines within the
continuum of care. The Company will therefore be making a significant investment
in information technology over the next five years. This investment will result
in cost savings in the future. The first phase of the investment in information
technology will be investments in the infrastructure such as a communications
network and servers combined with upgrades of the accounts payable software, the
acquisition of Kronos time clocks and other transaction systems, which are
expected to be completed during 1997. The second phase will be the integration
of the various computer systems used by the different divisions of the Company
to allow for a seamless transfer of patient care information across the entire
continuum of care. The integration of the various systems is expected to begin
during 1998.
The Company incurs certain costs and operating inefficiencies in connection
with acquisitions following such acquisition, relating to the integration of
such facility's financial and administrative systems, physical plant and other
aspects of its operations into those of the Company. In addition, the
introduction of a substantial portion of the Company's contract rehabilitation
therapy, pharmacy and other ancillary services to a new operation may take as
long as 12 months to fully implement. There can be no assurance that each of the
20
<PAGE>
service providers the Company may acquire will be profitable. In addition, there
can be no assurance that new acquisitions that result in significant integration
costs and inefficiencies will not adversely affect the Company's profitability.
General
In connection with the strategy and acquisitions discussed above, the Company
has created the Regency Rehabilitation and Specialty Services Division which
includes the Acute Rehabilitation Hospitals (and related outpatient clinics and
neurological treatment centers), the Contract Rehabilitation Therapy Operations
and future outpatient clinic acquisitions.
The following table sets forth certain operating data for the Company on the
dates indicated:
<TABLE>
<CAPTION>
February 28, December 31,
1997 1996 1995 1994
<S> <C> <C> <C> <C>
Nursing center operations
Facilities............................ 106 107 94 93
Licensed beds......................... 11,119 11,200 9,178 9,134
Subacute beds......................... 1,108 1,108 1,040 879
Subacute units........................ 46 46 42 35
Regency rehabilitation and specialty services
division
Acute rehabilitation operations
Rehabilitation hospitals.............. 4 -- -- --
Neurological centers.................. 6 -- -- --
Licensed beds......................... 345 -- -- --
Outpatient clinics.................... 10 -- -- --
Contract rehabilitation therapy operations
Non-affiliated facilities served...... 116 114 79 --
Regency operated facilities served.... 63 57 27 --
======= ======= ======= =======
Total................................ 179 171 106 --
======= ======= ======= =======
Pharmacy operations
Non-affiliated facilities served....... 84 84 5 5
Regency operated facilities served..... 70 68 36 34
======= ======= ======= =======
Total................................. 154 152 41 39
======= ======= ======= =======
Home health agencies........................ 28 29 29 28
</TABLE>
Nursing Center Operations
The Company's nursing center operations derive net operating revenue
from the performance of routine and ancillary services at the Company's
facilities. Revenue from routine services is comprised of charges for room and
board and basic nursing services for the care of patients, including those in
the Company's subacute specialty units. Revenue from ancillary services is
comprised of charges for rehabilitative services, subacute specialty services,
and pharmaceutical products and services provided to patients at the Company's
facilities. Nursing center operations derive most of its ancillary services
revenue from Medicare- and HMO-eligible patients. The Company has classified
revenue from nursing center operations as either basic nursing care revenue or
subacute revenue. Basic nursing care revenue includes charges for room and board
21
<PAGE>
for non-Medicare and non-HMO patients. Subacute revenue includes room and board
and basic nursing services for Medicare and HMO patients and revenues from all
ancillary services provided to patients at the Company's facilities.
Effective July 1, 1994, the Company elected to dispose of two healthcare
facilities due to excess capacity in certain markets caused by the Regency and
Care merger (the "Merger") and to dispose of a residential facility operated by
Care (the "Dispositions"). The Company established a $2.7 million reserve in
1994 related to these dispositions, which consisted of a write-down of the
assets to estimated fair value, transaction costs, and a provision for
anticipated operating losses to the time the transactions were completed. These
facilities were disposed of in 1995 and the results of operations of these
facilities since July 1, 1994 are not reflected in the operations of the
Company.
During 1995 the Company exchanged leasehold interests in three healthcare
facilities with 360 beds in New Mexico for leasehold interests in four
healthcare facilities with 461 beds in Ohio previously operated by another
company. In 1995, the Company also opened a newly constructed facility and
disposed of one additional facility.
Effective December 31, 1995, the Company determined to dispose of 13
facilities located in California as part of its strategic plan of diversifying
from California Medicaid. The results of operations of these facilities continue
to be reflected in the Company's financial statements until each disposition is
completed. During 1996 the Company disposed of six of these facilities. On
January 1, 1997 the Company disposed of one additional facility.
Effective February 1, 1996, the Company acquired 18 healthcare facilities
with 2,375 beds in Tennessee and North Carolina, accounted for under the
purchase method of accounting.
Effective April 1, 1996, the Company acquired a healthcare facility with 64
nursing beds and 22 assisted living beds located in Lexington, North Carolina,
accounted for under the purchase method of accounting.
Ancillary Businesses Operations
In July 1995, the Company acquired SCRS & Communicology, Inc. ("SCRS")
accounted for under the purchase method of accounting. SCRS provides
rehabilitation services to Company operated and third party healthcare
facilities in 12 states in the West, Midwest, and Southeast. From July to
December 1995, 79% of SCRS revenues were derived from providing services to
non-affiliated healthcare providers. Two non-affiliated healthcare providers
represented approximately 38% of SCRS total revenues from July to December 1995
and approximately 24% in 1996. In 1996, 70% of SCRS revenues were derived from
providing services to non-affiliated healthcare providers.
The Company's pharmacy operations provide prescription services and basic
pharmaceutical dispensing programs to Company and third party healthcare
facilities. During 1995, 55% of revenues from pharmacy operations were derived
from providing services to non-affiliated healthcare providers and patients at
Regency facilities billed directly to third-party payors. In January and
February of 1996, the Company acquired three additional pharmacy operations
accounted for under the purchase method of accounting. During 1996, 65% of the
revenues of pharmacy operations were derived from providing services to
non-affiliated healthcare providers and patients at Regency facilities billed
directly to third party payors.
The Company's home health operations provide skilled nursing, rehabilitation
and other services in selected areas in California and Ohio. The Company has
positioned its home healthcare capabilities to serve its facilities' home health
needs. During January 1997, two of the home healthcare agencies were
consolidated resulting in a reduction of one agency.
22
<PAGE>
Results of Operations
The following table sets forth the amounts of certain elements of net
operating revenue and the percentage of total net operating revenue for the
periods presented:
<TABLE>
Year ended December 31,
1996 1995 1994
---------------------- --------------------- ---------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Basic nursing care................. $285,819 51% $227,243 55% $216,623 58%
Subacute........................... 169,664 31 134,601 32 129,663 34
------------ -------- ----------- -------- ----------- --------
Total nursing center operations 455,483 82 361,844 87 346,286 92
Contract rehabilitation therapy
operations to non-affiliates (1). 42,577 8 12,240 3 -- --
Pharmacy operations to 21,994 4 7,157 2 4,697 1
non-affiliates (2)...............
Home healthcare operations......... 35,302 6 31,792 7 24,456 6
Interest........................... 2,694 -- 3,060 1 1,897 1
============ ======== =========== ======== =========== ========
Total......................... $558,050 100% $416,093 100% $377,336 100%
============ ======== =========== ======== =========== ========
<FN>
(1) Net of intercompany billings of $18,004,000 and $3,267,000 for the years
ended December 31, 1996 and 1995, respectively.
(2) Net of intercompany billings of $11,912,000, $5,971,000, and $5,107,000,
for the years ended December 31, 1996, 1995 and 1994,
respectively.
</FN>
</TABLE>
The following table sets forth certain operating data for the Company for the
periods presented:
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
--------- -------- ----------
<S> <C> <C> <C>
Patient Days by Payor:
Medicare........................... 307,313 244,729 239,003
Private/Other...................... 760,992 678,310 708,477
Managed Care....................... 116,508 94,072 72,065
Medicaid........................... 2,476,530 1,905,571 1,926,451
========= ========= ==========
Total........................... 3,661,343 2,922,682 2,945,996
========= ========= ==========
Home Health Visits.................... 253,855 260,526 217,662
Home Health Hours (1)................. 448,717 395,871 --
Revenue Mix:
Medicare........................... 29.3% 31.9% 31.3%
Private/Other...................... 25.0% 22.8% 21.4%
Managed Care....................... 5.1% 5.4% 4.6%
Medicaid........................... 40.6% 39.9% 42.7%
<FN>
(1) Information not compiled in 1994.
</FN>
</TABLE>
23
<PAGE>
The following table presents the percentage of net operating revenue
represented by certain items reflected in the Company's Consolidated Statements
of Operations for the periods indicated:
<TABLE>
<CAPTION>
For the year ended December 31,
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Net operating revenue.............................100.0% 100.0% 100.0%
------ ------ ------
Costs and expenses:
Operating expenses............................. 81.2 80.7 81.6
Corporate general and administrative........... 4.4 4.8 5.1
Rent expense................................... 4.5 4.0 4.1
Depreciation and amortization.................. 2.7 2.4 2.5
Interest expense............................... 3.2 2.3 2.1
Merger and restructuring expenses.............. -- -- 3.9
Class action lawsuit settlement................ -- 0.8 --
Restructuring and other non-recurring charges.. 2.0 2.2 0.4
------ ------ ------
Total costs and expenses....... 98.0 97.2 99.7
====== ====== ======
Income before provision for income taxes and
extraordinary item.......................... 2.0% 2.8% 0.3%
====== ====== ======
</TABLE>
Fiscal Year Comparison 1996 to 1995
Net Operating Revenue
The Company's net operating revenue for the fiscal year ended December 31,
1996 ("Fiscal 1996") was $558.1 million compared to $416.1 million for the
fiscal year ended December 31, 1995 ("Fiscal 1995"), an increase of $142.0
million or 34.1%.
Net operating revenue from nursing center operations increased $93.7 million
or 25.9% to $455.5 million from $361.8 million primarily due to revenues of
$78.8 million from the 1996 acquisition of 19 nursing facilities and an increase
in same store revenues (including the impact of sold buildings) of $14.9
million. The increase in same store revenues (excluding sold buildings) was
primarily due to an increase in patient days of 3.9% and an increase in average
rates per patient day of 5.7%, on a same store basis. The increase in
reimbursement rates per patient day of 5.7% was primarily due to providing
services to higher acuity patients, an increase in the Medi-Cal reimbursement
rates beginning in August 1996 and the Company recognizing revenues associated
with the elimination of the Medicare Routine Cost Limit (RCL) inflationary
freeze. The increase in services provided to higher acuity patients is
demonstrated by the shift in payor mix on a same store basis from Medicaid
(43.2% to 42.3%) and private and other (20.4% to 19.5%) to Medicare (30.1% to
31.1%) and managed care (6.2% to 7.0%). The Medi-Cal rate increases in August
1996 resulted in approximately $1.0 million in revenues. The revenue associated
with the elimination of the RCL inflationary freeze totaled $1.5 million.
Net operating revenue from contract rehabilitation therapy operations to
non-affiliates increased $30.3 million or 247.8% in 1996 over 1995 primarily due
to the operations of SCRS being included for the full year in 1996 versus a half
year in 1995 and an increase in the number of non-affiliated facilities served
to 114 in 1996 from 79 in 1995. Net operating revenue from pharmacy operations
to non-affiliates and services to patients in the Company's facilities billed
directly to third parties increased $14.8 million or 207.3% in 1996 over 1995,
primarily due to the acquisitions of Assist-A-Care pharmacy in January 1996 and
Executive Pharmacy in February 1996 (collectively, the "Pharmacy Acquisitions").
Net operating revenue from the pharmacy acquisitions was approximately $12.0
million in 1996. Net operating revenue from home healthcare operations grew $3.5
million or 11.0% in 1996 over 1995 primarily due to an increase in treatment
hours from 395,871 in 1995 to 448,717 in 1996 and an increase in revenue per
visit.
24
<PAGE>
Costs and Expenses
Total costs and expenses increased $142.7 million or 35.3% to $547.0
million (98.0% of net operating revenue) in 1996 from $404.3 million (97.2% of
net operating revenue) in 1995.
Operating expenses as a percentage of net operating revenue increased from
80.7% in 1995 to 81.2% in 1996. The increase resulted from the incurrence of
increased labor costs in the nursing center operations while reimbursement rates
per patient day for room and board charges remained relatively flat for the
Medi-Cal and Medicare systems during the first and second quarters of 1996. In
addition, the home health agencies participating in the Medicare Prospective Pay
System pilot project beginning in 1996 did not adequately reduce costs at the
outset of this program in the first quarter of 1996. The Company made the
necessary cost reductions during the second and third quarters and realized the
benefits of the Medi-Cal rate increases and the elimination of the RCL freeze
discussed above in the third and fourth quarters. For the fourth quarter of
1996, operating costs as a percentage of revenue were 80.3%.
Corporate general and administrative expense is the corporate overhead and
regional costs related to the supervision of operations. The expense increased
from $19.8 million in 1995 to $24.3 million in 1996 due primarily to the
acquisition of 18 healthcare facilities effective February 1, 1996, the
acquisition of one healthcare facility effective April 1, 1996 and the Pharmacy
Acquisitions (collectively, the "1996 Acquisitions"). However, this expense
decreased as a percentage of revenue from 4.8% in 1995 to 4.4% in 1996. The
decrease as a percentage of revenue is attributed to achieving economies of
scale through acquisition, the reduction of certain corporate office expenses
and same store growth.
Rent expense as a percentage of revenue increased from 4.0% in 1995 to
4.5% in 1996 primarily due to the assumption of lease obligations from the
1996 Acquisitions.
Depreciation and amortization expense as a percentage of net operating
revenue increased to 2.7% in 1996 from 2.4% in 1995 primarily due to goodwill
amortization related to the purchase of SCRS in July 1995 and the 1996
Acquisitions.
Interest expense increased as a percentage of net operating revenue to 3.2%
in 1996 from 2.3% in 1995 primarily due to the Company issuing the 9 7/8% Senior
Subordinated Notes (the "Senior Subordinated Notes") in October 1995 partially
offset by the repayment of the 8.1% Senior Secured Notes in that month, as well
as the issuance of the 12 (0)% Subordinated Notes in June 1996 partially offset
by the repayment of the 6 (OMEGA)% Convertible Subordinated Debentures in July
1996.
In Fiscal 1995, the Company settled its class action lawsuit resulting in
a pre-tax charge of $3.1 million ($1.9 million net of taxes).
As discussed above, the Company began the transition from development to
the implementation of its strategic plan to achieve lower operating costs and
offer an integrated delivery system during Fiscal 1996. Initiatives associated
with the restructuring include: making a significant investment in information
technology; integrating divisional operations within regional markets;
consolidating and automating the pharmacy operations; reducing the
administrative costs within the home healthcare operations; automating and
streamlining certain functions within the nursing operations; and streamlining
the corporate support structure. As a result of these initiatives, during the
fourth quarter of 1996 the Company recorded a restructuring charge of $6.6
million ($4.0 million after tax). The Company also recorded non-recurring
charges related to consulting fees owed for which there is no future benefit,
the establishment of additional reserves for certain notes and non-patient
receivables, the impairment of certain other long-term assets and a reduction of
the assets held for sale reserve established in 1995 in an aggregate amount of
$4.7 million ($2.8 million after tax).
In Fiscal 1996, the Company recorded an extraordinary charge of $1.2 million,
net of tax, resulting from the redemption of all $48.9 million of the
outstanding Convertible Subordinated Debentures and the refinancing of the
25
<PAGE>
Industrial Revenue Bond Issues (IRBs). The redemption of the Convertible
Subordinated Debentures produced an extraordinary loss on extinguishment of debt
of $868,000, net of tax, resulting from the write off of unamortized
underwriting costs and the refinancing of the IRBs resulted in an extraordinary
loss on extinguishment of debt of $325,000 net of tax, resulting from the write
off of unamortized underwriting costs and a call premium paid. In Fiscal 1995,
the Company repaid its $30.0 million Senior Secured Notes, resulting in costs
and a prepayment penalty totaling $2.7 million ($1.6 million net of taxes),
classified as an extraordinary item.
Fiscal Year Comparison 1995 to 1994
Net Operating Revenue
The Company's net operating revenue for Fiscal 1995 was $416.1 million
compared to $377.3 million for the fiscal year ended December 31, 1994 ("Fiscal
1994"), an increase of $38.8 million or 10.3%.
Net operating revenue from nursing operations increased $15.6 million or 4.5%
due to increased levels of reimbursement and a shift in payor mix from Medicaid
to Medicare and managed care, partially offset by a slight decrease in total
patient days. The average increase in reimbursement rates for all payors was
5.3% and was primarily due to providing services to higher acuity patients. The
Company experienced a 0.8% net decrease in total patient days in Fiscal 1995
from Fiscal 1994, consisting of a decrease of 20,880 and 30,167 from Medicaid
and private and other sources, respectively, and an increase of 5,726 and 22,007
from Medicare and managed care, respectively.
Net operating revenue from home health operations grew $7.3 million or 30.0%
in Fiscal 1995 over Fiscal 1994, primarily reflecting additional patient visits.
Pharmacy operations revenues increased $2.5 million or 52.4% in Fiscal 1995 over
Fiscal 1994, primarily as a result of increased pharmacy services provided to
patients serviced in the Company's facilities and billed directly to the
appropriate payors and not the facility. Net operating revenue from contract
rehabilitation therapy operations are a result of the purchase of SCRS in July
1995.
Interest income increased $1.2 million in Fiscal 1995 over Fiscal 1994 due to
investment of proceeds from the issuance of the Senior Subordinated Notes in an
aggregate amount of $110.0 million in October 1995.
Costs and Expenses
Total costs and expenses for Fiscal 1995 increased $28.2 million, or 7.5%, to
$404.3 million (97.2% of net operating revenue) from $376.1 million (99.7% of
net operating revenue) for Fiscal 1994. This decrease in total costs and
expenses as a percentage of revenues was primarily a result of the merger and
restructuring expenses incurred in Fiscal 1994, partially offset by the class
action lawsuit settlement and the additional disposition of assets charge
recorded in Fiscal 1995. Excluding these non-recurring expenses, total costs and
expenses increased to $392.2 million (94.3% of net operating revenue) in Fiscal
1995 from $359.9 million (95.4% of net operating revenue) in Fiscal 1994,
primarily as a result of providing more services to patients.
Operating expenses as a percentage of net operating revenue decreased to
80.7% for Fiscal 1995, from 81.6% for Fiscal 1994. This decline was primarily
attributable to growth in the Company's higher margin businesses such as
subacute care, contract rehabilitation therapy and pharmacy services in Fiscal
1995.
Corporate general and administrative expense increased $0.4 million, or 2.2%
from Fiscal 1994 to Fiscal 1995, while decreasing as a percentage of net
operating revenue to 4.8% for Fiscal 1995, from 5.1% for Fiscal 1994. The
decrease as a percentage of revenues was attributable to the Company's achieving
12 months of economies of scale in 1995 by eliminating duplicate costs after the
Merger in 1994.
26
<PAGE>
Interest expense as a percentage of net operating revenue increased to 2.3%
in Fiscal 1995 from 2.1% in Fiscal 1994, primarily as a result of the issuance
of the Senior Subordinated Notes in October 1995.
As a result of the Merger, in Fiscal 1994, the Company accrued $14.7 million
($10.6 million net of taxes) of estimated fees and expenses related to the
transaction as required under the pooling-of-interests accounting method. No
comparable fees and expenses were incurred during Fiscal 1995.
In Fiscal 1995, the Company settled its class action lawsuit resulting in
a pre-tax charge of $3.1 million ($1.9 million net of taxes).
In Fiscal 1995, the Company completed the disposition of previously
identified facilities and determined to dispose of an additional 13 nursing
facilities located in California, resulting in an additional pre-tax charge of
$9.0 million ($8.2 million net of taxes). In Fiscal 1994, the Company incurred a
loss of $1.6 million ($1.0 million net of taxes) resulting from closure of one
facility which was substantially damaged in the January 1994 Northridge,
California earthquake, and the abandonment of its leasehold interest.
In Fiscal 1995, the Company repaid its $30.0 million Senior Secured Notes,
resulting in costs and a prepayment penalty totaling $2.7 million ($1.6 million
net of taxes), classified as an extraordinary item.
Liquidity and Capital Resources
Working capital at December 31, 1996 decreased $50.0 million to $67.2 million
(including cash and cash equivalents of $22.9 million) from $117.2 million
(including cash and cash equivalents of $104.2 million) at December 31, 1995.
The decrease was primarily attributable to funding the 1996 Acquisitions
(including funding of working capital), funding of a workers' compensation trust
and the purchase of treasury stock. The Company established a revocable workers'
compensation claims payment trust to pre-fund its workers' compensation
obligations which was funded for Fiscal 1995 in March 1996 with approximately
$10.6 million from available cash. The Company anticipates funding an additional
$5 million to $6 million in March of 1997. During Fiscal 1996, the Company's
receivables increased approximately $29.7 million primarily related to the 1996
Acquisitions and growth in ancillary businesses. The estimated third party
settlements increased by $9.4 million partially due to recording revenue related
to RCL exceptions and the elimination of the RCL inflationary freeze. As of
December 31, 1996 and 1995, the Company had RCL exception request receivables
totaling $8.1 million and $4.5 million, respectively.
The Company's major requirements for liquidity relate to funding working
capital, capital improvements, and debt service obligations. The Company must
also provide funding to cover potential delays, temporary cessations or
interruption in payments by third-party payors due to political or budgetary
constraints. In addition, as part of its strategic plan, the Company anticipates
investing approximately $40 million in information technology over the next five
years. A significant portion of this investment will be financed through
operating leases. Management believes that these liquidity needs can be met from
available cash, internally generated funds and existing borrowing capacity under
the NationsBank credit agreement (discussed below).
The Company's healthcare facilities require capital improvements for
renovations and improvements in physical appearance. Future capital improvements
may be required as a result of routine regulatory inspections. In addition, the
Company is and will continue to invest in improving its information systems. The
Company's capital expenditures for the years ended December 31, 1996 and 1995
were approximately $12.6 million and $14.2 million, respectively. These capital
expenditures have been financed through a combination of internally generated
funds and debt. The Company expects to spend approximately an aggregate of $14.0
million for capital expenditures during 1997 to be financed through borrowings
under the NationsBank credit agreement (discussed below) and funds generated
from operations.
27
<PAGE>
The Company has financed its acquisitions from a combination of borrowings
and funds generated by operations. The Company expects to finance future
acquisitions from a combination of existing cash, the NationsBank credit
agreement (discussed below) and alternative sources such as real estate
investment trusts. Depending on the numbers, size and timing of any such
transactions, the Company may in the future require additional financing in
order to continue to make acquisitions.
During 1996, the Company purchased 862,000 shares of Company common stock at
an average price of $9.56 per share. The transactions, accounted for using the
cost method, reduced stockholders' equity by $8.3 million.
On June 28, 1996 the Company issued 12(0)% Junior Subordinated Notes ("Junior
Subordinated Notes") in an aggregate amount of $50 million. Interest on the
Notes will be payable semi-annually on January 15 and July 15 of each year,
commencing January 15, 1997. The Junior Subordinated Notes will mature on July
15, 2003, unless previously redeemed. Net proceeds received by the Company
totaled approximately $48.4 million and funded the redemption of the Company's
outstanding 6(OMEGA)% Convertible Subordinated Debentures due 2003 on July 29,
1996 (see Note 3 to the Consolidated Financial Statements).
Effective September 30, 1996, the Company refinanced three of its Industrial
Revenue Bond Issues (IRBs) with an aggregate outstanding principal balance of
$7,560,000 with three new issues of tax exempt IRBs maturing through September
2012. One of the new issues bears interest at rates ranging from 4.2% to 6.0%
based on the maturity dates of the individual bonds. The other two IRBs bear
interest at a variable rate initially set at 4.0%, which is capped at 12.0% (see
Note 3 to the Consolidated Financial Statements). The IRBs are now secured by
irrevocable letters of credit rather than mortgages on the specific facilities.
In Fiscal 1996, the Company recorded an extraordinary charge of $1.2 million
resulting from the redemption of all $48.9 million of the outstanding
Convertible Subordinated Debentures and the refinancing of the IRBs. The
redemption of the Convertible Subordinated Debentures produced an extraordinary
loss on extinguishment of debt of $868,000, net of tax, resulting from the write
off of unamortized underwriting costs and the refinancing of the IRBs resulted
in an extraordinary loss on extinguishment of debt of $325,000 net of tax,
resulting from the write off of unamortized underwriting costs and a call
premium paid.
On December 28, 1995 the Company entered into a revolving credit loan
agreement ("Credit Agreement") with NationsBank of Texas, N.A. as agent for a
group of banks, which provided up to $50 million in a revolving line of credit
and letters of credit. No borrowings were drawn on the Credit Agreement at
December 31, 1995 and throughout 1996. On December 20, 1996, the Company
increased the available financing to $100 million and revised certain terms and
covenants through the Amended and Restated Credit Agreement ("Amended Credit
Agreement"). Borrowings bear interest at either the Base Rate plus up to .50% or
the Adjusted Eurodollar Rate plus .75% to 2.00%, depending on the Company's
Consolidated Adjusted Leverage Ratio, all as defined in the Amended Credit
Agreement. The Amended Credit Agreement has scheduled commitment reductions of
$25 million each on January 2, 1999 and 2000 and expires on January 2, 2001. The
Amended Credit Agreement is collateralized by accounts receivable, all of the
common stock of each of the Company's subsidiaries and certain other current
assets of the Company and its subsidiaries. The Amended Credit Agreement, among
other things, (a) requires the Company to maintain certain financial ratios, and
(b) restricts the Company's ability to incur debt and liens, make investments,
pay dividends, purchase treasury stock, prepay or modify certain debt of the
Company, liquidate or dispose of assets, merge with another corporation, and
create or acquire subsidiaries. As of December 31, 1996, $16.2 million of
standby letters of credit were issued in connection with the Company's
self-insured workers' compensation programs and refinanced Industrial Revenue
Bonds (discussed above) out of a total available of $35 million. On January 2,
1997 the Company borrowed $40 million under the Amended Credit Agreement
principally to fund the acquisition of four acute rehabilitation hospitals, ten
outpatient rehabilitation clinics and six neurological treatment centers for
$36.3 million in cash and notes payable totaling $6.7 million.
28
<PAGE>
In October 1995, the Company issued the Subordinated Notes in an aggregate
amount of $110 million. Interest on the Subordinated Notes will be payable
semi-annually commencing April 15, 1996. The Subordinated Notes mature on
October 15, 2002, unless previously redeemed. The net proceeds to the Company
were approximately $106.7 million, of which approximately $31.5 million were
used to repay the principal and prepayment penalty on the 8.1% Senior Secured
Notes and $47.4 million was used for acquisitions subsequent to December 31,
1995 (see Notes 3 and 13 to the Company's Consolidated Financial Statements).
Seasonality
The Company's income from operations before fixed charges generally
fluctuates from quarter to quarter. The fluctuation is related to several
factors: the timing of Medicaid rate increases, seasonal census cycles, and the
number of calendar days in a given quarter. As a result, the Company's income
from operations before fixed charges tends to be higher in its third and fourth
quarters when compared to the first and second quarters.
Impact of Inflation
The healthcare industry is labor intensive. Wages and other labor costs are
especially sensitive to inflation. Increases in wages and other labor costs as a
result of inflation, or increases in federal or state minimum wages without a
corresponding increase in Medicare and Medicaid reimbursement rates, could
adversely impact the Company.
Reimbursement
The majority of the Company's net operating revenue is derived from services
provided under the Medicare and Medicaid programs. Numerous proposals relating
to healthcare reform have been or may be introduced in the United States
Congress, state legislatures or by governmental agencies who regulate the
Medicare and Medicaid programs. It is uncertain what reform will ultimately be
enacted by the federal government, any state government or governmental agencies
and therefore, the Company cannot predict at this time the impact on the Company
of any proposed reforms.
As discussed above, the Company provides contract rehabilitation and pharmacy
services to both Regency operated and non-affiliated facilities. Under current
Medicare regulations, reimbursement for these services provided to Medicare
eligible patients in Regency facilities is based upon the related entity's cost
to provide the services unless a significant portion of the related entity's
revenues are derived from non-affiliated facilities. If a significant portion of
the related entity's revenues are derived from non-affiliated facilities,
Medicare will reimburse the facility's cost, which includes a profit paid to the
related entity. During 1995 and prior years, the Company was reimbursed by
Medicare based on its pharmacy operation costs on billings to Regency
facilities, as it did not meet the significant portion criteria. After the
acquisition of Assist-A-Care Pharmacy and Executive Pharmacy in 1996, the
Company believes it meets the significant portion criteria and is recording a
profit on billings for pharmacy services provided to Medicare eligible patients
in Regency facilities. The Company believes it meets the significant portion
criteria for its contract rehabilitation therapy operations provided by SCRS,
and therefore has recorded a profit on billings to Regency facilities since the
acquisition of SCRS. Medicare regulations do not define a "significant portion,"
therefore, the Company's and Medicare's interpretations could differ, which
could result in retroactive adjustments related to the profit on billings to
Regency facilities for pharmacy and contract rehabilitation services.
In the federal budget deficit reduction bill, various reimbursement rules and
regulations were adopted by the federal government that pertain to the Company.
The changes to regulations promulgated under OBRA, some of which expand the
remedies available to enforce regulations mandating minimum healthcare
standards, may have an adverse effect on the Company's operations. The Company
is unable to predict the particular effect on the Company until the manner in
which these regulations are implemented becomes known.
29
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Supplementary Data
Report of Independent Public Accountants.............................. 31
Consolidated Balance Sheets as of December 31, 1996 and 1995.......... 32
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994................................... 34
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994................................... 35
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994................................... 36
Notes to Consolidated Financial Statements............................ 38
30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Regency Health Services, Inc.:
We have audited the accompanying consolidated balance sheets of REGENCY
HEALTH SERVICES, INC. (a Delaware corporation) and subsidiaries as of December
31, 1996 and 1995 and the related consolidated statements of operations,
stockholders' equity and cash flows for the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Regency Health Services, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not a required part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Orange County, California
February 14, 1997 ARTHUR ANDERSEN LLP
31
<PAGE>
<TABLE>
REGENCY HEALTH SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
<CAPTION>
December 31,
1996 1995
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 22,875 $104,238
Restricted cash..................................................... 4,425 --
Accounts receivable, net of allowances of $4,723 and $3,757 at
December 31, 1996 and 1995, respectively.......................... 80,949 51,203
Estimated third party settlements................................... 10,180 800
Notes and other receivables......................................... 1,355 2,182
Deferred income taxes............................................... 6,898 5,447
Assets held for sale................................................ 6,915 8,970
Other current assets................................................ 7,819 6,396
------------ ------------
Total current assets........................................ 141,416 179,236
------------ ------------
PROPERTY AND EQUIPMENT:
Land................................................................ 21,207 21,249
Buildings and improvements.......................................... 100,120 96,396
Leasehold interests - other......................................... 17,640 17,556
Leasehold interests - related party................................. 1,989 2,075
Equipment........................................................... 38,054 24,610
------------ ------------
179,010 161,886
Less accumulated depreciation and amortization...................... (43,938) (34,679)
------------ ------------
Total property and equipment................................ 135,072 127,207
------------ ------------
OTHER ASSETS:
Mortgage notes receivable, net of allowances of $1,352 and $951 at
December 31, 1996 and 1995, respectively......................... 1,014 5,163
Goodwill, net of accumulated amortization of $3,700 and $563 at
December 31, 1996 and 1995, respectively......................... 53,753 13,621
Other assets, net of accumulated amortization of $3,736 and $2,206
at December 31, 1996 and 1995, respectively...................... 22,321 13,715
------------ ------------
Total other assets.......................................... 77,088 32,499
============ ============
$353,576 $338,942
============ ============
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
32
<PAGE>
<TABLE>
REGENCY HEALTH SERVICES, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands, except par value)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
December 31,
1996 1995
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt................................... $ 2,418 $ 4,371
Accounts payable.................................................... 24,958 22,285
Accrued expenses.................................................... 8,290 5,946
Accrued compensation................................................ 26,253 18,051
Accrued workers' compensation....................................... 4,338 5,377
Deferred revenue.................................................... 2,407 1,743
Accrued interest.................................................... 5,578 4,231
------------ -----------
Total current liabilities................................... 74,242 62,004
LONG-TERM DEBT, NET OF CURRENT PORTION................................. 182,490 179,615
OTHER LIABILITIES AND NONCURRENT RESERVES.............................. 10,878 8,988
DEFERRED INCOME TAXES.................................................. 5,018 7,946
------------ -----------
Total liabilities........................................... 272,628 258,553
------------ -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized - 35,000 shares;
15,919 and 16,670 shares issued and outstanding at December 31,
1996 and 1995, respectively, net of 862 shares held in treasury
in 1996.......................................................... 168 167
Additional paid-in capital.......................................... 52,031 56,679
Retained earnings................................................... 28,749 23,543
------------ -----------
Total stockholders' equity.................................. 80,948 80,389
============ ===========
$353,576 $338,942
============ ===========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
33
<PAGE>
<TABLE>
REGENCY HEALTH SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<CAPTION>
Year Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
NET OPERATING REVENUE..................................... $558,050 $416,093 $377,336
------------ ------------- ------------
COSTS AND EXPENSES:
Operating expenses..................................... 453,131 335,849 307,807
Corporate general and administrative................... 24,292 19,811 19,392
Rent expense........................................... 24,956 16,767 15,555
Depreciation and amortization.......................... 15,317 10,122 9,295
Interest expense....................................... 18,060 9,676 7,844
Merger and restructuring expenses...................... -- -- 14,650
Class action lawsuit settlement........................ -- 3,098 --
Restructuring and other non-recurring charges.......... 11,283 9,000 1,600
------------ ------------ -----------
Total costs and expenses............................ 547,039 404,323 376,143
------------ ------------ -----------
INCOME BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY
ITEM................................................... 11,011 11,770 1,193
PROVISION FOR INCOME TAXES................................ 4,612 7,316 1,993
----------- ----------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 6,399 4,454 (800)
EXTRAORDINARY ITEM - Loss on extinguishment of debt, net of
applicable income taxes of $812 and $1,072 in 1996 and
1995, respectively..................................... (1,193) (1,609) --
----------- ----------- ----------
NET INCOME (LOSS)......................................... $ 5,206 $ 2,845 $ (800)
=========== =========== ==========
INCOME (LOSS) PER SHARE:
Income (loss) before extraordinary item................... $ .39 $ .27 $ (.05)
Extraordinary item........................................ (.07) (.10) --
------------ ------------ -----------
Net income (loss) per share............................... $ .32 $ .17 $ (.05)
============ ============ ===========
Weighted average shares of common stock and equivalents... 16,476 16,654 16,545
============ ============ ===========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
34
<PAGE>
<TABLE>
REGENCY HEALTH SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<CAPTION>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
------ ------ ---------- -------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993................. 16,220 $162 $45,355 $21,498 $67,015
Exercise of stock options............... 95 1 475 -- 476
Conversion of Convertible Subordinated
Debentures........................... 87 1 1,031 -- 1,032
Charge in lieu of income taxes (1994)... -- -- 2,636 -- 2,636
Retroactive charge in lieu of income
taxes (1993)......................... -- -- 2,608 -- 2,608
Net loss................................ -- -- -- (800) (800)
--------- --------- ----------- ----------- -----------
BALANCE, December 31, 1994................. 16,402 164 52,105 20,698 72,967
Exercise of stock options............... 211 2 1,254 -- 1,256
Exercise of share appreciation rights... 55 1 614 -- 615
Conversion of Convertible Subordinated
Debentures........................... 2 -- 20 -- 20
Charge in lieu of income taxes.......... -- -- 2,686 -- 2,686
Net income.............................. -- -- -- 2,845 2,845
--------- --------- ----------- ----------- -----------
BALANCE, December 31, 1995................. 16,670 167 56,679 23,543 80,389
Exercise of stock options.............. 99 1 680 -- 681
Restricted Stock Distribution........... 12 -- 144 -- 144
Charge in lieu of income taxes.......... -- -- 2,814 -- 2,814
Repurchase of common stock ............. (862) -- (8,286) -- (8,286)
Net income ............................. -- -- -- 5,206 5,206
--------- --------- ----------- ----------- -----------
BALANCE, December 31, 1996................. 15,919 $168 $52,031 $28,749 $80,948
========= ========= =========== =========== ===========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
35
<PAGE>
<TABLE>
REGENCY HEALTH SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................... $ 5,206 $ 2,845 $ (800)
----------- ------------ -----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary loss on extinguishment of debt............ 2,005 2,681 --
Depreciation and amortization........................... 15,317 10,122 9,295
Deferred income taxes and charge in lieu of taxes....... (1,317) 4,506 408
Restructuring and other non-recurring charges........... 9,749 9,000 6,052
Other, net.............................................. 122 649 (94)
Change in cash from changes in assets and liabilities,
excluding effects of acquisitions and dispositions:
Accounts receivable................................... (28,537) 1,481 (4,640)
Estimated third party settlements..................... (9,380) (3,569) 1,645
Other current assets.................................. (270) 6,748 (1,582)
Current and other liabilities......................... 11,308 (4,003) 814
----------- ------------ -----------
Net cash provided by operating activities............. 4,203 30,460 11,098
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions............................................... (50,800) (13,225) --
Proceeds from disposition of facilities.................... 3,682 -- 2,239
Purchases of property and equipment........................ (12,575) (14,223) (12,576)
Collection on mortgage notes receivable.................... 695 349 410
Changes in other assets, net............................... (1,623) (1,278) (2,585)
----------- ------------ -----------
Net cash used in investing activities................. (60,621) (28,377) (12,512)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt................................. (62,598) (31,940) (2,705)
Proceeds from issuance of long-term debt................... 56,143 107,162 2,996
Workers compensation trust funding......................... (10,637) -- --
Purchase of treasury stock................................. (8,286) -- --
Proceeds from exercise of options.......................... 433 1,256 476
----------- ------------ -----------
Net cash provided by (used in) financing activities... (24,945) 76,478 767
----------- ------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......... (81,363) 78,561 (647)
CASH AND CASH EQUIVALENTS, beginning of period................ 104,238 25,677 26,324
----------- ------------ -----------
CASH AND CASH EQUIVALENTS, end of period...................... $ 22,875 $104,238 $25,677
=========== ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest..................... $ 16,713 $ 8,334 $ 6,788
=========== ============ ===========
Cash paid during the year for income taxes................. $ 3,750 $ 2,152 $ 2,651
=========== ============ ===========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
36
<PAGE>
REGENCY HEALTH SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the year ended December 31, 1996:
The Company acquired Assist-A-Care Pharmacy in San Diego,
California and issued a promissory note in the amount of $2.6
million as part of the purchase price.
The Company issued a promissory note in the amount of $2.2
million in connection with the acquisition of 18 healthcare
facilities in Tennessee and North Carolina.
The Company acquired Executive Pharmacy and issued a
promissory note in the amount of $763,000.
During the year ended December 31, 1995:
$20,000 of the Company's Convertible Subordinated Debentures
were converted into 1,616 shares of common stock.
The Company issued a promissory note of $3,400,000 in
connection with the acquisition of SCRS and Communicology, Inc.
During the year ended December 31, 1994:
$1,076,000 of the Company's Convertible Subordinated
Debentures were converted into 86,946 shares of common stock.
Unamortized debenture fees of $44,000 were offset against
additional paid-in capital.
The accompanying notes are an integral part of these consolidated statements.
37
<PAGE>
REGENCY HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. MERGER AND BASIS OF PRESENTATION
On April 4, 1994, Regency Health Services, Inc. ("Regency" or the
"Company") and Care Enterprises, Inc. ("Care") completed the merger (the
"Merger"). Pursuant to the Agreement and Plan of Merger, dated as of December
20, 1993, as amended, Care Merger Sub, Inc., a wholly owned subsidiary of
Regency, was merged with and into Care, and Care became a wholly owned
subsidiary of Regency. Each share of common stock of Care was converted into
0.71 of a share of common stock of Regency. Approximately 9,400,000 shares of
common stock were issued in this transaction. At the time of the Merger, Regency
operated 43 healthcare facilities with 4,215 licensed beds and Care operated 51
healthcare facilities with 5,040 licensed beds.
The Merger qualified as a pooling-of-interests transaction under
generally accepted accounting principles. The pooling-of-interests method of
accounting is intended to present as a single interest two or more common
stockholder interests that were previously independent. The pooling-of-interests
method of accounting assumes that the combining companies have been merged from
inception. Consequently, the historical financial statements for periods prior
to the consummation of the combination are restated as though the companies had
been merged since inception. The calculation of income per share for 1994
presented reflects the issuance of .71 of a share of Regency Common Stock for
each share of common and common equivalent share of Care Common Stock. The
restated financial statements are adjusted to conform the accounting policies of
the separate companies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business As of December 31, 1996, the Company operated 107
healthcare facilities with 11,200 licensed beds that provide nursing,
rehabilitative, subacute and other specialized medical services primarily in
California and in Ohio, West Virginia, North Carolina and Tennessee. Through its
wholly owned home health subsidiaries, the Company provides patients with
technical medical support at home such as infusion therapy, ventilator care and
respite services. The Company also provides ancillary services such as
rehabilitation programs and pharmaceutical services at certain of its healthcare
facilities as well as at non-affiliated facilities.
Principles of Consolidation The consolidated financial statements
include the accounts of the Company and all of its wholly owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents For financial reporting purposes, the Company
considers all highly liquid instruments purchased with a maturity of three
months or less to be cash equivalents.
At December 31, 1996 and 1995, the Company held personal funds in
trust for patients approximating $1,505,000 and $690,000, respectively, which
are not reflected on the accompanying balance sheets.
Restricted Cash Restricted cash of $4,425,000 at December 31, 1996
represents the portion of the cash in the Company's pre-funded workers'
compensation claims payment trust expected to be paid during 1997.
Accounts Receivable Accounts receivable are recorded at the net
38
<PAGE>
realizable value expected to be received from federal and state assistance
programs or from private sources including managed care organizations and third
party insurers. Receivables from government agencies represent the only
concentrated group of credit risk for the Company. Management does not believe
that there are any credit risks associated with these government agencies other
than possible funding delays. Non-government agency receivables consist of
receivables from various payors that are subject to differing economic
conditions and do not represent any concentrated credit risks to the Company.
Furthermore, management continually monitors and adjusts its reserves and
allowances associated with these receivables.
Property and Equipment At the time of Care's emergence from bankruptcy
on December 31, 1990, property and equipment owned by Care and certain leasehold
interests were adjusted to current fair market value. All other property and
equipment is recorded at cost. The assets are depreciated over their estimated
useful lives using the straight-line method as follows:
Buildings and improvements....................................... 7-40 years
Leasehold interests and improvements............................. Life of leases
Equipment........................................................ 5-10 years
Betterments, renewals, and extraordinary repairs that extend the life
of the asset are capitalized; other repairs and maintenance are expensed. The
cost and accumulated depreciation applicable to assets retired are removed from
the accounts and any gain or loss on disposition is recognized in income.
Assets Held for Sale During 1995, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The adoption
of SFAS No. 121 did not have a material effect on the Company's financial
statements. At December 31, 1995, assets held for sale represents the assets of
13 facilities which the Company determined to dispose of in 1995. At December
31, 1996, it represents the assets of the seven remaining facilities which the
Company intends to dispose of during 1997 (see Note 14). Such amounts are
carried at estimated fair value less selling costs.
Goodwill The excess of the purchase price over the value of the net
assets of the businesses acquired by the Company is amortized using the
straight-line method over periods ranging from 15 to 22 years. The Company
periodically evaluates the carrying value of goodwill in relation to the
operating performance and future undiscounted cash flows of the underlying
business to assess recoverability. Adjustments are made if the sum of expected
future net cash flows is less than book value of goodwill and other depreciable
or amortizable assets.
Asset Impairment The carrying values of long-lived assets are reviewed
if the facts and circumstances suggest that an item may be impaired. If this
review indicates that a long-lived asset will not be recoverable, as determined
based on the future undiscounted cash flows of the asset, the Company's carrying
value of the long-lived asset is reduced to fair value.
Other Long-Term Assets Costs incurred to obtain long-term financing are
amortized using the effective interest method. Costs to initiate and implement
subacute specialty units are amortized on a straight-line basis over 36 months.
Deferred Revenue Deferred revenue consists of patient billings recorded
in advance of services rendered.
Workers' Compensation The Company maintains self-insurance programs for
workers' compensation for its nursing facilities in California and Ohio,
pharmacy operations, home health operations and its corporate office employees.
For all other operations, the Company purchases insurance for this risk. The
self-insurance liability under these programs is based on claims filed and
actuarial estimates of claims incurred but not reported. Differences between the
amounts accrued and subsequent settlements are recorded in operations in the
year of settlement.
39
<PAGE>
Net Operating Revenue Revenues are derived from the operation of
healthcare facilities, which are subject to federal and state regulation.
Approximately 69.9%, 71.8%, and 74.0%, percent of revenues were derived from
services provided under federal (Medicare) and state (Medicaid) medical
assistance programs for the years ended December 31, 1996, 1995 and 1994,
respectively. Revenues from Medicaid are recorded at the prescribed contract
rate. Revenues from Medicare are recorded based on an estimate of the Company's
reimbursable cost. Limitations on Medicare and Medicaid reimbursement for
healthcare services are continually proposed. Changes in applicable laws and
regulations could have an adverse effect on the levels of reimbursement from
governmental, private, and other sources. These revenues are based, in part, on
cost reimbursement principles and are subject to audit. Provisions for estimated
third-party payor settlements are provided in the period the related services
are rendered. Differences between the amounts accrued and subsequent settlements
are recorded in operations in the year of settlement.
Additionally, the Company's cost of care for its Medicare patients
sometimes exceeds regional reimbursement limits established by Medicare. The
Company has submitted exception requests for 156 cost reports, covering all cost
report periods through December 31, 1994. To date, final action has been taken
by the Health Care Financing Administration ("HCFA") on 105 exception requests.
The Company's final rates as approved by HCFA represent approximately 84% of the
requested rates as submitted in the exception requests. During 1994, the Company
recognized 50% of the 1994 estimated exception requests anticipated to be
received, which represented revenues of approximately $1,550,000. Commencing
January 1, 1995, the Company recognized 70% of the estimated exception requests
anticipated to be received, which represents revenues of approximately
$3,563,000 and $3,001,000 in 1996 and 1995, respectively. Management believes
that the Company will be able to recover its excess costs under any pending
exception requests or under any exception requests that may be submitted in the
future, however there can be no assurance that it will be able to do so.
Stock Based Compensation. Effective January 1, 1996, the Company
adopted the disclosure provisions of SFAS No. 123, "Accounting for Stock-
Based Compensation." SFAS No. 123 requires the Company to disclose proforma
net income and earnings per share as if the fair value based accounting
method of SFAS No. 123 had been used to account for stock based compensation.
These disclosures are included in Note 9.
Use of Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Corporate General and Administrative Expenses During 1995, the Company
changed its classification of general and administrative expenses. Previously,
the Company classified all corporate overhead, regional costs related to the
supervision of operations, the administrative costs at the Company's facilities,
pharmacies, and home care operations as administrative and general expenses. The
Company now classifies corporate overhead and the regional costs related to the
supervision of operations as corporate general and administrative expenses. All
other costs which relate to the daily operations have been classified as
operating expenses for the periods presented. These costs in 1994 have been
reclassified to conform to the 1996 and 1995 presentation.
Financial Statement Presentation Estimated third party settlements
classified in accounts receivable, other assets and other liabilities and
non-current reserves in the 1995 financial statements have been reclassified to
estimated third party settlements in current assets to conform to the 1996
presentation. Certain other amounts have been reclassified in the 1995 and 1994
financial statements to conform to the 1996 presentation.
40
<PAGE>
3. LONG-TERM DEBT
<TABLE>
Long-term debt consists of the following (dollars in thousands):
December 31,
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Senior Subordinated Notes, interest at 9.875 percent, due October 2002. Interest
is payable semi-annually on October 15 and April 15, commencing
April 15, 1996; redeemable beginning October 15, 1999.................... $110,000 $110,000
Junior Subordinated Notes, interest at 12.25 percent, due July 2003, interest
payable semi-annually on January 15 and July 15, commencing January 1997;
redeemable beginning July 15, 2000....................................... 50,000 --
Industrial revenue bonds ("IRBs"), interest at rates from 4.0 to 8.25
percent, due through September 2012 in varying amounts................... 9,675 9,800
Note payable, collateralized by a deed of trust, interest at 8.75 percent;
interest and principal payable monthly through September 2033............ 4,697 4,714
Note payable, secured, interest at 9.0 percent, interest and principal
payable monthly, balance due November 2013............................... 4,276 4,308
Convertible Subordinated Debentures, interest at 6.5 percent, due March 2003,
redeemed in 1996......................................................... -- 48,904
Note payable, interest at 6.0 percent. Interest payable quarterly commencing
October 1, 1995; fully repaid in 1996.................................... -- 3,400
Other unsecured indebtedness, interest rates up to 13.0 percent, payable in
varying installments through August 2017................................. 646 1,014
Other secured long-term debt, interest rates up to 10.25 percent, payable in
varying installments through August 2014................................. 5,614 1,846
------------ -------------
184,908 183,986
Less current portion........................................................ 2,418 4,371
------------ -------------
$182,490 $179,615
============ =============
</TABLE>
On June 28, 1996, the Company issued 12.25% Junior Subordinated Notes
(the "Junior Subordinated Notes") in an aggregate amount of $50 million. The
Junior Subordinated Notes will mature on July 15, 2003, unless previously
redeemed. Net proceeds received by the Company totaled approximately $48.4
million and funded the redemption of the Company's outstanding 6.5% Convertible
Subordinated Debentures due 2003 (the "Convertible Subordinated Debentures") on
July 29, 1996. The Junior Subordinated Notes contain certain covenants, which
are similar to the 9.875% Senior Subordinated Notes ("Subordinated Notes"),
including limitations on the ability of the Company to, among other things, (a)
incur additional indebtedness and issue redeemable preferred stock, (b) sell
equity interests in subsidiaries, (c) make certain restricted payments (as
defined), (d) create liens, and (e) engage in mergers, consolidations or
transfers of substantially all of the assets of the Company to another party.
Effective September 30, 1996, the Company refinanced three of its
Industrial Revenue Bond Issues (IRBs) with an aggregate outstanding principal
balance of $7,560,000 with three new issues of tax exempt IRBs maturing through
September 2012. One of the new issues has a principal balance of $2,830,000 and
bears interest at rates ranging from 4.2% to 6.0% based on the maturity dates of
the individual bonds. The other two IRBs bear interest at a variable rate
initially set at 4.0% which is capped at 12.0%. The refinancing resulted in an
extraordinary loss on extinguishment of debt of $325,000, net of tax resulting
from the write-off of unamortized underwriting costs and payment of a call
premium. The IRBs are secured by irrevocable standby letters of credit issued
against the Company's Amended Credit Agreement.
On December 28, 1995 the Company entered into a revolving credit loan
agreement ("Credit Agreement") with NationsBank of Texas, N.A. as agent for a
group of banks, which provided up to $50 million in a revolving line of credit
and letters of credit. No borrowings were drawn on the Credit Agreement at
41
<PAGE>
December 31, 1995 and throughout 1996. On December 20, 1996, the Company
increased the available financing to $100 million and revised certain terms and
covenants through the Amended and Restated Credit Agreement ("Amended Credit
Agreement"). Borrowings bear interest at either the Base Rate plus up to .50% or
the Adjusted Eurodollar Rate plus .75% to 2.00%, depending on the Company's
Consolidated Adjusted Leverage Ratio, all as defined in the Amended Credit
Agreement. The Amended Credit Agreement has scheduled commitment reductions of
$25 million each on January 2, 1999 and 2000 and expires on January 2, 2001. The
Amended Credit Agreement is collateralized by accounts receivable, all of the
common stock of each of the Company's subsidiaries and certain other current
assets of the Company and its subsidiaries. The Amended Credit Agreement, among
other things, (a) requires the Company to maintain certain financial ratios, and
(b) restricts the Company's ability to incur debt and liens, make investments,
pay dividends, purchase treasury stock, prepay or modify certain debt of the
Company, liquidate or dispose of assets, merge with another corporation, and
create or acquire subsidiaries. As of December 31, 1996, $16.2 million of
standby letters of credit were issued in connection with the Company's
self-insured workers' compensation programs and refinanced Industrial Revenue
Bonds (discussed above) out of a total available of $35 million. On January 2,
1997 the Company borrowed $40 million under the Amended Credit Agreement.
On October 12, 1995, the Company issued Subordinated Notes in an
aggregate amount of $110 million. Net proceeds received by the Company totaled
approximately $106.7 million of which approximately $31.5 million was used to
repay the principal and a prepayment penalty on the Company's 8.10% Senior
Secured Notes (which resulted in a loss on extinguishment of debt of
approximately $1.6 million, net of tax) and $47.4 million was used for
acquisitions in 1996 (see Note 13). The Subordinated Notes contain certain
covenants, including limitations on the ability of the Company to, among other
things, (a) incur additional indebtedness and issue preferred stock, (b) sell
equity interests in subsidiaries, (c) make certain restricted payments (as
defined), (d) create liens, and (e) engage in mergers, consolidations or the
transfer of substantially all of the assets of the Company to another party.
In March 1993, the Company issued $50,000,000 aggregate principal
amount of its Convertible Subordinated Debentures resulting in net proceeds to
the Company of approximately $47,800,000. During the years ended December 31,
1995 and 1994, $20,000 and $1,076,000 of the Convertible Subordinated Debentures
were converted into 1,616 and 86,946 shares of common stock, respectively. On
July 29, 1996, the Company completed the redemption of all $48.9 million of its
outstanding Convertible Subordinated Debentures for cash at such amount from the
proceeds of the Junior Subordinated Notes and available cash. The redemption
reduces fully diluted shares by 3.9 million and produces an extraordinary loss
on extinguishment of debt of $868,000, net of tax, resulting from the write-off
of unamortized underwriting costs.
Each of the mortgage notes and certain IRBs are secured by a first deed
of trust on the related facility. Certain IRBs require the maintenance of debt
service reserve funds and all of the IRBs contain affirmative and negative
covenants.
Principal maturities on long-term debt are as follows (in thousands):
<TABLE>
Year Ending December 31,
<S> <C>
1997................................................................ $ 2,418
1998................................................................ 3,079
1999................................................................ 497
2000................................................................ 505
2001................................................................ 802
Thereafter.......................................................... 177,607
----------
Total............................................................... $184,908
==========
</TABLE>
42
<PAGE>
4. INCOME TAXES
The Company and its subsidiaries file consolidated federal and state
income tax returns and account for income taxes under the provisions of SFAS No.
109.
As a result of the Care bankruptcy proceedings, a "change in ownership"
occurred. Prior to the Merger, the Company had substantial net operating loss
carryforwards for tax purposes ("Tax NOL") and income tax credit carryforwards.
In March 1994, the Internal Revenue Service ("IRS") issued final regulations
relative to Tax NOL utilization when a "change in ownership" occurs in
bankruptcy proceedings. These regulations reduced the aggregate Tax NOL
available to the Company but did not limit its annual use.
As a result of the Merger, another "change in ownership" occurred and
the Company's Tax NOL and credit carryforward utilization became subject to a
combined annual limitation of approximately $7.9 million (on a pre-tax basis) in
periods after the Merger.
After considering the adjustments resulting from the IRS examination
for the years 1987 through 1990, the Company has a federal Tax NOL of $2,929,000
and income tax credit carryforwards of $5,503,000 available for use at December
31, 1996. As a result of Fresh Start Reporting, the tax benefits realized from
the pre-bankruptcy Tax NOL and income tax credit carryforwards are recorded as
an increase in additional paid-in capital and are not recorded in the statement
of operations.
The provision for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current provision:
Federal........................... $4,950 $ 722 $ 597
State............................. 1,315 1,016 988
--------- -------- ----------
6,265 1,738 1,585
Deferred provision:
Federal........................... (3,797) 2,459 (1,971)
State............................. (670) 433 (257)
--------- -------- ----------
(4,467) 2,892 (2,228)
Charge in lieu of income taxes....... 2,814 2,686 2,636
========= ======== ==========
$4,612 $7,316 $ 1,993
========= ======== ==========
</TABLE>
A reconciliation of the federal statutory income tax rate with the
Company's effective tax rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate...................... 34.0% 34.0% 34.0%
State income taxes, net of federal benefit.. 6.0 6.0 6.0
Disposition of assets charges............... -- 19.6 --
Other non-deductible items.................. -- -- 21.4
Non-deductible merger related expenses...... -- -- 101.4
Goodwill amortization....................... 3.1 1.7 4.4
Other, net.................................. (1.2) 0.8 --
====== ===== =====
41.9% 62.1% 167.2%
===== ===== ======
</TABLE>
43
<PAGE>
Deferred income taxes arise from temporary differences in the
recognition of certain expenses for financial and tax reporting purposes. The
following is a summary of these differences and the tax effect of each (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts................. $ 1,057 $ 1,054
Net operating loss carryforward................. 996 3,789
Loss contingencies and legal settlements........ 416 734
Workers' compensation claims.................... 5,370 4,827
Covenant not to compete......................... 901 --
Disposition of assets charges................... 4,166 2,844
Accrued interest................................ -- 598
Other reserves.................................. 3,389 1,035
Credit carryforwards............................ 5,519 4,883
Other........................................... 243 613
Valuation allowance............................. (5,207) (10,100)
--------- --------
Total deferred income tax assets................... 16,850 10,277
--------- --------
Deferred income tax liabilities:
Depreciation.................................... (9,417) (9,109)
Other........................................... (5,553) (3,667)
--------- --------
Total deferred income tax liabilities.............. (14,970) (12,776)
--------- --------
Net deferred income tax asset (liability).......... $ 1,880 $ (2,499)
=========== ========
</TABLE>
The valuation allowance primarily relates to the net operating loss and
income tax credit carryforwards of the Company for periods prior to its
emergence from bankruptcy. If and when such carryforwards are realized, the
offset will be to additional paid-in capital not to the provision for income
taxes.
5. DEFERRED RENT
Several of the Company's facilities and a home health office are leased
under long-term operating leases that specify scheduled rent increases over the
lease terms. Deferred rent of approximately $986,000 and $932,000, at December
31, 1996 and 1995, respectively, has been established to recognize the
difference between the rent expense paid and the straight-line recognition of
minimum rental expense and is classified in other liabilities and noncurrent
reserves.
6. COMMITMENTS AND CONTINGENCIES
Letters of Credit
The Company is contingently liable under letters of credit related to
deposit requirements on its self-insured workers' compensation plans and the
IRBs discussed in Note 3. State regulations require the maintenance of deposits
at specified percentages of estimated future workers' compensation claim
payments that can be satisfied through a combination of cash deposits, surety
bonds and letters of credit. The total amount of letters of credit outstanding
at December 31, 1996 and 1995, were $16,202,000 and $16,050,000, respectively.
At December 31, 1995, the letters of credit were collateralized by cash. The
cash collateral was subsequently released in connection with the Company's
Credit Agreement discussed in Note 3.
44
<PAGE>
Leases
The Company leases certain facilities and offices under cancelable and
noncancelable agreements expiring at various dates through 2047. The leases are
generally triple-net leases and provide for the Company's payment of property
taxes, insurance, and repairs. Certain leases contain renewal options and rent
escalation clauses. Rent escalation clauses require either fixed increases or
increases tied to the Consumer Price Index ("CPI"). Six leases include purchase
options at fixed or market prices at various dates.
Future minimum lease payments for operating leases at December 31, 1996
are as follows (in thousands):
<TABLE>
Year Ending December 31,
<S> <C>
1997......................................... $ 24,402
1998......................................... 23,005
1999......................................... 22,358
2000......................................... 21,460
2001......................................... 20,127
Thereafter................................... 110,805
==========
$222,157
==========
</TABLE>
Guarantee of Leases
The Company is contingently liable for certain operating leases assumed
by the purchasers of the Company's leasehold interests in facilities. With the
exception of a single facility re-entered on October 1, 1994, following the
filing of bankruptcy by the Company's sublessee, which has been operated by the
Company since November 1, 1994, the Company is not aware of any failure on the
part of these purchasers to meet the terms of their obligations, and does not
anticipate any expenditures to be incurred in connection with its guarantees. If
a default were to occur, the Company generally would be able to assume
operations of the facility and use the net revenues thereof to defray the
Company's expenditures on these guarantees.
The following is a schedule of future minimum lease payments at
December 31, 1996 for the operating leases for which the Company is contingently
liable (in thousands):
<TABLE>
Year Ending December 31,
<S> <C>
1997......................................... $ 3,165
1998......................................... 1,125
1999......................................... 1,128
2000......................................... 1,136
2001......................................... 1,023
Thereafter................................... 4,617
=========
$12,194
=========
</TABLE>
Litigation
In 1995, a class action lawsuit, which had been filed against the
Company in July 1994, was settled for $9,000,000. The Company's portion of this
settlement, together with related legal fees and other costs, resulted in a
pre-tax charge of $3,098,000, which is included in the consolidated statement of
operations for the year ended December 31, 1995.
The Company is subject to claims and legal actions by patients and
others in the ordinary course of its business. The Company has insurance
policies related to patient care claims and legal actions. In the event
judgments were awarded for non-patient care legal actions or in excess of the
insurance coverage for patient care legal actions, the burden would fall on the
Company. The Company does not expect that the ultimate outcome of an unfavorable
judgment in any pending legal matters would result in a material adverse effect
on the Company's consolidated financial position or results of operations.
45
<PAGE>
Employment Agreements
At December 31, 1996, the Company had employment agreements with its
president, and certain executive and senior vice presidents, which provide for
annual base salaries in the aggregate of $1,212,000. The agreements expire at
various dates through 1999.
Insurance
The Company maintains general and professional liability insurance on a
claims made basis, subject to a $100,000 self-insurance retention. In addition,
all-risk property insurance, including earthquake and flood, is maintained for
all Company locations.
The Company estimates its liability under the above described programs,
including potential legal fees and settlement amounts, with respect to incurred
but not reported claims on a monthly basis, based upon its historical
experience.
7. RELATED PARTY TRANSACTIONS
In February 1988, the Company entered into a 20-year lease with three
five-year option periods for its Heritage (Torrance) facility that is owned by a
former director of the Company. The lease provides for monthly payments,
currently $35,000, which are adjusted annually based on the CPI. Lease expense
for the years ended December 31, 1996, 1995 and 1994, was approximately
$419,000, $415,000, and $409,000, respectively.
In June 1990, the Company entered into a ten year lease with four
five-year option periods for its Glendora facility that is directly owned by one
former director and indirectly owned by another director. The lease provides for
equal monthly payments for three years, after which the monthly payment is
adjusted annually based on increases in the CPI. Lease expense for the years
ended December 31, 1996, 1995 and 1994, was approximately $446,000, $437,000,
and $420,000, respectively.
The Company leases from Newport Harbor Investments Limited, Inc.
("Newport Harbor"), a corporation wholly-owned by a former director of the
Company, two nursing facilities located in Beaumont and Riverside, California.
The leases provide for monthly rent payments of $7,083 and $5,142, respectively,
subject to periodic adjustments based on certain increases in the CPI or
Medi-Cal reimbursement rates. The Riverside facility lease contains an option to
purchase the facility for $675,000, subject to adjustment based on increases in
the CPI from March 1992. In 1992, the Company paid Newport Harbor $120,000 as
consideration for the extension of the purchase option on the Riverside facility
for a five-year period. During 1996 the Company exercised the option and
acquired the facility for approximately $700,000, net of the consideration
already paid. Lease expense paid by the Company for the years ended December 31,
1996, 1995 and 1994, was approximately $133,000, $147,000 and $147,000,
respectively.
The Company had a 26% interest in a pharmacy partnership formed in
April 1992, which provided products and services to several healthcare
facilities operated by the Company. For the year ended December 31, 1994 these
purchases totaled approximately $7,525,000. In August 1994, the Company sold its
interest in the pharmacy partnership to the other partner. The Company received
its net equity in the partnership plus $200,000 for goodwill. The total cash
received by the Company was $2,239,000.
8. INCOME (LOSS) PER SHARE
For the years ended December 31, 1996, 1995 and 1994, income (loss) per
share was calculated based on the weighted average number of common and common
equivalent shares outstanding during the periods of 16,476,000, 16,654,000, and
16,545,000, respectively. Fully diluted income (loss) per share for the years
ended December 31, 1996, 1995 and 1994 is not presented because the effect of
the assumed conversion of the Convertible Subordinated Debentures was
anti-dilutive.
46
<PAGE>
The 1994 income per share calculation does not include the shares
reserved for issuance in connection with the Company's Share Appreciation Rights
Plan, which provides for settlement of the rights in cash or stock. Through
December 31, 1994, all Share Appreciation Rights that had been settled were
settled for cash. During 1995, the Board of Directors settled all remaining
outstanding rights and issued shares which are included in the weighted average
share calculation for 1996 and 1995. (See Note 10.)
9. STOCK OPTIONS
Pursuant to the Merger, Care became a wholly owned subsidiary of
Regency. Stockholders of Care received 0.71 of a share of Regency common stock
for each share of Care common stock outstanding. Pursuant to the Merger,
Regency's stock option plan was amended to increase the number of shares of
Regency common stock available for grant to 1,937,991 shares. This amount does
not include the assumption of the Care stock option plan or share appreciation
rights plan.
The Company has a Director Stock Plan whereby each non-employee
director of the Company receives on July 1 of each year 2,000 restricted shares
of Company Common Stock and options to purchase an additional 6,000 shares of
Company Common Stock. The period of restriction for each award of shares of
restricted stock expires on the last to occur of: the end of the six month
period following the grant date; participant's direct or indirect pecuniary
ownership of shares not subject to restrictions for at least 12 months, provided
that the restrictions shall lapse with respect to one restricted share granted
for every two shares of unrestricted shares; and participants attendance at 75%
of the scheduled board meetings during the 12 month period immediately preceding
the grant date. Any shares which remain restricted when a director's service on
the Company's Board terminates, will be forfeited. The stock options are granted
at fair market value on the date of grant and the participants are entitled to
exercise such options beginning six months and one day after grant and ending
ten years after grant. During the years ended December 31, 1996, 1995 and 1994,
the Company awarded 12,000, 14,000, and 12,000 shares of restricted stock,
respectively, and during the year ended December 31, 1994, 6,000 shares of
restricted stock were forfeited. At December 31, 1996 restrictions remained on
12,000 shares of stock. In January 1997, the period of restriction lapsed on
12,000 shares.
The following is a summary of options granted pursuant to Regency's
Employee and Director stock option plans (such amounts do not include restricted
stock awards):
<TABLE>
<CAPTION>
For the year ended December 31,
1996 1995 1994
-------------------------- --------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Options
outstanding at
the beginning
of the year.. 1,226,214 $11.94 1,773,436 $12.37 659,058 $5.63
Granted...... 911,000 10.34 262,641 11.42 1,461,015 15.08
Exercised.... (99,491) 4.28 (210,004) 5.90 (94,736) 5.27
Canceled..... (288,612) 13.28 (599,859) 15.11 (251,901) 13.28
=========== ====== ========= ======= ========= ======
Options
outstanding at
the end of the
year......... 1,749,111 $11.32 1,226,214 $11.94 1,773,436 $12.37
=========== ======== ========= ====== ========= ======
Options
Exercisable.. 493,008 527,284 701,563
=========== ========= =========
</TABLE>
47
<PAGE>
During 1996, 1995 and 1994, no compensation cost was recognized related
to the above stock options. The following outlines the significant assumptions
used to calculate the fair value information presented utilizing the
Black-Scholes Single Option approach with ratable amortization.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Risk-free interest rate.................................... 5.90% 6.14%
Expected life.............................................. 7.65 6.50
Expected volatility........................................ 41% 41%
Expected dividends......................................... - -
Weighted average grant date fair value of options granted.. $5.61 $5.95
</TABLE>
A detail of the options outstanding and exercisable as of December 31,
1996 is presented below:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
- -------------------------------------------------------------------------- ------------------------------
Weighted
average Weighted Weighted
remaining average average
Range of exercise Number contractual exercise Number exercise
prices outstanding life in years price exercisable price
- ------------------- -------------- ---------------- ------------ ------------- ------------
<C> <C> <C> <C> <C> <C> <C>
$3.17 - $6.98 105,561 .84 $ 3.95 100,235 $ 3.94
9.15 - 10.75 821,112 8.83 10.04 86,796 10.15
11.00 - 12.88 389,000 8.72 11.69 71,250 11.68
15.00 - 15.38 433,438 7.34 15.22 234,727 15.21
- ------------------- ---------- ---- ------- ------- -------
$3.17 - $15.38 1,749,111 7.96 $11.32 493,008 $11.52
=============== ========== ==== ======= ======= =======
</TABLE>
As the Company has adopted the disclosure requirement of SFAS No. 123,
the following table shows pro-forma net income and earnings per share as if the
fair value based accounting method had been used to account for stock-based
compensation cost.
<TABLE>
<CAPTION>
(in thousands, except earnings per share) 1996 1995
---- ----
<S> <C> <C>
Net income as reported...................... $5,206 $2,845
Pro forma compensation expense.............. (774) (235)
====== ======
Pro forma net income........................ $4,432 $2,610
====== ======
Pro forma earnings per share................ $.27 $.16
====== ======
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. At December 31, 1996, 2,123,897 shares of common
stock have been reserved for issuance under the Company's stock option plans.
10. SHARE APPRECIATION RIGHTS PLAN
In January 1991, Care's Board of Directors adopted a Share Appreciation
Rights Plan (the "SAR Plan"), which provided for the award of up to 710,000
units to certain key executives. The SAR Plan was amended by the Care Board of
Directors and stockholders in May 1992, and assumed by Regency at the time of
the Merger.
The SAR Plan provides that upon award, 25% of the units vest on each
of the first four anniversaries of the award date and vested units must be
exercised before the fifth anniversary of the award. All outstanding units
fully vested on January 1, 1995. Upon exercise, the awardee is entitled to
receive the difference between the base value and the market value on the
48
<PAGE>
date the units are exercised, in cash or stock, at the Company's option. During
1995, the Company discontinued the SAR Plan and settled all outstanding units
for $1,628,000 cash and 55,310 shares. This resulted in a charge to income of
$534,000 during 1995.
The following is a summary of the SAR Plan (as adjusted by the Exchange
Ratio due to the Merger):
<TABLE>
Year ended December 31,
1995 1994
---- ----
<S> <C> <C>
Units outstanding at beginning of the year...... 236,430 236,430
Granted......................................... -- --
Settled......................................... (236,430) --
Canceled........................................ -- --
============= ===========
Units outstanding at end of the year............ -- 236,430
============= ===========
Units exercisable at end of the year............ -- 177,322
============= ===========
Unit price of outstanding units................. -- $1.41
============= ===========
Unit price of settled units..................... $1.41 --
============= ===========
</TABLE>
11. RETIREMENT SAVINGS PLAN
Regency sponsors an employee retirement savings plan under Section
401(k) of the Internal Revenue Code. All employees who are regularly scheduled
to work 20 hours or more per week, and complete 90 days of service are eligible
to participate. Participants can contribute, on a pre-tax basis, up to 15% of
their earnings to the plan (subject to certain limitations), for which the
Company matched 15% of the first 3% of contributions made for persons with less
than three years of service and 25% of the first 5% for all others. The
Company's contributions are subject to a four-year vesting period. Matching
contributions made by the Company for the years ended December 31, 1996, 1995
and 1994 were approximately $697,000, $471,000, and $279,000, respectively.
12. MERGER AND RESTRUCTURING EXPENSES
All fees and expenses related to the Merger and to the consolidation
and restructuring of the combining companies during the year ended December 31,
1994, were expensed as required under the pooling-of-interests accounting
method.
49
<PAGE>
The following is a summary of the merger and restructuring expenses,
separated into cash and non-cash items (in thousands):
<TABLE>
<CAPTION>
Cash Non-Cash Total
---- -------- -----
<S> <C> <C> <C>
Severance..................................................... $ 4,394 $ -- $ 4,394
Management information, accounting,
and operational integration................................ 2,373 -- 2,373
Investment banking fees....................................... 1,400 -- 1,400
Value of assets written off................................... -- 777 777
Legal fees.................................................... 612 -- 612
Mailing and printing costs.................................... 501 -- 501
Merger bonuses................................................ 500 -- 500
Accounting fees............................................... 440 -- 440
Former Care director and officer liability insurance.......... 550 -- 550
Miscellaneous................................................. 453 -- 453
------- --------- --------
11,223 777 12,000
------- --------- --------
Duplicate facility disposals:
Operating losses........................................... 581 -- 581
Value of assets written off................................ -- 1,569 1,569
Loss on disposals.......................................... 500 -- 500
------- --------- --------
1,081 1,569 2,650
======== ========= ========
Total......................................................... $12,304 $2,346 $14,650
======== ========= ========
</TABLE>
As of December 31, 1994, the remaining accrual relating to merger and
restructuring expenses was $4,452,000 including cash and non-cash items of
$2,800,000 and $1,700,000, respectively. The remaining accrual consisted of a
provision for duplicate facility disposals of $2.3 million, severance costs of
$1.5 million, investment banking fees of $126,000, and other costs totaling
$545,000. All remaining costs were utilized during 1995. (See Note 14.)
13. ACQUISITIONS
Effective January 2, 1996, the Company completed the acquisition of the
assets of Assist-A-Care, a pharmacy located in San Diego, California. The
purchase price was $5.8 million, composed of $3.2 million cash and a $2.6
million note payable.
Effective February 1, 1996, the Company acquired leasehold interests in
18 health care facilities in Tennessee and North Carolina with 2,375 beds from
Liberty Healthcare Limited Partnership ("Liberty") through an asset purchase for
$39.3 million cash and a note payable for $2.2 million. The Company also
acquired Executive Pharmacy (consisting of one pharmacy in North Carolina and
one in Tennessee) with a $763,000 note payable and an enteral feeding business
for $1.5 million cash from businesses affiliated with Liberty. In addition, the
Company paid $400,000 cash for the inventory of Liberty. A portion of the
purchase was funded with notes payable, which may be reduced as a result of
certain seller liabilities and audit adjustments. Escrow accounts established at
the time of purchase were funded with $2.96 million for payment on the notes
payable and are included in other assets on the accompanying consolidated
balance sheet as of December 31, 1996.
On April 1, 1996, the Company completed the acquisition of the assets
of Buena Vista Nursing Center ("Buena Vista"), a health care facility with 64
skilled nursing beds and 22 assisted living beds, located in Lexington, North
Carolina. The purchase price was $2.875 million, consisting of $2.675 million in
cash and a $200,000 note payable. Payment of the note is dependent upon Buena
Vista attaining certain financial targets.
50
<PAGE>
On July 6, 1995, the Company acquired all of the stock of SCRS &
Communicology, Inc. ("SCRS") for a total purchase price of $13.5 million, of
which $3.4 million is represented by a promissory note which was paid in January
1996. SCRS provides contract rehabilitation services to Company operated and
third party healthcare facilities.
All acquisitions during 1995 and 1996 were accounted for under the
purchase method of accounting
The following unaudited pro forma condensed consolidated statements of
earnings present the summarized consolidated results of operations of the
Company after giving effect to the acquisitions of Liberty and
Liberty-affiliated businesses for the years ended December 31, 1996 and 1995, as
if such acquisitions had been consummated on January 1, 1995 (in thousands,
except per share data):
<TABLE>
<CAPTION>
Year ended
December 31,
-------------------
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
Net operating revenue............................... $564,856 $495,690
Total costs and expenses............................ 553,264 483,020
------- --------
Income before provision for income taxes............ 11,592 12,670
Provision for income taxes.......................... 4,856 7,676
-------- --------
Net income before extraordinary item................ $ 6,736 $ 4,994
======== ========
Income before extraordinary item per common share... $ 0.41 $ 0.30
======== ========
</TABLE>
The pro forma results are presented for informational purposes only and
are not necessarily indicative of what results of operations actually would have
been had such acquisitions been consummated at the beginning of such period or
of future operations or results. The effect of the other acquisitions is
immaterial.
14. RESTRUCTURING AND OTHER NON-RECURRING CHARGES
During 1996 the Company developed a comprehensive strategic plan
impacting all of its operating divisions. In connection with this strategic plan
the Company has undertaken initiatives designed to reengineer the operating
model through which it manages its business. This reengineering effort is
focused on identifying and implementing the most effective and efficient model
for managing the delivery of products and services to the Company's patients on
a local market by market basis. The plan includes consolidating and automating
the Pharmacy operations, consolidating the Home Health operations, automating
and streamlining certain functions in the nursing center operations, and
streamlining the corporate support structure. Through this process the Company
identified approximately 350 non-direct patient care positions across all
divisions, including the Corporate Office, which will be eliminated. Of the
positions identified, approximately 30 were eliminated during 1996. The Company
began the implementation phase of this plan during the fourth quarter of 1996.
Additionally, the Company has identified the implementation of
significant management information system (MIS) enhancements as a critical
component of its overall strategic plan. Implementing these MIS initiatives will
be an integral part of the realization of an effective and efficient management
model, through which the Company can monitor its patients, from both a cost and
a clinical perspective, seamlessly throughout the continuum of care and across
all divisions of the Company. Furthermore, these MIS initiatives will provide
management with complete patient information within each local market, which is
vital in the managed care environment of today and in the future. This
implementation is expected to continue during 1997 and into 1998. Several of the
51
<PAGE>
Company's current management information systems will be replaced in connection
with the MIS initiatives. The Company has also identified certain impaired
property and equipment and intangible assets and future contractual obligations
that will have no value to the Company under the new operating model due to
obsolescence, consolidation of locations, and streamlining of processes.
Accordingly, the Company has written off certain long-term assets and accrued
certain obligations, including obligations related to leases.
The Company has evaluated the reserve established in 1995 for the
disposition of 13 facilities located in California discussed below and
allowances established for certain notes and other non-patient receivables.
Based on the actual sale of six of the 13 facilities, and the estimated sales
prices for the remaining seven facilities, the Company has reduced the reserve
for the disposition of 13 facilities as of December 31, 1996. Earnings before
income taxes for the remaining seven facilities were $940,000, $765,000 and
$316,000 for 1996, 1995 and 1994, respectively. In addition, an allowance was
established for certain notes and non-patient receivables that arose in prior
years, which were not collected as anticipated by the Company and certain
long-term assets were written down to net realizable value.
The following summarizes the impact of the above items on the Company's
results of operations for 1996:
<TABLE>
<CAPTION>
Non-
Restructuring recurring Total
----------------- ------------- ---------------
<S> <C> <C> <C>
MIS and other property and equipment written off
$2,057,000 $2,320,000 $ 4,377,000
Goodwill and other assets written off........... 2,300,000 1,255,000 3,555,000
Future lease and other obligations.............. 325,000 1,891,000 2,216,000
Severance (including $711,000 paid during 1996).
1,377,000 -- 1,377,000
Allowance for notes and other receivables....... -- 1,010,000 1,010,000
Reengineering costs incurred.................... 511,000 -- 511,000
Reduction of reserve for assets held for sale... -- (1,763,000) (1,763,000)
----------- ----------- -------------
$6,570,000 $4,713,000 $11,283,000
=========== =========== ============
</TABLE>
In 1995, the Company determined to dispose of 13 facilities located
in California. In addition, during 1995 the Company completed the disposition
of duplicate facilities identified during 1994 as part of the merger and
restructuring costs, the Simi Valley healthcare facility damaged in the
Southern California (Northridge) earthquake and one other facility, and
exchanged leasehold interests in three nursing centers in New Mexico for
leasehold interest in four nursing centers in Ohio. These transactions resulted
in a net charge of $9,000,000 during 1995. This charge was based upon
management's best estimates of the amounts expected to be estimated fair value
less selling costs.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments at
December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
Carrying
Amount Fair Value
-------- ----------
<S> <C> <C>
Cash and cash equivalents.................. $ 22,875 $ 22,875
======== ========
Mortgage notes receivable.................. $ 1,937 $ 1,937
======== ========
Long-term debt, including current portion.. $184,908 $190,139
======== ========
</TABLE>
52
<PAGE>
The carrying amount approximates fair value for cash and cash
equivalents because of the short maturity of these instruments. The fair value
of mortgage notes receivable was estimated based on the present value of future
cash flows using current rates the Company could obtain on notes with similar
characteristics and maturities. The fair value for the Company's long-term debt
was estimated based on the quoted market prices for the same or similar issues
or on the present value of future cash flows using current rates the Company
could obtain on debt with similar characteristics and maturities.
16. SUBSEQUENT EVENTS
Effective January 1, 1997, the Company acquired four acute
rehabilitation hospitals, eleven outpatient rehabilitation clinics and six
neurological treatment centers from Horizon/CMS Healthcare Corporation ("CMS").
The purchase price was $43.0 million, made up of a cash payment of $36.3 million
and notes payable totaling $6.7 million.
17. QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
Year Ended December 31, 1996
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net operating revenue.............. $129,963 $137,632 $144,103 $146,352 $558,050
======== ======== ======== ======== ========
Income (loss) before extraordinary
item............................ $2,737 $3,065 $3,641 $(3,044) $6,399
======== ======== ======== ======== ========
Net income (loss).................. $2,737 $3,065 $2,448 $(3,044) $5,206
======== ======== ======== ======== ========
Income (loss) per share - Primary:
Income (loss) before
extraordinary item........... $.16 $.19 $.22 $(.19) $.39
======== ======== ======== ======== ========
Net income (loss)............... $.16 $.19 $.15 $(.19) $.32
======== ======== ======== ======== ========
Income (loss) per share -
Fully Diluted:
Income (loss) before
extraordinary item........... $.16 $.18 $.22 $(.19) $.39
======== ======== ======== ======== ========
Net income (loss)............... $.16 $.18 $.15 $(.19) $.32
======== ======== ======== ======== ========
</TABLE>
Effective January 2, 1996, the Company completed the acquisition of the
assets of Assist-A-Care, a pharmacy located in San Diego, California. The
purchase price was $5.8 million, composed of $3.2 million in cash and a $2.6
million note payable.
Effective February 1, 1996, the Company acquired leasehold interests in
18 health care facilities in Tennessee and North Carolina with 2,375 beds from
Liberty Healthcare Limited Partnership ("Liberty") through an asset purchase for
$39.3 million cash and a note payable for $2.2 million. The Company also
acquired Executive Pharmacy (consisting of one pharmacy in North Carolina and
one in Tennessee) with a $763,000 note payable and an enteral feeding business
for $1.5 million cash from businesses affiliated with Liberty. In addition, the
Company paid $400,000 cash for the inventory of Liberty.
53
<PAGE>
On April 1, 1996, the Company completed the acquisition of the assets
of Buena Vista Nursing Center in Lexington, North Carolina. The purchase price
was $2.875 million, consisting of $2.675 million in cash and a note payable for
$200,000.
On July 29, 1996, the Company completed the redemption of all $48.9
million of its outstanding Convertible Subordinated Debentures for cash at such
amount. The redemption reduces fully diluted shares by 3.9 million shares and
results in an extraordinary loss on extinguishment of debt of $868,000, net of
tax, resulting from the write-off of unamortized underwriting costs.
Effective September 30, 1996, the Company refinanced three of its IRBs
with an aggregate outstanding principal balance of $7,560,000 with three new
issues of tax exempt IRBs. The refinancing resulted in an extraordinary loss on
extinguishment of debt of $325,000, net of tax, resulting from the write-off of
unamortized underwriting costs and a call premium paid.
During the fourth quarter of 1996, the Company recorded an $11.3
million charge related to restructuring and other non-recurring items as
discussed in Note 14.
<TABLE>
<CAPTION>
Year Ended December 31, 1995
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net operating revenue.............. $97,548 $99,766 $107,492 $111,287 $416,093
======= ======= ======== ======== ========
Income (loss) before extraordinary
item............................ $3,087 $1,780 $4,042 $(4,455) $4,454
======= ======= ======== ======== ========
Net income (loss).................. $3,087 $1,780 $4,042 $(6,064) $2,845
======= ======= ======== ======== ========
Income (loss) per share - Primary:
Income (loss) before
extraordinary item........... $.19 $.11 $.24 $(.27) $.27
======= ======= ======== ======== ========
Net income (loss)............... $.19 $.11 $.24 $(.36) $.17
======= ======= ======== ======== ========
Income (loss) per share -
Fully Diluted:
Income (loss) before
extraordinary item........... $.18 $.11 $.22 $(.27) $.27
======= ======= ======== ======== ========
Net income (loss)............... $.18 $.11 $.22 $(.36) $.17
======== ======= ======== ======== ========
</TABLE>
Effective July 6, 1995, the Company acquired all of the stock of SCRS &
Communicology, Inc. ("SCRS") for a total purchase price of $13.5 million, of
which $3.4 million is represented by a promissory note which was paid in January
1996. The acquisition was accounted for under the purchase method of accounting.
SCRS provides rehabilitation services to Company operated and third party
healthcare facilities.
54
<PAGE>
In May 1995, a class action lawsuit which had been filed against the
Company in July 1994, was settled for $9,000,000. The Company's portion of this
settlement, together with related legal fees and other costs, resulted in a
pre-tax charge of $3,098,000, which is included in the consolidated statement of
operations for the quarter ended June 30, 1995.
In October 1995, the Company repaid its $30 million, 8.10% Senior
Secured Notes resulting in costs and prepayment penalties of $2,681,000
($1,609,000 net of tax), classified as an extraordinary item in the quarter
ended December 31, 1995.
In December 1995, the Company recorded a $9,000,000 charge, primarily
related to the disposition of certain facilities (See Note 14).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
55
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item for the Company's directors and
executive officers will be contained in Regency's Notice of Annual Meeting of
Stockholders and Proxy Statement, pursuant to Regulation 14A, to be filed with
the Securities and Exchange Commission on or before April 14, 1997, and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item will be contained in Regency's Notice
of Annual Meeting of Stockholders and Proxy Statement, pursuant to Regulation
14A, to be filed with the Securities and Exchange Commission on or before April
14, 1997, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item will be contained in Regency's Notice
of Annual Meeting of Stockholders and Proxy Statement, pursuant to Regulation
14A, to be filed with the Securities and Exchange Commission on or before April
14, 1997 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item will be contained in Regency's Notice
of Annual Meeting of Stockholders and Proxy Statement, pursuant to Regulation
14A, to be filed with the Securities and Exchange Commission on or before April
14, 1997, and is incorporated herein by reference.
56
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following are filed as part of this Report.
(a)(1) FINANCIAL STATEMENTS
Report of Independent Public Accountants.......................... 31
Consolidated Balance Sheets as of December 31, 1996 and 1995...... 32
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994................................ 34
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994.......................... 35
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994................................ 36
Notes to Consolidated Financial Statements........................ 38
(a)(2) FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts
All other Financial Statement schedules have been omitted from this
Item 14(a)(2) because they are not applicable or not required or because the
information is included elsewhere in the financial statements or the notes
thereto.
(a)(3) EXHIBITS
Number Description
3.1 Restated Certificate of Incorporation of the Company. (7)
3.2 Restated Bylaws of the Company, and Amendment thereto dated
June 8, 1995 (11).
4.1 Restated Certificate of Incorporation and Restated Bylaws
filed as Exhibits 3.1 and 3.2. (7)(11)
4.2 Specimen of Common Stock Certificate. (1)
4.3 Indenture, dated as of October 12, 1995, for 9-7/8% Senior
Subordinated Notes due 2002, among Registrant, the
Subsidiary Guarantors named therein and U.S. Trust Company
of California, N.A., as Trustee. (originally filed as
Exhibit number 4.4) (12)
4.4 Form of 9 7/8% Senior Subordinated Note due 2003 of Regency
Health Services, Inc. (included in Exhibit 4.3)
4.5 Second Amended and Restated Registration Rights Agreement,
dated as of January 31, 1994, among Regency Health Services,
Inc., Care Enterprises, Inc. and the stockholders named
therein. (originally filed as Exhibit number 4.7) (7)
57
<PAGE>
4.6* Registrant's Long-Term Incentive Plan. (originally filed as
Exhibit number 4.8) (4)
4.7* Amendment to Regency Health Services, Inc. Long-Term
Incentive Plan. (originally filed as Exhibit number 4.9)(7)
4.8* Regency Health Services, Inc. Director Stock Plan.
(originally filed as Exhibit number 4.10) (4)
4.9* Indenture, dated as of June 28, 1996, between Regency Health
Services, Inc. As Issuer, the Guarantors named therein and
U.S. Trust Company of California, N.A., as Trustee.
(originally filed as Exhibit number 4.11) (16)
4.10* Form of 12-1/4% Subordinated Note due 2003 of Regency Health
Services, Inc. (included in Exhibit 4.9). (originally filed
as Exhibit number 4.12) (16)
10.1* Registrant's 401 (K) Employee Retirement Savings Plan.
(originally filed as Exhibit number 10.1) (1)
10.2* Form of Indemnity Agreement between the Registrant and its
Directors. (originally filed as Exhibit number 10.3) (1)
10.3 Master Contract for Non-Public, Non-Secretarian School
Agency Services, dated September 16, 1991, between Regency
High School and Long Beach Unified School District.
(originally filed as Exhibit number 10.4) (1)
10.4 Mental Health Services Agreement for adolescent center for
1993, 1994 and 1995, between the County of Los Angeles,
Department of Mental Health and Harbor View, formerly
Harbor View Rehabilitation Center. (originally filed as
Exhibit number 10.5) (2)
10.5 Building Loan Agreement, dated November 20, 1992, by and
between Carmichael Convalescent Hospital and PFC
Corporation. (originally filed as Exhibit number 10.6) (3)
10.6 Security Agreement, dated as of November 20, 1992, between
Carmichael Convalescent Hospital and PFC Corporation.
(originally filed as Exhibit number 10.7) (3)
10.7* Employment Agreement between Regency Health Services, Inc.
and Richard K. Matros dated April 4, 1994. (originally filed
as Exhibit number 10.10) (7)
10.8* Letter agreement between the Registrant and Cecil Mays
(originally filed as Exhibit number 10.14) (9)
10.9* Employment agreement between Regency Health Services, Inc.
and Stephen W. Carlton dated January 9, 1995. (originally
filed as Exhibit number 10.17) (10)
10.10* Indemnification Agreement dated January 1, 1994, between
the Company and Brad L. Kerby. (originally filed as Exhibit
number 10.18) (10)
58
<PAGE>
10.11 Stock Purchase Agreement dated as of July 5, 1995 among the
Company, Sherri Medina, Jamison Ashby, Daniel Larson and
Vivra Incorporated. (originally filed as Exhibit number
10.19) (11)
10.12 Promissory Note dated as of July 6, 1995 by the Company in
favor of Vivra Incorporated. (originally filed as Exhibit
number 10.20) (11)
10.13 Indemnification Escrow Agreement dated as of July 6, 1995
among the Company, Vivra Incorporated, SCRS & Communicology,
Inc., of Ohio and Mellon Bank, N.A. (originally filed as
Exhibit number 10.21) (11)
10.14 Form of Non-Competition and Non-Disclosure Agreement dated
as of July 6, 1995 between the Company and each of Sherri
Medina, Jamison Ashby and Daniel Larson. (originally filed
as Exhibit number 10.22) (11)
10.15 Non-Competition and Non-Disclosure Agreement dated as of
July 6, 1995 between the Company and Vivra Incorporated.
(originally filed as Exhibit number 10.23) (11)
10.16 Inducement Agreement dated as of July 6, 1995 among the
Company, Sherri Medina and SCRS & Communicology, Inc., of
Ohio. (originally filed as Exhibit number 10.24) (11)
10.17 Management Services Agreement dated January 1, 1995 between
SCRS & Communicology, Inc., of Ohio and SCRS &
Communicology, Inc. (originally filed as Exhibit number
10.25) (11)
10.18* Employment Agreement dated as of July 6, 1995 between the
Company and Sherri Medina. (originally filed as Exhibit
number 10.26) (11)
10.19* Employment Agreement dated as of June 8, 1995 between the
Company and David A. Grant. (originally filed as Exhibit
number 10.27) (11)
10.20* Severance Agreement and Release of Claims dated as of March
31, 1995 between the Company and Brad L. Kerby. (originally
filed as Exhibit number 10.29) (11)
10.21* Credit Agreement, dated as of December 28,1995, among
Registrant, the financial institutions listed therein as
Lenders, Nations Bank Capital Markets, Inc., as Arranger
and NationsBank of Texas, N.A., as Agent. (originally
filed as Exhibit number 10.31) (13)
10.22* Settlement Agreement and Release of All Claims dated as of
October 18, 1995 between the Company and James R. Wodach
(originally filed as Exhibit number 10.32) (14)
10.23* Employment Agreement dated as of December 15, 1995 between
the Company and Bruce D. Broussard (originally filed as
Exhibit number 10.33) (14)
10.24 Non-Qualified Stock Option Agreement between Regency
Health Services, Inc. and Richard K. Matros dated
January 2, 1996.
10.25 Non-Qualified Stock Option Agreement between Regency
Health Services, Inc. and Bruce D. Broussard dated
January 2, 1996.
59
<PAGE>
10.26* Severance Letter Agreement dated as of February 22, 1996
between the Company and Barbara Garner (originally filed as
Exhibit number 10.34) (14)
10.27 Purchase and Sale Agreement, dated as of January 12, 1996,
between Registrant and Liberty Healthcare Limited
Partnership and Liberty Assisted Living Centers Limited
Partnership. (originally filed as Exhibit number 10.35)(15)
10.28 Stock Purchase and Sale Agreement dated February 1, 1996,
between First Class Pharmacy, Inc., a wholly-owned
subsidiary of the Registrant, and the owners of Common
Stock of Executive Pharmacy Services, Inc. (originally
filed as Exhibit number 10.36) (15)
10.29 Purchase and Sale Agreement - Fresno, dated as of November
19, 1996, between Regency Rehab Hospitals, Inc., a wholly-
owned subsidiary of the Registrant and Continental Medical
Systems, Inc. (originally filed as Exhibit number 2.1) (17)
10.30 Purchase and Sale Agreement - Kentfield, dated as of
November 19, 1996 between Regency Rehab Hospitals, Inc.,
a wholly-owned subsidiary of the Registrant and Kentfield
Hospital Corporation. (originally filed as Exhibit number
2.2) (17)
10.31 Stock Purchase and Sale Agreement - Rehabworks of
California, dated as of November 19, 1996, between Regency
Rehab Hospitals, Inc., a wholly-owned subsidiary of the
Registrant and CMS Therapies, Inc. (originally filed as
Exhibit number 2.3) (17)
10.32 Purchase and Sale Agreement - San Bernardino, dated as
of November 19, 1996, between Regency Rehab Hospitals,
Inc., a wholly-owned subsidiary of the Registrant and
Continental Medical Systems, Inc. (originally filed as
Exhibit number 2.4) (17)
10.33 Purchase and Sale Agreement - San Bernardino Real Estate,
dated as of November 19, 1996, between Regency Rehab
Properties, Inc., a wholly-owned subsidiary of the
Registrant and Rehab Concepts Corp. (originally filed as
Exhibit number 2.5) (17)
10.34 Purchase and Sale Agreement - San Diego, dated as of
November 19, 1996, between Regency Rehab Hospitals, Inc.,
a wholly-owned subsidiary of the Registrant and San Diego
Rehab Limited Partnership. (originally filed as Exhibit
number 2.6) (17)
10.35 Purchase and Sale Agreement - San Diego Real Estate, dated
as of November 19, 1996, between Regency Rehab Properties,
Inc., a wholly-owned subsidiary of the Registrant and
San Diego Health Associates Limited Partnership.
(originally filed as Exhibit number 2.7) (17)
10.36 Purchase and Sale Agreement - Western Neurologic Residential
Centers, dated as of November 10, 1996, between Regency
Rehab Hospitals, Inc., a wholly-owned subsidiary of the
Registrant and Western Neurologic Residential Centers.
(originally filed as Exhibit number 2.8) (17)
60
<PAGE>
10.37 First Amendment to Purchase and Sale Agreement - Western
Neurologic Residential Centers, Dated as of November 19,
1996, between Regency Rehab Hospitals, Inc., a wholly-
owned subsidiary of the Registrant and Western Neurologic
Residential Centers. (originally filed as Exhibit number
2.9) (17)
10.38 Regional Office Agreement, dated November 19, 1996, between
Regency Rehab Hospitals, Inc., a wholly-owned subsidiary of
the Registrant and Continental Medical Systems, Inc.
(originally filed as Exhibit number 2.10)(17)
10.39 Amended and Restated Credit Agreement dated as of December
20, 1996 among Regency Health Services, Inc., as borrower,
the Lenders listed, Nationsbanc Capital Markets, Inc., as
arranger, and Nationsbank of Texas, N.A., as agent.
(originally filed as Exhibit number 2.11) (17)
10.40 Amendment and confirmation of Collateral Account Agreement,
Company Pledge Agreement and Company Security Agreement.
(originally filed as Exhibit number 2.12) (17)
10.41 Amendment and Confirmation of Subsidiary Guaranty,
Subsidiary Pledge Agreement and Subsidiary Security
Agreement. (originally filed as Exhibit number 2.13) (17)
10.42 Asset Purchase Agreement among Managed Respiratory Care
Services, Inc. (MRCS), and Arizona corporation, Jean Mathews
and Joe Salazar (the sole stockholders, directors and
officers of MRCS) and SCRS & Communicology, Inc. of Ohio, a
wholly owned subsidiary of the Registrant.
10.43 Financing Agreement by and between the City of Beckley, West
Virginia and Beckley Health Care Corp. ("Beckley Financing
Agreement"), a wholly owned subsidiary of the Registrant,
dated as of September 1, 1996.
10.44 Indenture of Trust relating to $2,830,000 Nursing Facility
Refunding Revenue Bonds, Series 1996 by and between The
City of Beckley, West Virginia and One Valley Bank,
National Association, as Trustee, dated as of September 1,
1996 issued in connection with the Beckley Financing
Agreement.
10.45 Financing Agreement by and between the Board of
Commissioners of the County of Perry, Ohio, by and on behalf
of the County of Perry, Ohio and New Lexington Health
Care Corp. ("New Lexington Financing Agreement"), a wholly
owned subsidiary of the Registrant, dated as of September 1,
1996.
10.46 Indenture of Trust relating to $2,545,000 Nursing Facility
Refunding Revenue Bonds, Series 1996 by and between County
of Perry, Ohio and SunTrust Bank, Central Florida, National
Association, as Trustee, dated as of September 1, 1996
issued in connection with the New Lexington Financing
Agreement.
10.47 Financing Agreement by and between the County Commission
of Harrison County by and on behalf of Harrison County, West
Virginia and Salem Health Care Corp. ("Salem Financing
Agreement"), a wholly owned subsidiary of the Registrant,
dated as of September 1, 1996.
10.48 Indenture of Trust relating to $2,185,000 Nursing Facility
Refunding Revenue Bonds, Series 1996 by and between the
County Commission of Harrison County by and on behalf of
Harrison County, West Virginia and One Valley Bank, National
Association, as Trustee, dated as of September 1, 1996
issued in connection with the Salem Financing Agreement.
13 1996 Annual Report to Security Holders
21 List of Subsidiaries of the Registrant
61
<PAGE>
23 Consent of Independent Public Accountants
27 Financial Data Schedule
* Management or compensatory plan, contract or arrangement
(1) Incorporated by reference to Regency Health Services, Inc.'s Registration
Statement on Form S-1 (No. 33-45591).
(2) Incorporated by reference to Regency Health Services, Inc.'s 1992 Annual
Report on Form 10-K (File No. 1-11144).
(3) Incorporated by reference to Regency Health Services, Inc.'s Registration
Statement on Form S-1 (No. 33-53590).
(4) Incorporated by reference to Regency Health Services, Inc.'s 1993 Proxy
Statement dated December 10, 1993 (File No. 1-11144).
(5) Incorporated by reference to Regency Health Services, Inc.'s 1993 Annual
Report on Form 10-K (File No. 1-11144).
(6) Incorporated by reference to Regency Health Services, Inc.'s Report on
Form 10-Q for the Quarter Ended September 30, 1993 (File No. 1-11144).
(7) Incorporated by reference to Regency Health Services, Inc.'s and Care
Enterprises, Inc.'s Joint Proxy Statement dated March 7, 1994.
(8) Incorporated by reference to Care Enterprises, Inc.'s 1993 Annual Report on
Form 10-K (File No. 1-9310).
(9) Incorporated by reference to Regency Health Services, Inc.'s
Transition Report on Form 10-K (File No. 1-11144).
(10) Incorporated by reference to Regency Health Services, Inc.'s 1994 Annual
Report on Form 10-K (File No. 1-11144).
(11) Incorporated by reference to Regency Health Services, Inc.'s Report on Form
10-Q for the Quarter Ended June 30, 1995 (File No. 1-11144).
(12) Incorporated by reference to Regency Health Services, Inc.'s Report on Form
8-K dated August 24, 1995 (File No. 1-11144).
(13) Incorporated by reference to Regency Health Services, Inc.'s Report on Form
8-K dated December 28, 1995 (File No. 1-11144).
(14) Incorporated by reference to Regency Health Services, Inc.'s 1995 Annual
Report on Form 10-K (File No. 1-11144).
(15) Incorporated by reference to Regency Health Services, Inc.'s Report on Form
8-K dated February 15, 1996 (File No. 1-11144).
(16) Incorporated by reference to Regency Health Services, Inc.'s Report on Form
10-Q for the Quarter Ended June 30, 1996 (File No. 1-11144).
(17) Incorporated by reference to Regency Health Services, Inc.'s Report on Form
8-K dated January 15, 1997.
(b) REPORTS ON FORM 8-K
None.
62
<PAGE>
SCHEDULE II
<TABLE>
REGENCY HEALTH SERVICES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<CAPTION>
Balance Charged Charged
at to to Balance
Beginning Costs & Other at End
Description of Period Expenses Accounts Deductions of Period
- -------------------------- ------------ ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED
DECEMBER 31, 1996
Allowance for doubtful
accounts............. $3,757 $2,890 $410 (a) $2,334 $4,723
Allowance for mortgage
loan losses.......... 951 689 -- 288 1,352
------ ------ ----- ------ ------
$4,708 $3,579 $410 $2,622 $6,075
====== ====== ===== ====== ======
FOR THE YEAR ENDED
DECEMBER 31, 1995
Allowance for doubtful
accounts............. $4,189 $1,922 $734 (b) $3,088 $3,757
Allowance for mortgage
loan losses.......... 951 -- -- -- 951
------ ------ ----- ------ ------
$5,140 $1,922 $734 $3,088 $4,708
====== ====== ===== ====== ======
FOR THE YEAR ENDED
DECEMBER 31, 1994
Allowance for doubtful
accounts............. $2,970 $1,344 $687 (c) $ 812 $4,189
Allowance for mortgage
loan losses.......... 1,664 -- -- 713 951
------ ------ ---- ------ ------
$4,634 $1,344 $687 $1,525 $5,140
====== ====== ==== ====== ======
<FN>
(a) Includes (i) Executive Pharmacy acquired reserves and (ii) recoveries
(b) Includes (i) the reclassification of accruals established in 1994 for
receivables related to duplicate facility disposals, (ii) SCRS acquired
reserves, and (iii) recoveries
(c) Reclassification of reserve established against note received by Care
</FN>
</TABLE>
63
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REGENCY HEALTH SERVICES, INC.
Date: March 24, 1997 By /s/ Richard K. Matros
---------------------
Richard K. Matros
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Name and Signature Title Date
By /s/ Richard K. Matros President and Chief March 24, 1997
----------------------------- Executive Officer(Principal
Richard K. Matros executive officer)
By /s/ Bruce D. Broussard Executive Vice President, March 24, 1997
----------------------------- and Chief Financial Officer
Bruce D. Broussard (Principal financial and
accounting officer)
By /s/ John W. Adams Chairman of the Board March 24, 1997
----------------------------- of Directors
John W. Adams
By /s/ Gregory S. Anderson Director March 24, 1997
-----------------------------
Gregory S. Anderson
By /s/ Tony Astorga Director March 24, 1997
-----------------------------
Tony Astorga
By /s/ Robert G. Coo Director March 24, 1997
-----------------------------
Robert G. Coo
By /s/ Richard K. Matros Director March 24, 1997
-----------------------------
Richard K. Matros
By /s/ John F. Nickoll Director March 24, 1997
-----------------------------
John F. Nickoll
By /s/ Arthur J. Pasmas Director March 24, 1997
-----------------------------
Arthur J. Pasmas
64
Exhibit 10.24
REGENCY HEALTH SERVICES, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
This Option Agreement is made and entered into by and between REGENCY
HEALTH SERVICES, INC., a Delaware corporation (the "Company") and Richard K.
Matros ("Employee"), as of the 2nd day of January, 1996 (which date is
hereinafter referred to as the "Date of Grant"). If Employee is presently or
subsequently becomes employed by a subsidiary of the Company, the term "Company"
shall be deemed to refer collectively to Regency Health Services, Inc. and the
subsidiary or subsidiaries that employ the Employee.
R E C I T A L S
WHEREAS, the Company has adopted the Regency Health Services, Inc.
Long-Term Incentive Plan (the "Plan") as an employee incentive to encourage key
employees and the officers of the Company to remain in its employment and to
enhance the ability of the Company to attract new employees whose services are
considered unusually valuable by providing an opportunity to have a proprietary
interest in the success of the Company; and
WHEREAS, the Committee established pursuant to the Plan (the
"Committee") believes that the granting of the Option herein described to
Employee is consistent with the stated purposes for which the Plan was adopted;
NOW, THEREFORE, in consideration of the mutual covenants and conditions
hereinafter set forth and for other good and valuable consideration, the Company
and Employee agree as follows:
A G R E E M E N T
1. Grant of Option. The Company hereby grants to Employee the right and option
(hereinafter referred to as the "Option") to purchase an aggregate of Three
Hundred Thousand (300,000) shares (such number being subject to adjustment as
provided in paragraph 10 hereof and Article 14 of the Plan) of the common stock
of Regency Health Services, Inc. (the "Stock") on the terms and conditions
herein set forth. This Option may be exercised in whole or in part and from time
to time as hereinafter provided.
2. Purchase Price. The price at which Employee shall be entitled to
purchase the Stock covered by the Option shall be Ten Dollars and No Cents
($10.00) per share.
3. Term of Option. The Option hereby granted shall be and remain in force and
effect for a period of ten (10) years from the Date of Grant, through and
including the normal close of business of the Company on January 2, 2006
("Expiration Date"), subject to earlier termination as provided in paragraphs 7,
8 and 10 hereof.
4. Exercise of Option. The Option may be exercised by Employee in accordance
with the vesting schedule set forth in Exhibit "A" hereto as to all or any part
of the shares covered hereby by delivery to the Company of written notice of
exercise and payment of the purchase price as provided in paragraphs 5 and 6
hereof.
In the event of a public tender for all or any portion of the Stock of
the Company or in the event that a proposal to merge, consolidate, or otherwise
combine with another company is submitted for shareholder approval, the
Committee may in its sole discretion declare the Option to be immediately
exercisable even if the original date for the exercise of the Option, as set
forth in the first paragraph of this paragraph 4, has not yet passed.
5. Method of Exercising Option. Subject to the terms and conditions of this
Option Agreement, the Option may be exercised by timely delivery to the Company
of written notice, which notice shall be effective on the date received by the
Company (the "Effective Date"). The notice shall state Employee's election to
exercise the Option, the number of shares in respect of which an election to
exercise has been made, the method of payment elected (see paragraph 6 hereof),
the exact name or names in which the shares will be registered, and the Social
Security number of Employee. Such notice shall be signed by the Employee and
shall be accompanied by payment of the purchase price of such shares. In the
event the Option shall be exercised by a person or persons other than Employee
pursuant to paragraph 8 hereof, such notice shall be signed by such other person
or persons and shall be accompanied by proof acceptable to the Company of the
legal right of such person or persons to exercise the Option. All shares
delivered by the Company upon exercise of the Option as provided herein shall be
fully paid and nonassessable upon delivery.
6. Method of Payment for Options. Payment for shares purchased upon exercise of
the Option shall be made by the Participant by having the Company withhold Stock
(to the extent that Stock is issued pursuant to the Award) having a Fair Market
Value on the date of exercise equal to the total exercise price otherwise due to
the company.
7. Termination of Employment. In the event that Employee terminates employment
on account of retirement or for any other reason than for cause, then Employee
may at any time within three (3) months next succeeding the effective date of
termination of employment exercise the Option to the extent that Employee was
entitled to exercise the Option at the date of termination, provided that in no
event shall the Option, or any part thereof, be exercisable after the Expiration
Date.
If Employee is terminated for cause, the Option shall lapse at the time
of such termination of employment.
8. Death of Employee. In the event of the death of Employee within a period
during which the Option, or any part thereof, could have been exercised by
Employee, including three (3) months after Normal Termination (the "Option
Period"), the Option shall lapse unless it is exercised within the Option Period
and in no event later than fifteen (15) months after the date of Employee's
death by the Employee's legal representative or representatives or by the person
or persons entitled to do so under Employee's last will and testament or if the
Employee fails to make a testamentary disposition of such Option or shall die
intestate, by the person or persons entitled to receive such Option under the
applicable laws if of descent and distribution. An Option may be exercised
following the death of the Employee only if the Option was exercisable by the
Employee immediately prior to his death. In no event shall the Option, or any
part thereof, be exercisable after the Expiration Date. The Committee shall have
the right to require evidence satisfactory to it of the rights of any person or
persons seeking to exercise the Option under this paragraph 8 to exercise the
Option.
9. Nontransferability. The Option granted by this Option Agreement shall be
exercisable only during the term of the Option provided in paragraph 3 hereof
and, except as provided in paragraphs 7 and 8 above, only by Employee during his
lifetime and while an Employee of the Company. The Option granted by this Option
Agreement shall be subject to the restrictions on transfer as set forth in
Section 13.5 of the Plan.
10. Adjustments in Number of Shares and Option Price. In the event a stock
dividend is declared upon the Stock, the remaining shares of Stock then subject
to this Option shall be increased proportionately without any change in the
aggregate purchase price therefor. In the event the Stock shall be changed into
or exchanged for a different number or class of shares of stock into which each
outstanding share of Stock shall be so exchanged, all without any change in the
aggregate purchase price for the shares then subject to the Option.
Subject to any required action by the stockholders, if the Company
shall be the surviving or resulting corporation in any merger or consolidation,
the Option granted hereunder shall pertain to and apply to the securities or
rights to which a holder of the number of shares of Stock subject to the Option
would have been entitled; but a dissolution or liquidation of the Company, or a
merger or consolidation in which the Company is not the surviving or resulting
corporation, shall, in the sole discretion of the Committee:
(a) Cause the Option outstanding hereunder to terminate as of the date specified
by the Committee, except that the surviving or resulting corporation, in its
absolute and uncontrolled discretion, may tender an option or options to
purchase its shares or exercise such rights on terms and conditions, both as to
the number of shares and rights, and otherwise which shall substantially
preserve the rights and benefits of the Option then outstanding hereunder; or
(b) The Committee may give Employee the right to exercise this Option prior to
the occurrence of the event otherwise terminating the Option over such period as
the Committee, in its sole and absolute discretion, shall determine.
11. Delivery of Shares. No shares of Stock shall be delivered upon exercise of
the Option until (i) the purchase price shall have been paid in full in the
manner herein provided; (ii) applicable taxes required to be withheld have been
paid or withheld in full; (iii) approval of any governmental authority required
in connection with the Option, or the issuance of shares thereunder, has been
received by the Company; and (iv) if required by the Committee, Employee has
delivered to the Committee an Investment Letter in form and content satisfactory
to the Company as provided in paragraph 12 hereof.
12. Securities Act. The Company shall have the right, but not the
obligation, to cause the shares of Stock issuable upon exercise of the Option to
be registered under the appropriate rules and regulations of the Securities and
Exchange Commission.
The Company shall not be required to deliver any shares of Stock
pursuant to the exercise of all or any part of the Option if, in the opinion of
counsel for the Company, such issuance would violate the Securities Act of 1933
or any other applicable federal or state securities laws or regulations. The
Committee may require that Employee, prior to the issuance of any such shares
pursuant to exercise of the Option, sign and deliver to the Company a written
statement ("Investment Letter") stating (i) that Employee is purchasing the
shares for investment and not with a view to the sale or distribution thereof;
(ii) that Employee will not sell any shares received upon exercise of the Option
or any other shares of the Company that Employee may then own or thereafter
acquire except either (a) through a broker on a national securities exchange or
(b) with the prior written approval of the Company; and (iii) containing such
other terms and conditions as counsel for the Company may reasonable require to
assure compliance with the Securities Act of 1933 or other applicable federal or
state securities laws and regulations. Such Investment Letter shall be in form
and content acceptable to the Committee in its sole discretion.
If shares of Stock or other securities issuable pursuant to the
exercise of the Option have not been registered under the Securities Act of 1933
or other applicable federal or state securities laws or regulations, such shares
shall bear a legend restricting the transferability thereof, such legend to be
substantially in the following form:
"The shares represented by this certificate have not been registered or
qualified under federal or state securities laws. The shares may not be
offered for sale, sold, pledged or otherwise disposed of unless so
registered or qualified, unless an exemption exists or unless such
disposition is not subject to the federal or state securities laws, and the
availability of any exemption or the inapplicability of such securities
laws must be established by an opinion of counsel, which opinion and
counsel shall both be reasonably satisfactory to the Company."
13. Federal and State Taxes. Upon exercise of the Option, or any part thereof,
the Employee may incur certain liabilities for federal, state or local taxes and
the Company may be required by law to withhold such taxes for payment to taxing
authorities. Upon determination by the Company of the amount of taxes required
to be withheld, if any, with respect to the shares to be issued pursuant to the
exercise of the Option, Employee shall pay all Federal, state and local tax
withholding requirements by having the Company withhold Stock (to the extent
that Stock is issued pursuant to the Award) having a Fair Market Value on the
date that tax is to be determined equal to the tax otherwise required by the
withheld.
14. Definitions; Copy of Plan. To the extent not specifically provided
herein, all capitalized terms used in this Option Agreement shall have the same
meanings ascribed to them in the Plan. By the execution of this Agreement,
Employee acknowledges receipt of a copy of the Plan.
15. Administration. This Option Agreement shall at all times be subject to the
terms and conditions of the Plan and the Plan shall in all respects be
administered by the Committee in accordance with the terms of and as provided in
the Plan. The Committee shall have the sole and complete discretion with respect
to all matters reserved to it by the Plan and decisions of the majority of the
Committee with respect thereto and to this Option Agreement shall be final and
binding upon Employee and the Company. In the event of any conflict between the
terms and conditions of this Option Agreement and the Plan, the provisions of
the Plan shall control.
16. Continuation of Employment. This Option Agreement shall not be
construed to confer upon Employee any right to continue in the employ of the
Company and shall not limit the right of the Company, in its sole discretion, to
terminate the employment of Employee at any time.
17. Obligations to Exercise. Employee shall have no obligation to exercise
any option granted by this Agreement.
18. Governing Law. This Option Agreement shall be interpreted and
administered under the laws of the State of Delaware.
19. Amendments. This Option Agreement may be amended only by a written agreement
executed by the Company and Employee. The Company and Employee acknowledge that
changes in federal tax laws enacted subsequent to the Date of Grant, and
applicable to stock options, may provide for tax benefits to the Company or
Employee. In any such event, the Company and Employee agree that this Option
Agreement may be amended as necessary to secure for the Company and Employee any
benefits that may result from such legislation. Any such amendment shall be made
only upon the mutual consent of the parties, which consent (of either party) may
be withheld for any reason.
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
duly executed by its officers thereunto duly authorized, and Employee has
hereunto set his hand as of the day and year first above written.
"COMPANY" "EMPLOYEE"
REGENCY HEALTH SERVICES, INC.
By:___________________________ _________________________
Bruce Broussard, Chief Richard K. Matros
Financial Officer
By:___________________________
David A. Grant, Secretary
<PAGE>
EXHIBIT "A"
Amount Vested and Exercisable Vesting Date
[Accretive, not cumulative]
1. 20,000.............................................January 2, 1997
2. 20,000.............................................January 2, 1998
3. 20,000.............................................January 2, 1999
4. 20,000.............................................January 2, 2000
5. 20,000.............................................January 2, 2001
6. 40,000.............................................January 2, 2002
7. 40,000.............................................January 2, 2003
8. 40,000.............................................January 2, 2004
9. 40,000.............................................January 2, 2005
10. 40,000.............................................July 2, 2005
Notwithstanding the foregoing, the amounts vested shall be subject to
acceleration in accordance with the attached Addendum.
<PAGE>
Addendum to Exhibit A
Non-Qualified Stock Option
Dated January 2, 1996
Richard K. Matros
1. If actual "EVA" (as defined below) for calendar year 1996 equals or exceeds
$205,181,000, the Option shall vest and be exercisable as to 43,333 shares on
January 2, 1997, in lieu of the amount set forth on line 1 of Exhibit A.
2. If actual EVA for calendar year 1997 equals or exceeds $205,640,000, the
Option shall vest and be exercisable as to 43,333 shares on January 2, 1998 in
lieu of the amount set forth on line 2 of Exhibit A, but in addition to any
Options which otherwise theretofore vested.
3. If actual EVA for calendar year 1998 equals or exceeds $205,765,000, the
Option shall vest and be exercisable as to 43,333 shares on January 2, 1998 in
lieu of the amount set forth on line 2 of Exhibit A, but in addition to any
options which otherwise theretofore vested.
4. If the combined actual EVA for each of the three years 1996, 1997 and 1998,
equals or exceeds $616,586,000, the Option shall vest and be exercisable as to
200,000 shares (inclusive of all shares which periodically vested) on January 2,
1999.
5. If combined actual EVA for each of years 1996, 1997 and 1998, equals or
exceeds $616,745,000, the Option shall vest and be exercisable as to 250,000
shares (inclusive of all shares which previously vested) on January 2, 1999.
6. If combined actual EVA for each of the years 1996, 1997 and 1998 equals or
exceeds $616,903,000, the Option shall vest and be exercisable as to all shares
on January 2, 1999.
Any acceleration of vesting shall be deemed to be pro rata as to all
options which otherwise would vest from and after January 2, 2000. For example,
if accelerated vesting occurs under paragraph 1 of this Addendum, the additional
number of shares that will vest in each of installments 4 and 5 will be 16,667
in lieu of 20,000 [(20,000 - [43,333 - 20,000] (PI) 7)], and 36,667 in lieu of
40,000 for each of installments 6 through 10. If installments 1 and 2 were both
accelerated, the number of shares that will vest in each of installments 4 and 5
would be 13,333 in lieu of 20,000 [(20,000 - [86,666 - 40,000] (PI) 7)] and will
be 33,333 in lieu of 40,000 for installments 6 through 10.
As used herein the term "EVA" shall mean an amount of money calculated
in accordance with the following formula:
EVA = (NOPAT - Capital Charges) + (Base Market Value of Equity)
NOPAT = EBDITA - Cash Taxes - Routine Capital Expenditures - Interest Income
EBDITA = Earnings before depreciation, interest, taxes, amortization and
non-recurring charges
Routine Capital Expenditures = Annual Average Beds X $350 per bed
Capital Charges = After Tax Cost of Capital X Average Capital Employed
Cash Taxes = Income taxes per GAAP + Taxes saved on
Interest Expense - Taxes on Interest Income - Tax
Loss Carry Forward + Taxes on Nonrecurring losses -
Taxes on Non-recurring gains
After Tax Cost of Capital = (Outstanding Debt/Capitalization X After
tax debt costs) + (Market Value of
Equity/Capitalization X
Equity Cost of Capital)
Average Capital Employed = Average of Capitalization
Outstanding Debt = Long-Term Debt for borrowed money in accordance with GAAP -
Convertible debentures - Cash Balances
Capitalization = Market Value of Equity + Outstanding Debt
After tax debt costs = Weighted Average of (Outstanding Debt X Interest
Rate) X (1 - Marginal Tax Rate)
Market Value of Equity = (No. of Fully Diluted Shares X $11.50 as at 12/31/96;
$13.225 as at 12/31/97; and $15.21 at as 12/31/98))
Equity Cost of Capital = 15%
Taxes Saved on Interest Expense = Marginal tax rate X interest expense
Taxes on Interest Income = Marginal tax rate X interest income
Base Market Value of Equity = No. of Fully Diluted Shares at 3/31/96 X $10
Any ambiguity or dispute in connection with calculation of EVA shall be
determined in good faith by the Committee.
Exhibit 10.25
REGENCY HEALTH SERVICES, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
This Option Agreement is made and entered into by and between REGENCY
HEALTH SERVICES, INC., a Delaware corporation (the "Company") and Bruce
Broussard ("Employee"), as of the 2nd day of January, 1996 (which date is
hereinafter referred to as the "Date of Grant"). If Employee is presently or
subsequently becomes employed by a subsidiary of the Company, the term "Company"
shall be deemed to refer collectively to Regency Health Services, Inc. and the
subsidiary or subsidiaries that employ the Employee.
R E C I T A L S
WHEREAS, the Company has adopted the Regency Health Services, Inc.
Long-Term Incentive Plan (the "Plan") as an employee incentive to encourage key
employees and the officers of the Company to remain in its employment and to
enhance the ability of the Company to attract new employees whose services are
considered unusually valuable by providing an opportunity to have a proprietary
interest in the success of the Company; and
WHEREAS, the Committee established pursuant to the Plan (the
"Committee") believes that the granting of the Option herein described to
Employee is consistent with the stated purposes for which the Plan was adopted;
NOW, THEREFORE, in consideration of the mutual covenants and conditions
hereinafter set forth and for other good and valuable consideration, the Company
and Employee agree as follows:
A G R E E M E N T
1. Grant of Option. The Company hereby grants to Employee the right and option
(hereinafter referred to as the "Option") to purchase an aggregate of Two
Hundred Fifty Thousand (250,000) shares (such number being subject to adjustment
as provided in paragraph 10 hereof and Article 14 of the Plan) of the common
stock of Regency Health Services, Inc. (the "Stock") on the terms and conditions
herein set forth. This Option may be exercised in whole or in part and from time
to time as hereinafter provided.
2. Purchase Price. The price at which Employee shall be entitled to
purchase the Stock covered by the Option shall be Ten Dollars and No Cents
($10.00) per share.
3. Term of Option. The Option hereby granted shall be and remain in force and
effect for a period of ten (10) years from the Date of Grant, through and
including the normal close of business of the Company on January 2, 2006
("Expiration Date"), subject to earlier termination as provided in paragraphs 7,
8 and 10 hereof.
4. Exercise of Option. The Option may be exercised by Employee in accordance
with the vesting schedule set forth in Exhibit "A" hereto as to all or any part
of the shares covered hereby by delivery to the Company of written notice of
exercise and payment of the purchase price as provided in paragraphs 5 and 6
hereof.
In the event of a public tender for all or any portion of the Stock of
the Company or in the event that a proposal to merge, consolidate, or otherwise
combine with another company is submitted for shareholder approval, the
Committee may in its sole discretion declare the Option to be immediately
exercisable even if the original date for the exercise of the Option, as set
forth in the first paragraph of this paragraph 4, has not yet passed.
5. Method of Exercising Option. Subject to the terms and conditions of this
Option Agreement, the Option may be exercised by timely delivery to the Company
of written notice, which notice shall be effective on the date received by the
Company (the "Effective Date"). The notice shall state Employee's election to
exercise the Option, the number of shares in respect of which an election to
exercise has been made, the method of payment elected (see paragraph 6 hereof),
the exact name or names in which the shares will be registered, and the Social
Security number of Employee. Such notice shall be signed by the Employee and
shall be accompanied by payment of the purchase price of such shares. In the
event the Option shall be exercised by a person or persons other than Employee
pursuant to paragraph 8 hereof, such notice shall be signed by such other person
or persons and shall be accompanied by proof acceptable to the Company of the
legal right of such person or persons to exercise the Option. All shares
delivered by the Company upon exercise of the Option as provided herein shall be
fully paid and nonassessable upon delivery.
6. Method of Payment for Options. Payment for shares purchased upon exercise of
the Option shall be made by the Participant by having the Company withhold Stock
(to the extent that Stock is issued pursuant to the Award) having a Fair Market
Value on the date of exercise equal to the total exercise price otherwise due to
the company.
7. Termination of Employment. In the event that Employee terminates employment
on account of retirement or for any other reason than for cause, then Employee
may at any time within three (3) months next succeeding the effective date of
termination of employment exercise the Option to the extent that Employee was
entitled to exercise the Option at the date of termination, provided that in no
event shall the Option, or any part thereof, be exercisable after the Expiration
Date.
If Employee is terminated for cause, the Option shall lapse at the time
of such termination of employment.
8. Death of Employee. In the event of the death of Employee within a period
during which the Option, or any part thereof, could have been exercised by
Employee, including three (3) months after Normal Termination (the "Option
Period"), the Option shall lapse unless it is exercised within the Option Period
and in no event later than fifteen (15) months after the date of Employee's
death by the Employee's legal representative or representatives or by the person
or persons entitled to do so under Employee's last will and testament or if the
Employee fails to make a testamentary disposition of such Option or shall die
intestate, by the person or persons entitled to receive such Option under the
applicable laws if of descent and distribution. An Option may be exercised
following the death of the Employee only if the Option was exercisable by the
Employee immediately prior to his death. In no event shall the Option, or any
part thereof, be exercisable after the Expiration Date. The Committee shall have
the right to require evidence satisfactory to it of the rights of any person or
persons seeking to exercise the Option under this paragraph 8 to exercise the
Option.
9. Nontransferability. The Option granted by this Option Agreement shall be
exercisable only during the term of the Option provided in paragraph 3 hereof
and, except as provided in paragraphs 7 and 8 above, only by Employee during his
lifetime and while an Employee of the Company. The Option granted by this Option
Agreement shall be subject to the restrictions on transfer as set forth in
Section 13.5 of the Plan.
10. Adjustments in Number of Shares and Option Price. In the event a stock
dividend is declared upon the Stock, the remaining shares of Stock then subject
to this Option shall be increased proportionately without any change in the
aggregate purchase price therefor. In the event the Stock shall be changed into
or exchanged for a different number or class of shares of stock into which each
outstanding share of Stock shall be so exchanged, all without any change in the
aggregate purchase price for the shares then subject to the Option.
Subject to any required action by the stockholders, if the Company
shall be the surviving or resulting corporation in any merger or consolidation,
the Option granted hereunder shall pertain to and apply to the securities or
rights to which a holder of the number of shares of Stock subject to the Option
would have been entitled; but a dissolution or liquidation of the Company, or a
merger or consolidation in which the Company is not the surviving or resulting
corporation, shall, in the sole discretion of the Committee:
(a) Cause the Option outstanding hereunder to terminate as of the date specified
by the Committee, except that the surviving or resulting corporation, in its
absolute and uncontrolled discretion, may tender an option or options to
purchase its shares or exercise such rights on terms and conditions, both as to
the number of shares and rights, and otherwise which shall substantially
preserve the rights and benefits of the Option then outstanding hereunder; or
(b) The Committee may give Employee the right to exercise this Option prior to
the occurrence of the event otherwise terminating the Option over such period as
the Committee, in its sole and absolute discretion, shall determine.
11. Delivery of Shares. No shares of Stock shall be delivered upon exercise of
the Option until (i) the purchase price shall have been paid in full in the
manner herein provided; (ii) applicable taxes required to be withheld have been
paid or withheld in full; (iii) approval of any governmental authority required
in connection with the Option, or the issuance of shares thereunder, has been
received by the Company; and (iv) if required by the Committee, Employee has
delivered to the Committee an Investment Letter in form and content satisfactory
to the Company as provided in paragraph 12 hereof.
12. Securities Act. The Company shall have the right, but not the
obligation, to cause the shares of Stock issuable upon exercise of the Option to
be registered under the appropriate rules and regulations of the Securities and
Exchange Commission.
The Company shall not be required to deliver any shares of Stock
pursuant to the exercise of all or any part of the Option if, in the opinion of
counsel for the Company, such issuance would violate the Securities Act of 1933
or any other applicable federal or state securities laws or regulations. The
Committee may require that Employee, prior to the issuance of any such shares
pursuant to exercise of the Option, sign and deliver to the Company a written
statement ("Investment Letter") stating (i) that Employee is purchasing the
shares for investment and not with a view to the sale or distribution thereof;
(ii) that Employee will not sell any shares received upon exercise of the Option
or any other shares of the Company that Employee may then own or thereafter
acquire except either (a) through a broker on a national securities exchange or
(b) with the prior written approval of the Company; and (iii) containing such
other terms and conditions as counsel for the Company may reasonable require to
assure compliance with the Securities Act of 1933 or other applicable federal or
state securities laws and regulations. Such Investment Letter shall be in form
and content acceptable to the Committee in its sole discretion.
If shares of Stock or other securities issuable pursuant to the
exercise of the Option have not been registered under the Securities Act of 1933
or other applicable federal or state securities laws or regulations, such shares
shall bear a legend restricting the transferability thereof, such legend to be
substantially in the following form:
"The shares represented by this certificate have not been registered or
qualified under federal or state securities laws. The shares may not be
offered for sale, sold, pledged or otherwise disposed of unless so
registered or qualified, unless an exemption exists or unless such
disposition is not subject to the federal or state securities laws, and the
availability of any exemption or the inapplicability of such securities laws
must be established by an opinion of counsel, which opinion and counsel
shall both be reasonably satisfactory to the Company."
13. Federal and State Taxes. Upon exercise of the Option, or any part thereof,
the Employee may incur certain liabilities for federal, state or local taxes and
the Company may be required by law to withhold such taxes for payment to taxing
authorities. Upon determination by the Company of the amount of taxes required
to be withheld, if any, with respect to the shares to be issued pursuant to the
exercise of the Option, Employee shall pay all Federal, state and local tax
withholding requirements by having the Company withhold Stock (to the extent
that Stock is issued pursuant to the Award) having a Fair Market Value on the
date that tax is to be determined equal to the tax otherwise required by the
withheld.
14. Definitions; Copy of Plan. To the extent not specifically provided
herein, all capitalized terms used in this Option Agreement shall have the same
meanings ascribed to them in the Plan. By the execution of this Agreement,
Employee acknowledges receipt of a copy of the Plan.
15. Administration. This Option Agreement shall at all times be subject to the
terms and conditions of the Plan and the Plan shall in all respects be
administered by the Committee in accordance with the terms of and as provided in
the Plan. The Committee shall have the sole and complete discretion with respect
to all matters reserved to it by the Plan and decisions of the majority of the
Committee with respect thereto and to this Option Agreement shall be final and
binding upon Employee and the Company. In the event of any conflict between the
terms and conditions of this Option Agreement and the Plan, the provisions of
the Plan shall control.
16. Continuation of Employment. This Option Agreement shall not be
construed to confer upon Employee any right to continue in the employ of the
Company and shall not limit the right of the Company, in its sole discretion, to
terminate the employment of Employee at any time.
17. Obligations to Exercise. Employee shall have no obligation to exercise
any option granted by this Agreement.
18. Governing Law. This Option Agreement shall be interpreted and
administered under the laws of the State of Delaware.
19. Amendments. This Option Agreement may be amended only by a written agreement
executed by the Company and Employee. The Company and Employee acknowledge that
changes in federal tax laws enacted subsequent to the Date of Grant, and
applicable to stock options, may provide for tax benefits to the Company or
Employee. In any such event, the Company and Employee agree that this Option
Agreement may be amended as necessary to secure for the Company and Employee any
benefits that may result from such legislation. Any such amendment shall be made
only upon the mutual consent of the parties, which consent (of either party) may
be withheld for any reason.
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
duly executed by its officers thereunto duly authorized, and Employee has
hereunto set his hand as of the day and year first above written.
"COMPANY" "EMPLOYEE"
REGENCY HEALTH SERVICES, INC.
By:___________________________ _________________________
Richard K. Matros Chief Bruce Broussard
Executive Officer
By:___________________________
David A. Grant, Secretary
<PAGE>
EXHIBIT "A"
Amount Vested and Exercisable Vesting Date
[Accretive, not cumulative]
1. 20,000............................................January 2, 1997
2. 20,000............................................January 2, 1998
3. 20,000............................................January 2, 1999
4. 20,000............................................January 2, 2000
5. 20,000............................................January 2, 2001
6. 30,000............................................January 2, 2002
7. 30,000............................................January 2, 2003
8. 30,000............................................January 2, 2004
9. 30,000............................................January 2, 2005
10. 30,000............................................July 2, 2005
Notwithstanding the foregoing, the amounts vested shall be subject to
acceleration in accordance with the attached Addendum.
<PAGE>
Addendum to Exhibit A
Non-Qualified Stock Option
Dated January 2, 1996
Bruce Broussard
1. If actual "EVA" (as defined below) for calendar year 1996 equals or exceeds
$205,181,000, the Option shall vest and be exercisable as to 43,333 shares on
January 2, 1997, in lieu of the amount set forth on line 1 of Exhibit A.
2. If actual EVA for calendar year 1997 equals or exceeds $205,640,000, the
Option shall vest and be exercisable as to 43,333 shares on January 2, 1998 in
lieu of the amount set forth on line 2 of Exhibit A, but in addition to any
Options which otherwise theretofore vested.
3. If actual EVA for calendar year 1998 equals or exceeds $205,765,000, the
Option shall vest and be exercisable as to 43,333 shares on January 2, 1998 in
lieu of the amount set forth on line 2 of Exhibit A, but in addition to any
options which otherwise theretofore vested.
4. If the combined actual EVA for each of the three years 1996, 1997 and 1998,
equals or exceeds $616,586,000, the Option shall vest and be exercisable as to
200,000 shares (inclusive of all shares which periodically vested) on January 2,
1999.
5. If combined actual EVA for each of years 1996, 1997 and 1998, equals or
exceeds $616,745,000, the Option shall vest and be exercisable as to 225,000
shares (inclusive of all shares which previously vested) on January 2, 1999.
6. If combined actual EVA for each of the years 1996, 1997 and 1998 equals or
exceeds $616,903,000, the Option shall vest and be exercisable as to all shares
on January 2, 1999.
Any acceleration of vesting shall be deemed to be pro rata as to all
options which otherwise would vest from and after January 2, 2000. For example,
if accelerated vesting occurs under paragraph 1 of this Addendum, the additional
number of shares that will vest in each of installments 4 and 5 will be 16,667
in lieu of 20,000 [(20,000 - [43,333 - 20,000] (PI) 7)], and 26,667 in lieu of
30,000 for each of installments 6 through 10. If installments 1 and 2 were both
accelerated, the number of shares that will vest in each of installments 4 and 5
would be 13,333 in lieu of 20,000 [(20,000 - [86,666 - 40,000] (PI) 7)] and will
be 23,333 in lieu of 30,000 for installments 6 through 10.
As used herein the term "EVA" shall mean an amount of money calculated
in accordance with the following formula:
EVA = (NOPAT - Capital Charges) + (Base Market Value of Equity)
NOPAT = EBDITA - Cash Taxes - Routine Capital Expenditures - Interest Income
EBDITA = Earnings before depreciation, interest, taxes, amortization and
non-recurring charges
Routine Capital Expenditures = Annual Average Beds X $350 per bed
Capital Charges = After Tax Cost of Capital X Average Capital Employed
Cash Taxes = Income taxes per GAAP + Taxes saved on
Interest Expense - Taxes on Interest Income - Tax
Loss Carry Forward + Taxes on Nonrecurring losses -
Taxes on Non-recurring gains
After Tax Cost of Capital = (Outstanding Debt/Capitalization X After
tax debt costs) + (Market Value of
Equity/Capitalization X
Equity Cost of Capital)
Average Capital Employed = Average of Capitalization
Outstanding Debt = Long-Term Debt for borrowed money in accordance with GAAP -
Convertible debentures - Cash Balances
Capitalization = Market Value of Equity + Outstanding Debt
After tax debt costs = Weighted Average of (Outstanding Debt X Interest
Rate) X (1 - Marginal Tax Rate)
Market Value of Equity = (No. of Fully Diluted Shares X $11.50 as at 12/31/96;
$13.225 as at 12/31/97; and $15.21 at as 12/31/98))
Equity Cost of Capital = 15%
Taxes Saved on Interest Expense = Marginal tax rate X interest expense
Taxes on Interest Income = Marginal tax rate X interest income
Base Market Value of Equity = No. of Fully Diluted Shares at 3/31/96 X $10
Any ambiguity or dispute in connection with calculation of EVA shall be
determined in good faith by the Committee.
Exhibit 10.42
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT ("AGREEMENT") is made and entered into as
of the date below stated, by, between and amongst MANAGED RESPIRATORY CARE
SERVICES, INC. ("MRCS"), an Arizona corporation ("Seller") with principal
offices at Phoenix, Arizona; JEAN MATHEWS ("Mathews"), and JOE SALAZAR
("Salazar"), each and all of whom are the sole stockholders, directors and
officers of Seller (individually referred to by their last names, as indicated
above, and collectively referred to as "Stockholders"); and SCRS &
COMMUNICOLOGY, INC. OF OHIO, an Ohio corporation ("Buyer", or sometimes referred
to as "SCRS-Ohio"), with principal offices at Laguna Hills, California.
Whereas, Seller is in the business of providing or furnishing marketing,
contract management and practice management services for and on behalf of
respiratory care therapists or the employers of such therapists (the "Seller's
Business"); and
Whereas, the parties hereto desire that Seller shall sell to Buyer, and that
Buyer shall purchase from Seller, all of the assets directly related to the
operation of the Seller's Business (sometimes hereinafter referred to as the
"Purchased Assets"), as more fully identified in this Agreement or in the
exhibits or other schedules appended hereto, upon the terms and conditions
hereinafter set forth; and
Whereas, the Seller and Buyer have entered into a certain Letter of Intent,
dated and made as of June 13, 1996, together with any amendments or supplements
thereto, generally describing the proposed acquisition by Buyer of the Purchased
Assets and Seller's Business, which Letter of Intent is to be and shall hereby
be superseded by and upon timely execution of this Agreement; and
Whereas, Mathews owns fifty-one percent (51%) of the issued and outstanding
shares of stock of Seller, is a director and officer of Seller, is one of the
persons responsible for origination and development of the Seller's Business,
and is a full-time employee of Seller directing and planning the day-to-day
activities of Seller's Business; and
Whereas, Salazar owns forty-nine percent (49%) of the issued and outstanding
shares of stock of Seller, is a director and officer of Seller, is one of the
persons responsible for origination and development of the Seller's Business and
is a full-time employee of Seller directing and planning the day-to-day
activities of Seller's Business;
Whereas, Stockholders (collectively or as individually named, as appropriate)
participate in, and have executed, this Agreement primarily for the purpose of
assuming and being personally and primarily bound, jointly and severally, by
each, every and all of Seller's agreements, indemnities, representations and
warranties contained herein, the same as though Stockholders, and each of them
as specifically or collectively named, were a seller hereunder, and having made
such agreements, indemnities, representations and warranties to Buyer,
personally and directly with Seller to Buyer as obligations of a principal, and
not as a surety (each Stockholder hereby conclusively acknowledging his or her
direct, personal benefit hereunder); the parties, however, now herewith agreeing
that this obligation of Stockholders is not intended to nor shall it create
either directly or indirectly any new liability or obligation on the behalf of
Stockholders as concerns or relates to any person or other entity not a party to
this Agreement; in addition, Stockholders hereby join in and otherwise
participate in this Agreement, and execute it individually as it relates to
other contractual agreements they herewith make, referenced herein, which shall
become effective upon execution and consummation of this Agreement;
Now, Therefore, in consideration of the premises and mutual covenants and
agreements herein contained, and for other good and valuable consideration
(including the purchase price specified in Article Three, below), the
sufficiency of which is hereby acknowledged, Seller, Stockholders (collectively
or individually, to the extent as provided herein) and Buyer do mutually agree
as follows:
ARTICLE ONE. SALE AND PURCHASE OF ASSETS
Section 1.1. Assets Sold and Purchased. Subject to and on the terms and
conditions set forth herein, at the Closing (as defined in Section 4.1., which
shall occur on the "Closing Date"), Seller shall sell, deliver, transfer and
assign to Buyer free and clear of all liens, claims, charges, restrictions and
encumbrances of every kind, nature and description (except only any as are
expressly identified as such, set forth in Exhibit 2.1, and which Buyer, in
connection therewith, shall have agreed to accept), and Buyer shall purchase for
the consideration herein provided, all of the assets, properties and business of
Seller of every kind, nature and description, wherever located, whether tangible
or intangible, and whether or not fully depreciated or amortized, as the same
shall exist as of the Closing Date (and excepting only such specifically
identified assets as are to be retained by Seller pursuant to Section 1.2.
hereof). Such assets to be purchased by Buyer, hereinafter sometimes referred to
as the "Purchased Assets", are those specifically set forth in Exhibit 1.1.,
attached hereto, and which is intended and shall include all of those assets now
and presently required for and used in the operation of Seller's Business,
including existing or pending licenses, contracts and incomes from and after
Closing Date, and expressly including the following: (a) All furniture,
fixtures, equipment, and inventory owned by Seller; (b) All right, title and
interest in and to the name "Managed Respiratory Care Services, Inc." and any
registered copyright or service mark related thereto; (c) All intellectual
property rights of Seller, and trade secrets including the Seller's client list;
(d) All right, title and interest of Seller in, to and under each assignable
license, contract, agreement, commercial document, memorandum, letter of intent,
order or commitment, whether written or oral, in the name of or intended for the
benefit of Seller and related to Seller's Business; (e) All accounts, licenses
and prospective customer lists, files, correspondence and databases and any
other information relating to the Purchased Assets, including without
limitation, any prospects list (except for any of the foregoing which Seller
requires to operate its business after the Closing or is required to retain in
order to comply with any applicable law, as to which only copies thereof are to
be conveyed hereunder (collectively, the "Purchased Asset Information"); and (f)
All membership or other similar interests in "Phoenix Solutions, LLC", or any
contracts regarding such entity.
Section 1.2. Assets Retained by Seller. Seller shall not sell, deliver,
transfer, assign or convey, and Buyer shall not purchase, the assets of Seller
(if any) as are set forth in Exhibit 1.2 hereto. Such assets are hereinafter
referred to as the "Retained Assets".
Section 1.3. Instruments of Transfer. At Closing, Seller shall deliver
to Buyer bills of sale, endorsements, assignments, and such other good and
sufficient documents and instruments of transfer as shall be effective, in the
opinion of Seller's counsel (see Section 4.2(f)(ix) of this Agreement), and
acceptable to Buyer's counsel, to vest in Buyer good, marketable and
indefeasible title to the Purchased Assets as contemplated hereby.
Section 1.4. Further Assurances by Seller and Stockholders. Seller and
Stockholders further agree that, at any time and from time to time after
Closing, they will, upon the request of Buyer and at Seller's and Stockholder's
sole expense, do, execute, acknowledge, and deliver, or will use their best
efforts to cause to be done, executed, acknowledged or delivered, all such
further acts, assignments, transfers, conveyances, or assurances as may be
reasonably required in order to further transfer, assign, convey, assure and
confirm to Buyer, or to aid and assist in the collection or reducing to
possession by Buyer, of any of the Purchased Assets or to vest in Buyer good,
marketable and indefeasible title to such Purchased Assets.
Section 1.5. Assignment of Contracts, Rights, Etc. Anything contained
in this Agreement to the contrary notwithstanding, this Agreement shall not
constitute an agreement to assign any contract, license, lease, commitment,
sales order, purchase order, or any claim or right of benefit arising thereunder
or resulting therefrom, if an attempted assignment thereof, without the consent
of a third party thereto (which third party is not a party to this Agreement)
would constitute a breach thereof or in any way affect the rights of Buyer
thereunder. In such event, Seller and Stockholders shall use their best efforts
to obtain the consent of the third party to the assignment thereof to Buyer in
all cases in which such consent is required for assignment or transfer. If such
consent is not obtained, Seller and Stockholders agree to cooperate with Buyer
in any reasonable arrangements designed to provide and assure to Buyer the
benefits thereunder, including enforcement for the benefit of Buyer of any and
all rights of Seller against the third party arising out of the cancellation
undertaken or attempted by such third party or otherwise.
Section 1.6. Access by Seller and Stockholders. For a period of three
years after Closing or such longer period of time as may be necessary for
Seller's or Stockholders' compliance with requirements of any taxing
authorities, Buyer shall, during normal business hours, provide Seller,
Stockholders and their authorized agents or representatives, with such access to
the books and records of the Seller's Business, as are to be conveyed,
transferred and assigned to Buyer in connection with the Purchased Assets, as
the Seller and Stockholders may reasonably require. Such access shall be limited
to the books and records of the Seller's Business prior to the Closing Date.
Seller and Stockholders shall be entitled, at their own expense, to make
extracts of copies of such books and records. Notwithstanding anything contained
herein to the contrary, Buyer shall not be obligated to give Seller,
Stockholders or any such agents or representatives, access to any material
relating to any period subsequent to the Closing Date or developed by Buyer at
its expense or for its benefit, including, without limitation, tax returns for
any subsequent periods of time, provided, Buyer shall give reasonable access to
Seller, as Seller may reasonably determine to be directly relevant, of such
books and records developed and maintained by Buyer after Closing Date, and as
necessary to verify the amount of any Earn-Out Payments to which Seller may
become entitled, after Closing Date, under Section 3.4 (or related section, if
applicable) of this Agreement.
ARTICLE TWO. ASSUMPTION OF LIABILITIES
Section 2.1. Liabilities Assumed. Buyer shall not assume any
liabilities (or obligations) whatsoever of either Seller or Stockholders,
whether in connection with Seller's Business or the Purchased Assets, except
those specifically listed, identified and enumerated in Exhibit 2.1., attached
hereto (the "Assumed Liabilities").
Section 2.2. Liabilities Retained. Seller agrees to retain all
liabilities and obligations of Seller, pertaining to the Seller's Business and
the Purchased Assets, except as specifically assumed by Buyer and as fully shown
in Exhibit 2.1. (if any). Except as so shown, Seller shall remain fully
obligated, and shall discharge all liabilities and obligations thereof
(hereinafter collectively referred to as the "Liabilities)", including but not
limited to the following: (a) All long-term liabilities of Seller, including the
current portion thereof; (b) All liabilities for federal, state, provincial,
local and foreign taxes relating to Seller's Business, whether arising prior to
the Closing Date or thereafter, and related to the Seller's prior use, ownership
or possession, or Seller's transfer, conveyance and assignment, of the Purchased
Assets contemplated by this Agreement, including without limitation, property,
franchise, gross receipts, sales, and income taxes of every kind and
description; (c) All liabilities of Seller to its accounts, clients or
customers, arising out of or connected with matters on or prior to the Closing
Date; (d) All liabilities (including short term) of Seller of any nature
whatsoever, based on events occurring before the Closing Date or services
performed by Seller before the Closing Date, notwithstanding that the date on
which the claim is first made known is after the Closing Date, including without
limitation those liabilities pertaining to any employment relationship, or
regulations or laws relating to health and safety of employees; regulations or
laws relating to hazardous materials and pollution of the environment; (e) All
liabilities of Seller with respect to any pending, threatened or unasserted
litigation, claims, demands, investigations or proceedings relating to events on
or before the Closing Date, or arising thereafter; (f) All liabilities of Seller
with respect to or arising out of the transactions contemplated by this
Agreement; (g) Any liability, the existence of which is a breach of any
representation, warranty, or covenant of either Seller or Stockholders (whether
collectively, or individually by name) under or within this Agreement; and (h)
All liabilities of Seller with respect to all employee pay, salary, benefit and
bonus plans based on events occurring or arising prior to the Closing Date, or
arising thereafter.
ARTICLE THREE. CONSIDERATION FOR PURCHASED ASSETS
Section 3.1. Total Purchase Price to be Determined. Buyer, at Closing and
from time to time thereafter as provided in this Agreement, shall pay Seller for
the Purchased Assets a total money purchase price consisting of a "Minimum
Purchase Price" (see Section 3.2), and "Earn-Out Payments", in an amount to be
determined after Closing in accord with this Article Three. In no event shall
the total of Minimum Purchase Price and Earn-Out Payments, regardless of when
determined or payable, exceed the sum of $800,000.00.
Section 3.2. Closing; "Minimum Purchase Price" due at Closing. On Closing
Date, and if the transaction is then ready to be consummated to the reasonable
satisfaction of each party, and in a manner consistent with the terms of this
Agreement, and if Seller and Stockholders shall have performed prior to Closing
all matters as required of them under this Agreement, and all conditions shall
have been satisfied or otherwise waived by the party having the power to so
waive, Buyer shall thereupon pay Seller the sum of $300,000.00, by cashier's
check or money order payable to Seller's order, or wire transfer to Seller's
designated account. This sum shall be the "minimum purchase price" to be paid by
Buyer.
Section 3.3. "Earn-Out Payments"; Definitions and Principles. The
additional amount of the purchase price (over and above that payable under
Section 3.2), if any, shall be known as the "Earn-Out Payments", as may be
determined to be earned by Seller, and due and owing by Buyer, from time to time
following Closing Date and during the "Earn-Out Period"(which begins the first
day following the Closing Date and ends December 31, 1998), all pursuant to the
provisions of this Section 3.3 and the formula in following Section 3.4.
Earn-Out Payments shall be based on "After-Tax Profitability" ("ATP"), which for
purposes of this Section 3.3 (and related sections) shall be determined in
accord with the following: Gross Revenues (as defined for each of the accounting
periods contained within the Earn-out Period) of that defined or described
portion of Buyer's RT Division (as more fully qualified herein), less Cost of
Sales, Overhead, General & Administrative Costs, Amortization, Interest,
Depreciation, and Other Expenses, (in accord with generally accepted accounting
principles, consistently applied) and less Taxes, for each of the respective
accounting periods ("Years") during the Earn-Out Period. The result, so
determined, subject to the definitions and determinations hereinafter provided,
shall be After-Tax Profitability ("ATP"), upon which determination the amount of
any Earn-Out Payment shall ultimately be further determined. As a general rule,
for purposes of determining Earn-Out Payments under this (and related) sections
of this Agreement, the parties intend that Buyer's RT Division shall include
operations under and sales generated by those Purchased Assets as comprised the
Seller's Business immediately prior to Closing Date, together with that such new
and additional business as Buyer's RT Division, as initially constituted, shall
develop with either existing accounts or third-parties unrelated to Buyer
following Closing Date. Determination of Gross Revenues of Buyer's RT Division,
for this purpose, shall not include any sales derived from the assets included
within such division, if any, hereafter purchased from a third party seller.
Further, unless included within Gross Revenue for a particular Year (by and
under the definitions following), Gross Revenue of the Buyer's RT Division shall
not include sales directly or indirectly related to Regency Health Services,
Inc. (Buyer's parent corporation), or any subsidiaries thereof, or divisions of
subsidiaries. The following definitions (or principles) shall be applied to
determine ATP, which, following adjustments and subject to those provisions more
fully stated in Section 3.4, shall yield the Earn-Out Payments to be determined
during the Earn-Out Period: o Gross Revenue (Year One): the gross revenues of
Buyer's RT Division, excluding sixty per cent (60%) of sales directly or related
to Buyer's parent corporation, Regency Health Services, Inc., and subsidiaries
or divisions owned by said parent corporation. o Gross Revenues (Year Two): the
gross revenues of Buyer's RT Division, excluding sixty per cent (60%) of those
sales directly or related to Buyer's parent corporation, Regency Health
Services, Inc. and subsidiaries or divisions owned by said parent corporation
arising during that period of time of Year Two as is within 12 months of the
Closing Date (and excluding all such sales thereafter). o Gross Revenues (Year
Three): the gross revenues of Buyer's RT Division, excluding those sales
directly or related to Buyer's parent corporation, Regency Health Services, Inc.
and subsidiaries or divisions owned by said parent corporation. o Cost of Sales:
all expenses directly attributable to generation and support of gross revenues.
o Overhead: all expenses indirectly attributable to generation and support of
gross revenues. o General & Administrative Expenses: those expenses necessary to
support the RT Division, and which cannot be directly or indirectly allocated to
any portion of the gross revenue. o Depreciation, Interest, and Other Expenses:
determinations to be made consistent with generally accepted accounting
principles. o Taxes: all federal, state, local and other governmental taxes
based on income and profit, determined to be applicable to the Buyer's RT
Division, during the Earn-out Period, without regard to any surtax exemption. o
Inter-company allocations of expenses: inter-company (or divisional) allocations
shall be limited to those expenses which, because of cost and/or efficiency
advantages, can be directly associated with the operation of Buyer's RT
Division. Buyer will provide detailed explanation in support of the allocation.
For purposes of applying and determining the Earn-Out Payments as may
be due Seller from time to time, Buyer shall track and record ATP (as that term
is specially defined in and for the purposes of this Section 3.3 and related
sections hereof) of Buyer's RT Division (as limited in this Section 3.3) during
three (3) consecutive accounting periods or calendar years, namely, 1996 (from
and after Closing Date only, expressly excluding any period of calendar year
1996 prior to the Closing Date), 1997 and 1998 (such periods or years being
collectively referred to as the "Earn-Out Period", each such year being
individually referred to, in succession, as "Year One", "Year Two", and "Year
Three"). If ATP for the Year in question, is equal to or greater than "ATP
Target" as shown in Column 2 of table, Section 3.4, below, the Earn-Out Payment
shall be deemed fully earned, due and payable. If ATP for the Year in question
is less than "ATP Target" as shown in Column 2, table, Section 3.4, the Earn-Out
Payment shall be reduced by a ratio of $3 for each $1 said ATP is less than the
ATP Target, to be applied until the Earn-Out Payment for the Year reaches zero.
Earn-Out Payments are not dependent upon Stockholders' continued employment by
Buyer, nor upon the maintenance of such employment for any particular or minimum
period of time.
Section 3.4. Table of ATP Targets, Earn-Out Payments. When ATP equals or
exceeds ATP Target, Earn-Out Payments ("EOP") shall be deemed fully earned by
Seller, and become fully payable by Buyer in accord with the following table:
Column 1 Column 2 Column 3
Year ATP Target EOP
One (1996) $63,000.00 $25,000.00
Two (1997) $186,000.00 $175,000.00
Three (1998) $293,000.00 $300,000.00
In no event shall the cumulative total of the Earn-Out Payments, for the
entire Earn-Out Period, exceed the sum of $500,000.00. If ATP does not equal or
exceed ATP Target, in one or more Years, apply EOP reduction formula stated in
Section 3.3.
Section 3.5. Delivery of Buyer's RT Division Financial Statements. Within
forty-five days after the end of each of the Years comprising the Earn-Out
Period, Buyer shall have prepared and delivered to Seller internally-prepared
and maintained balance sheet and income statements for such year for Buyer's RT
Division (the "Financial Statements"), prepared in accordance with generally
accepted accounting principles (GAAP), consistently applied, along with a
statement in reasonable detail computing and showing Gross Revenue (as variously
defined in Section 3.3, for the Year in question), along with a "Earn-Out
Report", containing an identification of all other applied elements and items
leading to a determination of ATP, with all necessary back up calculations and
determinations.
Section 3.6. Calculation of Earn-Out Payments; Dispute by Seller. (A) The
contents of the Financial Statements and Earn-Out Report, as determining the
Earn-Out Payment payable for that Year, in accord with Section 3.3 and Section
3.4, shall be binding upon the parties unless Seller gives written notice
("Earn-Out Report Dispute Notice") that Seller disputes the calculations
therein, serving such Earn-Out Report Dispute Notice within twenty (20) days
after the Financial Statements and Earn-Out Report have been transmitted to
Seller. (B) If Seller delivers an Earn-Out Report Dispute Notice in accordance
with Subsection 3.6(A), such notice shall set forth in reasonable detail the
exclusions, calculations or determinations being disputed in good faith. If
Buyer and Seller have not resolved the dispute within fifteen (15) days after
Seller serves the Earn-Out Report Dispute Notice, the parties shall promptly
submit the dispute to a nationally recognized, mutually-agreed, "Big Six"
accounting firm or its successor (other than any such auditors used by Buyer
within the previous three (3) years) with instructions to finally determine, by
compilation or review, within thirty (30) days, Gross Revenue (as variously
defined in Section 3.3, for the Year in question), along with such other
necessary and appropriate determinations leading to ATP (as that term is
specially defined in and for the purpose of Section 3.3, and related sections),
of the Buyer's RT Division (as qualified in Section 3.3) and whether ATP, when
compared to ATP Target, is sufficient to entitle Seller to an Earn-Out Payment
(whether in full, per the table in Section 3.4, or reduced by the formula in
Section 3.3). All expenses relating to such determination, including attorneys'
fees, shall be borne equally by the parties. The accounting firm so selected
shall by compilation or review set forth the exclusions, calculations and
determinations, thereby establishing the Auditor's Earn-Out Report for the Year
in question, and such Auditor's Earn-Out Report shall thereupon become binding
upon and non-appealable by the parties.
Section 3.7. Payments. (A). The Earn-Out Payments, if, when and to
the extent deemed earned, shall be paid to Seller according to
the following schedule:
Year: EOP Due Date:
1996 March 15, 1997
1997 March 15, 1998
1998 March 15, 1999
(B). Except as provided in Subsection 3.6(A), any amount of Earn-Out Payments
deemed earned, and due and owing from Buyer, but not paid in full within ten
(10) days following the due date specified in Subsection 3.7(A), shall
thereafter bear interest until paid, at ten percent (10%) per annum. (C). If the
Auditor's Earn-Out Report determines that any additional amount of Earn-Out
Payments are earned, and due and owing by Buyer, the Earn-Out Payment shall be
paid to Seller within ten (10) days of the determination, and if not so paid,
the amount of any unpaid Earn-Out Payments shall bear interest as provided in
Subsection 3.7(B).
Section 3.8. Continuation of Operations. Buyer represents and agrees as
follows: (a) that all Purchased Assets, including all contracts, agreements,
commitments and any renewals, modifications or amendments to same, will be
retained in Buyer's RT Division during the Earn-Out Period (Buyer, however,
shall not be in breach for any loss, diminishment, cancellation, termination or
curtailment of any such Purchased Assets by the actions or activities of third
parties, including the cancellation or termination of any contract or agreement
by the other party thereto, nor shall Buyer be prevented, in good faith, from
cancelling, terminating or curtailing one or more operations under any
particular contract, agreement, commitment or any renewals by reason of such
operations generating inadequate sales, margins or profits, in Buyer's sound
business discretion); (b) that, unless otherwise provided for in (a) above, the
operations of Seller's Business, as existed immediately prior to Closing Date,
will be continued and developed in Buyer's RT Division (with the direction,
efforts, full cooperation and assistance of Mathews and Salazar, during such
time as they each may be employed by Buyer's RT Division following Closing Date,
pursuant to other portions of this Agreement) during the Earn-Out Period; (c)
that Buyer's RT Division will not merge with, and that the assets of the RT
Division will not be sold to, or otherwise consolidate with any other division
or entity, affiliated with Buyer or otherwise, during the Earn-Out Period
(without Seller's written consent, which consent shall not be unreasonably
refused if and in the event Buyer's proposed transfer, by sale or otherwise, of
all or any Purchased Assets or the RT Division is to an entity, division or a
third party which transferee shall have expressly agreed to assume the
continuing responsibilities of Buyer under this Agreement, including the ongoing
obligation of Buyer to determine and pay to Seller the Earn-Out Payments, and
shall have further agreed to continue the operations of the Buyer's RT Division
consistently and in substantially the same manner as Buyer shall have undertaken
same following Closing Date); and (d) that until end of the Earn-Out Period,
neither Buyer's parent corporation or other subsidiaries thereof will not
establish or own a business directly competing with Buyer's RT Division, or any
business that would compete with the Seller's Business as it existed immediately
prior to the Closing Date (for purposes of this Section 3.8, "Competing
Business" shall mean any business that engages in, and "Compete" shall mean the
practice of, providing or furnishing marketing, contract management or practice
management services for and on behalf of respiratory care therapists or
employers of such therapists within the state of Arizona, provided Buyer shall
not be precluded from acquiring the assets of any such Competing Business, to be
operated as part of the RT Division); and (e) that Buyer will maintain adequate
books and records during the Earn-Out Period and for two years thereafter in
order to allow Seller to review the books and records during reasonable business
hours.
Section 3.9. Buyer's Default and Seller's Remedy. (A) Each of the following
shall constitute an Event of Default with respect to Buyer's continued
performance under this Article Three, when occurring or transpiring during the
Earn-Out Period: (1) failure by Buyer to issue payment of any Earn-Out Payment
(when such is deemed earned, due and owing under the Earn-Out Report) by the due
date specified in Section 3.7, or within ten (10) days thereafter; (2) failure
by Buyer to provide Financial Statements or the Earn-Out Report to Seller in a
timely manner as required by Section 3.5; (3) the transfer, by sale or
otherwise, of any of the Purchased Assets to any other entity or division other
than Buyer's RT Division, without Seller's written consent, which consent shall
not be unreasonably refused if and in the event Buyer's proposed transfer (by
sale or otherwise) of all or any Purchased Assets is to an entity, division or a
third party which transferee shall have expressly agreed to assume the
continuing responsibilities of Buyer under this Agreement, including the
determination and payment to Seller of any remaining Earn-Out Payments, when and
as due, and shall have further agreed to continue the operations of the Buyer's
RT Division consistently and in substantially the same manner as Buyer shall
have undertaken same following Closing Date; (4) Buyer's discontinuance of the
RT Division prior to the expiration of the Earn-Out Period (unless by transfer,
by sale or otherwise, to which Seller shall have consented); (5) engagement by
Buyer, or its parent corporation, in any Competing Business, or any business
that would Compete with the business of Seller's Business as it existed prior to
the Closing Date, and within any point in Arizona; or (6) any bankruptcy,
reorganization, debt arrangement or other proceeding under any bankruptcy or
insolvency law, or any dissolution or liquidation proceeding, instituted by or
against Buyer or a subsidiary of Buyer, if not dismissed within 90 days.
(B) In the event one or more Events of Default have occurred, Buyer shall be in
breach of this Agreement and Seller is then entitled to pursue all available
remedies, including damages or specific performance, to which Seller may then be
entitled under applicable law.
ARTICLE FOUR. THE CLOSING
Section 4.1. Date, Time and Place. Closing of the purchase and sale of all
Purchased Assets, as contemplated herein, shall take place on August 9, 1996, at
the hour of 11:00 A.M., local time, at the Buyer's offices at Laguna Hills,
California, or such earlier date and hour as the parties may mutually agree
upon, or such later date and hour, or at such other place, as the parties may
mutually agree in writing. If Closing does not take place because of the actions
or inactions of Seller, or if there is any material, adverse change to the
Purchased Assets, or the Seller's Business generated thereby, as a result of any
condition, occurrence or event predating the Closing, then and in such event,
Buyer may, at Buyer's sole option, declare this Agreement null and void, no
longer in effect and neither party shall have any further obligation or
liability hereunder. If Closing does not take place solely because of the
actions or inactions of Buyer, then and in such event Seller may, at Seller's
sole option, declare this Agreement null and void, no longer in effect.
Section 4.2. Conditions Precedent to Buyer's Obligations. The obligation of
Buyer to perform in accordance with this Agreement is contingent upon, and
subject to, satisfaction or waiver by Buyer of the following conditions by
Seller and/or Stockholders (collectively or individually, as the case may be) at
or prior to Closing, or compliance with the following conditions to Buyer's
reasonable satisfaction: (a) Performance by Seller and Stockholders of all
agreements and covenants to be performed by them at or prior to Closing; (b)
Continued accuracy of the representations and warranties of Seller and
Stockholders, as herein contained; (c) Absence of any pending or threatened
legal action against Seller or Stockholders which, if successful, would prohibit
or hinder consummation, or require substantial rescission of the transactions
contemplated by this Agreement; (d) Absence of a material, adverse change in the
financial condition, results of operations, assets (including the Purchased
Assets) or business of Seller; (e) Continuation in full force and effect,
without modification, of Seller's presently existing and material leases,
contracts, licenses, permits and other similar contracts and rights; (f)
Delivery of the following documents to Buyer or confirmation to Buyer of
compliance with the following requirements at or before Closing, all of which
shall be in form and of such substance acceptable to Buyer and its counsel: (i)
Instruments of transfer required by Section 1.3 hereof; (ii) Releases (or copies
thereof) of all liens, claims, charges, encumbrances, security interests and
restrictions, if any, on the Purchased Assets necessary to provide Buyer with
good, marketable and indefeasible title to each and all of the Purchased Assets
at Closing (excepting only any such matters which Buyer has agreed to accept
thereon and at such time, and as are specifically listed and shown as such in
Exhibit 2.1); (iii) Consents and approvals of all third parties, if any,
necessary for Seller and Stockholders to execute, deliver or perform this
Agreement; (iv) Consents and approvals of all third parties having business
relationships with seller, if consent to transactions of the nature herein
contemplated is or may be required in order to prevent a material adverse change
in such business relationship, such as cancellation of services or any software
license by a customer; (v) Certified copies of corporate actions taken by
Seller's Board of Directors, and Seller's Stockholders, authorizing the
execution, delivery and performance of this agreement, and the filing of
amendments to Seller's Articles of Incorporation, changing Seller's name to
eliminate any and all reference, in any form, to "MANAGED RESPIRATORY CARE
SERVICES, INC."; (vi) Articles of Amendment to the Articles of Incorporation of
Seller, in form suitable for filing forthwith, changing its name to eliminate
the words "MANAGED RESPIRATORY CARE SERVICES" (to be thereafter filed at
Seller's expense, with the Arizona Corporation Commission, and proof thereof
being furnished to Buyer's counsel not more than 15 days following Closing);
(vii) Certificate of Good Standing and Status for Seller from the State of
Arizona, dated no earlier than ten (10) days prior to the Closing Date; (viii)
Certificate signed by one or more duly authorized officers of Seller, and
Stockholders, dated the Closing Date, to the effect that the representations and
warranties of Seller and Stockholders contained herein are true and correct as
of the Closing Date, just as if such representations had been made thereat and
on such date; (ix) Opinion of counsel for Seller and Stockholders, addressed to
Buyer and dated the Closing Date, to the effect that the representations and
warranties contained in Sections 5.1.1; 5.2.1; 5.2.2.; 5.2.3. clause (i) and
(iv); and Subsection 5.4.2. (the third sentence) are true and correct subject,
where appropriate, to the standard bankruptcy and equitable remedies exceptions
and subject to such changes as are reasonably acceptable to Buyer's counsel; (x)
UCC searches showing no liens, security interests, or claims against the
Purchased Assets or Seller's Business being hereby acquired, brought current to
the Closing Date by supplemental affidavits of Seller and Stockholders; and (xi)
Satisfaction of all bank indebtedness required to consummate the transaction
with delivery of pay-off letters or documents from the involved bank(s) or other
lenders to be addressed to Seller.
Section 4.3. Conditions Precedent to Seller's and Stockholder's
Obligations. The obligation of Seller and Stockholders (collectively or
individually, as applicable) to perform in accordance with this Agreement is
contingent upon, and subject to, satisfaction of the following conditions by
Buyer at or before Closing: (a) Performance by Buyer of all agreements and
covenants to be performed by it at or prior to Closing; (b) Continued accuracy
of the representations and warranties of Buyer, as herein contained; (c) Absence
of any pending or threatened legal action against Buyer which, if successful,
would prohibit or hinder consummation, or require substantial rescission of the
transactions contemplated by this Agreement; (d) Delivery or tender of the
following documents to Seller, at Closing, all of which shall be in form and of
such substance acceptable to Seller and its counsel: (i) That portion of the
purchase price as required by Section 3.2. hereof; (ii) Instruments by which
Buyer assumes the Assumed Liabilities (if any); (iii) Certified copies of
corporate actions taken by Buyer, and Buyer's shareholder, authorizing the
transactions contemplated hereby; (iv) Certificate of good standing for Buyer
dated no earlier than 10 days prior to the Closing Date; (v) Certificate signed
by Buyer's President, dated the Closing Date, to the effect that the
representations and warranties of Buyer contained herein are true and correct as
of the Closing Date, just as if such representations and warranties had been
made thereat; and (vi) Opinion of counsel for Buyer, addressed to Seller and
Stockholders, dated the Closing Date, to the effect that the representations and
warranties contained in Section 6.1. are true and correct, and that to the best
of said counsel's knowledge, the representations and warranties contained in
Subsections 6.2.2. and 6.2.3. are true and correct, subject, where appropriate,
to the standard bankruptcy and equitable remedies exceptions and subject to such
changes as are reasonably acceptable to Seller's counsel.
Section 4.4. Non-fulfillment of Buyer's Conditions. The conditions
contained in Section 4.2. hereof have been inserted for the exclusive benefit of
Buyer. In case any material conditions shall not be fulfilled at or before
Closing, Buyer may rescind this Agreement by notice to Seller and in such event,
Buyer shall be released from all further obligation hereunder and, unless Buyer
can show that the condition or conditions for the non-performance of which Buyer
has rescinded this Agreement were reasonably capable of being performed or
caused to be performed by Seller and/or Stockholders without undue delay or
postponement of the Closing, then Seller and Stockholders shall also be released
from all obligations hereunder; provided, that any of the said conditions may be
waived in whole or in part by Buyer without prejudice to Buyer's right of
rescission in the event of the non-fulfillment of any other condition or
conditions.
Section 4.5. Non-fulfillment of Seller's and Stockholder's Conditions. The
conditions contained in Section 4.3. hereof have been inserted for the exclusive
benefit of Seller and Stockholders. In case any material conditions shall not be
fulfilled at or before Closing, Seller may rescind this Agreement by notice to
Buyer and in such event, Seller and Stockholders shall be released from all
further obligation hereunder and, unless Seller and Stockholders can show that
the condition or conditions for the non-performance of which Seller and
Stockholders have rescinded this Agreement were reasonably capable of being
performed or caused to be performed by Buyer without undue delay or postponement
of the Closing, then Buyer shall also be released from all obligations
hereunder; provided, that any of the said conditions may be waived in whole or
in part by Seller and Stockholders without prejudice to their right of recission
in the event of the non-fulfillment of any other condition or conditions.
ARTICLE FIVE. REPRESENTATIONS, WARRANTIES OF SELLER, STOCKHOLDERS
Seller and Stockholders, jointly and severally, represent and warrant
to Buyer that the following statements are true and correct to the best of their
knowledge, respectively, as of the date hereof and that said statements will be
true and correct to the best of their knowledge, respectively, as of the Closing
Date (unless specific reference is made to only one of such dates or to some
other date):
Section 5.1. Corporate Status of Seller:
5.1.1. Organization, Good Standing and Power of Seller. Seller (i) is a
corporation duly organized, validly existing and in good standing under the
laws of Arizona and (ii) has full corporate power and authority to own,
lease and operate its properties (including the Purchased Assets) and to
carry on Seller's Business, as such business is presently being conducted,
and to execute, deliver and perform this Agreement in all and every material
respect.
5.1.2. Ownership of Seller. All of the issued and outstanding shares of the
capital stock of Seller are owned by the Stockholders, all parties hereto,
and that no persons not parties hereto have any right, warrant, or option to
acquire (or to exercise the voting powers or rights represented by) any such
shares.
5.1.3. Subsidiaries. Seller has no subsidiaries or affiliate companies.
5.1.4. Foreign Qualification. Seller is not qualified to transact business
in any foreign jurisdiction.
Section 5.2. Status of Agreements:
5.2.1. Authorization and Enforceability. All requisite corporate action to
approve, execute, deliver and perform this Agreement, and each of the other
agreements, instruments and other documents to be delivered in connection
herewith, has been taken by the Seller's Directors and all Stockholders. This
Agreement has been duly and validly executed and delivered by Seller and all
Stockholders and constitutes the valid and binding obligation thereof,
enforceable in accordance with its terms. All such other agreements, instruments
and other documents to be executed and delivered by Seller or Stockholders will,
when executed and delivered, constitute the valid and binding obligation of the
Seller or Stockholders, enforceable in accordance with its terms. 5.2.2.
Consents. Except as set forth on and fully identified in Disclosure Schedule
5.2.2., and as required or indicated by the provisions hereof, no authorization,
approval, consent or order of, or registration, declaration or filing with, any
court, governmental body or agency or other public or private body, entity or
person is required in connection with the execution, delivery, or performance of
this Agreement or any other agreement, instrument or document to be delivered by
or on behalf of Seller or Stockholders in connection herewith. 5.2.3. Absence of
Conflicts or Disruptions. Except as set forth on and fully identified in
Disclosure Schedule 5.2.3., neither the execution, delivery or performance of
this Agreement, or any other agreement, instrument or document to be executed
and delivered by Seller or Stockholders in connection herewith, does or will
violate or conflict with, result in a breach of or give rise to a right of
acceleration or termination under (i) Seller's Articles of Incorporation or
Bylaws; (ii) any lien, mortgage, security agreement or other encumbrances or
restriction affecting Seller's Business or Purchased Assets; (iii) any
commitment, contract, agreement, plan, arrangement, understanding, instrument,
lease, or license to which Seller is a party or to which it is bound; or (iv)
any order, arbitration, award, judgment, decree or similar restriction to which
Seller is subject or by which it is bound. Such execution, delivery and
performance will also not result in the imposition of any lien, mortgage,
pledge, encumbrance, easement, claim, or other restriction or charge on Seller's
Business, or the Purchased Assets, or impair any material business relationship
which Seller has with any current customer, licensee, or other person, except as
set forth in this Disclosure Schedule 5.2.3.
Section 5.3. Status of Business:
5.3.1. Financial Statements Disclosure Schedule 5.3.1. consists of the
following financial statements:
Internally prepared balance sheet of Seller as of June 30, 1996, together
with the related statement of income;
All of such financial statements and information are true, correct and
complete and have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent with prior periods. The balance sheet
referenced above, (the "Balance Sheet") presents fairly the financial condition
of Seller, as at the date stated, and the statement of income presents fairly
the results of operations for the period covered thereby, given the limited
purpose for which those financial statements were prepared. 5.3.2. Absence of
Undisclosed Liabilities. Seller does not have any knowledge of any liabilities
other than (i) liabilities adequately reflected or reserved against in the
Balance Sheet and which, in accordance with generally accepted accounting
principles, should have been reflected therein, (ii) current liabilities
incurred in the ordinary course of business since the date of such Balance
Sheet, all of which are reflected in the journals and ledgers of Seller, and
(iii) the liabilities set forth in Disclosure Schedule 5.3.2. 5.3.3. Absence of
Certain Changes. Since the date of the Balance Sheet, Seller's Business has been
operated only in the ordinary course, and, except as set forth in Disclosure
Schedule 5.3.3., or otherwise reflected in the Balance Sheet or in other
provisions of this Agreement, there has not been with respect to Seller, and as
shall apply only to the Purchased Assets, being sold to Buyer hereunder: (a) Any
change in its condition, financial or otherwise, assets, liabilities, business,
earnings or prospects, except changes in the ordinary course of business or of
which Buyer has knowledge, none of which individually or in the aggregate has
been materially adverse; (b) Any damage, destruction or loss (whether or not
covered by insurance) materially and adversely affecting its properties, assets,
business or prospects; (c) Any executory sales commitments in excess of its
ability to produce or conduct operations at a profit; (d) Any general increase
in the level or rate of sales or compensation of employees; (e) Any liability
incurred or assumed, or any contract, agreement, arrangement, license or other
commitment entered into or assumed by it or on its behalf, whether written or
oral, involving more than $5,000.00 in each instance, except in the ordinary
course of business; (f) Any loan or advance made to any officer, director,
consultant, agent, employee or shareholder, or other loan or advance made
otherwise than in the ordinary course of business; (g) Any change in its
accounting methods or practices or any change in depreciation or amortization
policies or rates theretofore adopted by it; (h) Any purchase or sale of assets
in anticipation of this Agreement, or any purchase, lease, sale, abandonment or
other disposition of assets otherwise than in the ordinary course of business;
(i) Any acquisition of all or any substantial part of the stock or the business
or operating assets of any other person, firm, association, corporation, limited
liability company, or business organization except as disclosed to Buyer; (j).
Any actual or threatened material adverse change in its revenue earnings,
business, operations, condition, prospects or business relationships; (k) Any
mortgage, pledge, lien, charge, security interest or other encumbrance against,
any of its assets; (l) Any waiver of release of any rights, except for rights of
insubstantial value; or (m) Any transfer or grant of any material rights under
any leases, licenses, agreements, copyrights, trade names, or service marks.
5.3.4. Taxes. The books of account of Seller accurately reflect all known items
of income and expense (including accruals) and all assets and liabilities of
Seller in accordance with normal accrual accounting practices, subject to
customary month-end, quarterly, or year-end adjustments, and customary audit
adjustments. Except as listed in Disclosure Schedule 5.3.4., Seller has (i)
filed all federal and local income tax, excise tax, sales tax, use tax, gross
receipts tax, franchise tax, employment and payroll related tax, real and
personal property tax, and all other tax returns which it is required to file
with respect to Seller and which have become due, (ii) paid or accrued all taxes
owed by Seller as well as all deficiencies or other assessments of tax interest
or penalties, and (iii) provided for all taxes not yet payable by Seller. There
are no claims pending against Seller for deficient or past due taxes of any
nature, and Seller has no knowledge of any unassessed tax deficiency proposed or
threatened against Seller. No audits of any tax return of Seller are currently
in progress, and there are not in force any extensions of time with respect to
the dates on which any tax return was or is due to be filed by Seller or any
waivers or agreements for the extension of time for the assessment or payment of
any tax. 5.3.5. Compliance with Laws. Except as set forth in Disclosure Schedule
5.3.5., Seller (i) is not in violation of any outstanding judgment, order,
injunction, award or decree specifically relating to it; (ii) is not in
violation of, in any material respect, any federal, state, provincial, local or
foreign law, ordinance or regulation applicable to Seller's Business or the
Purchased Assets, including without limitation environmental laws and
occupational health and safety laws. 5.3.6. Litigation. Except as set forth in
Disclosure Schedule 5.3.6., no claim, litigation, action, investigation, or
proceeding is pending, or, to the knowledge of Seller or Stockholders,
threatened, and no order, injunction or decree is outstanding, against or
relating to Seller, Seller's Business or the Purchased Assets, and neither
Seller nor Stockholders know or has a reasonable basis for knowing of any
information which may result in any such claim, litigation, action,
investigation or proceeding. 5.3.7. Materials and Supplies. Seller and
Stockholders are not aware of any actual or potential shortage of materials or
supplies from any source which might materially and adversely affect Seller's
Business. 5.3.8. Lists of Properties, Contracts, Etc. Disclosure Schedule 5.3.8.
contains a complete and accurate list and description of the following with
respect to Seller's Business: (a) All real property leased from others; (b) All
equipment, furniture, fixtures, vehicles, leasehold improvements, other personal
property used in the conduct of Seller's Business with an original cost in
excess of $1,000.00, or which are leased for others at an annual rental in
excess of $500.00; (c) All licenses, franchises, permits, orders,
authorizations, concessions, copyrights, trademarks, service marks, trade names,
patents or other intellectual property items used in the conduct of Seller's
Business; (d) All agreements for the purchase, sale or other disposition of
goods, materials, equipment, supplies, capital assets, or services which cannot
be terminated at any time on less than thirty (30) days notice without
liability, which by their terms will not be fully performed on or before the
Closing Date or which involve terms or quantities exceeding normal commitments
in the ordinary course of business; (e) All instruments or agreements evidencing
liens, financing arrangements or secured transactions for Seller's Business or
any Purchased Asset; (f) All management, employment or agency agreements; (g)
All agreements with directors, officers, or any Stockholders, or with the spouse
or other relative of any such persons; (h) All agreements and instruments
pursuant to which credit has or may be obtained or indebtedness for borrowed
money has or may be incurred; (i) All guarantees of payment or performance by or
on behalf of a third-party; (m) All other contracts, agreements, commitments or
understandings entered into other than in the ordinary course of business and
consistent with past practices; (n) The names and addresses of all current
officers and directors, and current compensation rates or arrangements for each
such person; and (o) The names and addresses of all persons, if any, now holding
proxies, powers of attorney, or other like instruments and powers to act on
behalf of Seller, and a summary of the terms thereof.
True and complete copies of all written documentation pertaining to
each of the foregoing, as disclosed on Disclosure Schedule 5.3.8., have been
previously delivered to or made available for inspection by Buyer.
5.3.9. Compliance with Contracts and Commitments. With respect to the
agreements, leases, licenses, commitments, instruments and undertakings, oral or
written, to which Seller is a party or by which it is bound, (i) Seller has
performed all of the obligations to be performed by it; (ii) Seller is not in
any material respect in default under or in violation of any thereof; (iii)
there is no basis for a valid claim of such a violation or default; and (iv) no
event has occurred which, with notice or lapse of time or both, would constitute
such a default. Neither Seller nor Stockholders are aware of any material
default under or any material violation of any of the foregoing by any other
party thereto.
Section 5.4. Status and Quality of Assets:
5.4.1. Completeness. Except for the Retained Assets, included in the Purchased
Assets are all those assets which are necessary in order to operate Seller's
Business in the ordinary course as presently conducted. 5.4.2. Seller's Title.
Except as set forth in Disclosure Schedule 5.4.2., Seller owns all of the
Purchased Assets with good, absolute and marketable title thereto, free and
clear of all liens, security interests, claims, charges, encumbrances and other
restrictions or limitations affecting the ability to use or transfer such
assets. All of the agreements, leases, licenses, instruments, commitments and
undertakings to which Seller is a party or by which it is bound with respect to
which Buyer is acquiring the rights of Seller pursuant hereto, are valid, in
full force and effect and enforceable in accordance with their terms by Seller,
as the case may be. Subject to the terms of this Agreement, the instruments of
transfer required hereby to be executed and delivered by Seller to Buyer will,
when so executed and delivered, effectively vest in Buyer good, marketable and
indefeasible title to the Purchased Assets and the full rights of Seller to
enforce the aforesaid agreements, leases, licenses, instruments, commitments and
undertakings to which it is a party or by which it is bound in accordance with
their terms. 5.4.3. Trademarks and Copyrights. Exhibit 1.1. includes, as a
Purchased Asset, all trademarks, service marks, and copyrights and their
registrations or applications, owned by Seller and used in association with
Seller's Business and the Purchased Assets. 5.4.4. Patents. There are no patents
or patent rights associated with the Purchased Assets. To the best of Seller's
knowledge, there are no claims that the use of the Purchased Assets violates or
infringes on the patent or patent right of any person. 5.4.5. Trade Secrets.
Exhibit 1.1. includes a description of Seller' trade secrets associated with the
Purchased Assets. Seller is the sole owner of each of these trade secrets, free
and clear of any encumbrances, restrictions or legal or equitable claims of
others. Seller has taken all reasonable security measures to protect the
secrecy, confidentiality, and value of these trade secrets; and any of its
employees and other persons who, either alone or in concert with others,
developed, invented, discovered, derived, programmed or designed these secrets,
or who have knowledge of or access to information relating to them, have been
put on notice and, if appropriate, have entered into agreements that these
secrets are proprietary to Seller and are not to be divulged or misused.
Further, to the best knowledge of Seller, all of these trade secrets are
presently valid and protectible and are not part of the public knowledge or
literature; nor, to Seller's knowledge have they been used, divulged or
appropriated for the benefit of any past or present employees or other persons,
or to the detriment of Seller.
Section 5.5. Miscellaneous:
5.5.1. Conflicts of Interest. Except as set forth in Disclosure Schedule 5.5.1.,
no officer, director or shareholder of Seller or any relative thereof, or any
entity controlled by any of said persons (i) owns, directly or indirectly, any
interest in, or is an employee or representative of or consultant to, any
corporation, firm, limited liability company, association, or other business
entity which is, or is engaged in business as, a competitor, lessor, lessee,
customer, licensee, licensor, or supplier of Seller; or (ii) owns, directly or
indirectly, in whole or any part, any tangible or intangible property which
Seller is using or the use of which is necessary for the conduct of Seller's
Business, or (iii) has any claim or cause of action whatsoever against Seller.
5.5.2. Brokers, Agents. Except as set forth in Disclosure Schedule 5.5.2., no
broker, finder or other person or entity acting in similar capacity has
participated on behalf of Seller or Stockholders in bringing about the
transaction herein contemplated, rendered any services with respect thereto or
been in any way involved therewith. 5.5.3. Accuracy and Completeness. No
representation or warranty made by Seller or Stockholders in this Agreement, and
no statement contained in any exhibit, certificate, disclosure schedule or other
document delivered to Buyer pursuant hereto or in connection with the
transaction contemplated hereby contains, or will contain, any untrue statement
of a material fact, or omits, or will omit, to state a material fact necessary
to make the statements contained therein, in light of the circumstances in which
they are made, not misleading. 5.5.4 Survival. Seller and Stockholders
acknowledge and agree that the representations and warranties of Seller and
Stockholders contained in Article Five of this Agreement shall survive for a
period of one (1) year after the Closing Date, except for those in Section
5.3.4, which shall survive for the longest period with respect to which any
taxing authority can assess additional taxes (including any extensions thereof).
Otherwise, any representations and warranties of Seller and Stockholders made
within this Agreement shall survive for a period of three (3) years after
Closing Date. No investigation or lack thereof by Buyer or any agents on behalf
of Buyer shall be deemed to constitute or imply a waiver of any representation
or warranty of Seller or Stockholders.
ARTICLE SIX. REPRESENTATIONS, WARRANTIES OF BUYER
Buyer represents and warrants to Seller and Stockholders that the
following statements are true and correct to the best of its knowledge as of the
date hereof and that said statements will be true and correct to the best of its
knowledge as of the Closing Date (unless specific reference is made to only one
of such dates or to some other date):
Section 6.1. Corporate Status of Buyer:
6.1.1. Organization, Good Standing and Power of Buyer. Buyer (i) is a
corporation duly organized, validly existing and in good standing under the
laws of Ohio and (ii) has full corporate power and authority to own, lease
and operate its properties, as and where such properties are now owned or
leased and as such business is presently being conducted, and to execute,
deliver and perform this Agreement in all and every respect.
6.1.2. Ownership of Buyer. All of the issued and outstanding shares of
the capital stock of Buyer are owned by Regency Health Services, Inc. of
Tustin, California.
Section 6.2. Status of Agreements:
6.2.1. Authorization and Enforceability. All requisite corporate action to
approve, execute, deliver and perform this Agreement, and each of the other
agreements, instruments and other documents to be delivered in connection
herewith, has been taken by the Buyer's Directors and (if required) by Buyer's
shareholders. This Agreement has been duly and validly executed and delivered by
Buyer and constitutes the valid and binding obligation thereof, enforceable in
accordance with its terms. All such other agreements, instruments and other
documents to be executed and delivered by or on behalf of Buyer will, when
executed and delivered, constitute the valid and binding obligation of the party
executing same, enforceable in accordance with its terms. 6.2.2. Consents. No
authorization, approval, consent or order of, or registration, declaration or
filing with, any court, governmental body or agency or other public or private
body, entity or person is required in connection with the execution, delivery,
or performance of this Agreement or any other agreement, instrument or document
to be delivered by or on behalf of Buyer. 6.2.3. Absence of Conflicts. Neither
the execution, delivery or performance of this Agreement, or any other
agreement, instrument or document to be delivered by or on behalf of Buyer in
connection herewith, does or will (i) conflict with or violate or result in any
breach of any judgment, decree, order, statute, rule or regulation applicable to
Buyer; (ii) conflict with, violate or result in breach of any agreement or
instrument to which Buyer is a party or by which it is bound; or (iii) conflict
with or violate any provision of the Articles of Incorporation or Bylaws of
Buyer.
Section 6.3. Miscellaneous:
6.3.1. Brokers, Agents. No broker, finder or other person or entity acting in
similar capacity has participated on behalf of Buyer in bringing about the
transaction herein contemplated, rendered any services with respect thereto or
been in any way involved therewith. 6.3.2. Accuracy and Completeness. No
representation or warranty made by Buyer in this Agreement, and no statement
contained in any exhibit, certificate, disclosure schedule or other document
delivered to Seller and/or Stockholders pursuant hereto or in connection with
the transaction contemplated hereby contains, or will contain, any untrue
statement of a material fact, or omits, or will omit, to state a material fact
necessary to make the statements contained therein, in light of the
circumstances in which they are made, not misleading. 6.3.3 Survival. Buyer
acknowledges and agrees that the representations and warranties of Buyer
contained in Article Six of this Agreement shall survive for a period of one (1)
year after the Closing Date, otherwise, such representations and warranties as
are made by Buyer in this Agreement shall survive for a period of three (3)
years after Closing Date. No investigation or lack thereof by Seller or any
agents on behalf of Seller shall be deemed to constitute or imply a waiver of
any representation or warranty of Buyer.
ARTICLE SEVEN. INTERIM OPERATIONS
Section 7.1. Conduct of Business. Seller and Stockholders agree that from
the date of this Agreement to and until Closing, except to the extent that Buyer
may otherwise consent in writing, Seller has and will operate its business
substantially as presently operated and only in the ordinary course and,
consistent with such operations, will use its best efforts to preserve intact
the present business organization and the relationships with persons having
business dealings with it.
Section 7.2. Access to Information; Confidentiality. From the date hereof
until Closing, Seller shall make available to the accountants, attorneys and
other representatives of Buyer for examination during normal business hours,
upon reasonable request, all books, records and documents of Seller, whether or
not related to Seller's Business, of every nature, kind and character. Buyer
acknowledges that certain information about Seller's Business is non-public,
confidential information. Buyer agrees that if the transactions contemplated by
this Agreement are not consummated for any reason, Buyer will not disclose, use
or permit the use of any non-public, confidential information that Seller has
provided or will provide from time to time pursuant to its investigation. Buyer
agrees that until the Closing Date, it and its representatives shall not
disclose, use or permit the use of, any non-public confidential information that
Seller has provided or will provide from time to time, except for purposes of
evaluating Seller's Business and in moving towards completing the transactions
contemplated hereby.
Section 7.3. Notice to Buyer. Seller and Stockholders covenant and agree
that they have not and will not prior to Closing engage in any transaction or
commence any judicial or other proceeding under Title 11 of United States Code,
or any other law for the relief or restructuring of any of Seller's indebtedness
or affairs or for the reorganization of Seller's affairs, or for an arrangement
or composition with seller's creditors, or any of them, without first notifying
Buyer and allowing the opportunity, but never the obligation, to provide Seller
such assistance, financial or otherwise, as may be appropriate, in the sole and
absolute discretion of Buyer, to avoid any such proceeding or transaction; it
being understood and agreed that the aforementioned notice to Buyer shall be in
writing and delivered to Buyer not less than ten (10) days prior to Seller's
entering into any such proceeding or contemplated transaction.
ARTICLE EIGHT. INDEMNIFICATION
Section 8.1. Indemnification by Seller and Stockholders. From and after the
Closing Date, for a period of three (3) years thereafter, Seller and
Stockholders shall indemnify, defend and hold harmless Buyer, its successors and
assigns, from and against any and all claims, demands, liabilities, obligations,
actions, suits, proceedings, losses, damages, costs, expenses, assessments,
judgments, recoveries and deficiencies, including interest, penalties and
reasonable attorneys; fees (including without limitation attorneys' fees
incurred in investigating or in attempting to avoid the same or oppose the
imposition thereof), of every kind and description, contingent or otherwise (the
foregoing hereinafter collectively referred to as "Damages") against Buyer or
the Purchased Assets, occasioned by, arising out of or resulting from any
misrepresentation (and during the period of time for which a representation
shall survive Closing Date), breach of warranty or covenant (and during the
period of time for which a warranty or covenant shall survive, or be enforceable
following, the Closing Date), or default or nonfulfillment of any agreement on
the part of Seller under this Agreement, or any certificate, agreement,
appendix, schedule or other instrument furnished to or to be furnished to Buyer
pursuant to this Agreement. Buyer, with reasonable promptness, shall notify
Seller and Stockholders of any claim against Buyer for Damages, and Seller and
Stockholders shall have, at their election, the right to compromise or defend
any such matter through counsel of their own choosing, any such compromise or
defense to be at the expense of Seller and Stockholders. Buyer agrees, at the
expense of Seller and Stockholders, to cooperate in the defense of any such
claim for Damages. Seller and Stockholders shall take whatever action is
necessary in the course of defending any claim to which the foregoing
indemnification applies to avoid the imposition of any lien on Buyer's assets.
If Seller and Stockholders fail to take such action after reasonable notice,
Buyer may, in the settlement of any claim for such Damages, exercise the right
of set-off against all or any sum of money then due, or to become due, to Seller
(or its successors and assigns, if any) as Earn-Out Fees under Section 3.3,
together with any other remedy or right which Buyer may then exercise against
Seller or Stockholders (in their individual capacity, as parties to this
Agreement) under this Section 8.1.
Section 8.2. Indemnification by Buyer. From and after Closing Date, for a
period of three years thereafter, Buyer shall indemnify, defend and hold
harmless Seller, its successors and assigns, from and against any and all
claims, demands, liabilities, obligations, actions, suits, proceedings, losses,
damages, costs, expenses, assessments, judgments, recoveries and deficiencies,
including interest, penalties and reasonable attorneys; fees (including without
limitation attorneys' fees incurred in investigating or in attempting to avoid
the same or oppose the imposition thereof), of every kind and description,
contingent or otherwise (the foregoing hereinafter collectively referred to as
"Damages") against Seller, occasioned by, arising out of or resulting from any
misrepresentation (and during the period of time for which a representation
shall survive Closing Date), breach of warranty or covenant (and during the
period of time for which a warranty or covenant shall survive, or be enforceable
following, Closing Date), or default or nonfulfillment of any agreement on the
part of Buyer under this Agreement, whether in connection with the Assumed
Liabilities or otherwise. Seller, with reasonable promptness, shall notify Buyer
of any claim against Seller for Damages, and Buyer shall have, at its election,
the right to compromise or defend any such matter through counsel of its own
choosing, any such compromise or defense to be at the expense of Buyer. Seller
agrees, at the expense of Buyer, to cooperate in the defense of any such claim
for Damages. Buyer shall take whatever action is necessary in the course of
defending any claim to which the foregoing indemnification applies to avoid the
imposition of any lien on Seller's Retained Assets (or other assets).
ARTICLE NINE. MISCELLANEOUS AGREEMENTS AND PROVISIONS.
Section 9.1. Mathews and Salazar Employment Agreements. Mathews and
Salazar, and each of them, agree to enter into at Closing an Employment
Agreement with Buyer substantially in the form attached hereto as Exhibit 9.1.
Section 9.2. Seller's Non-Compete and Termination Agreement. Seller agrees
and represents to Buyer, with full understanding that Buyer is relying on this
representation, that Seller is terminating "Seller's Business", and for a period
of one year after the last to occur of the (i) completition of the Earn Out
Period (see Article Three), or (ii) the termination of Stockholders' employment
with Buyer (see Section 9.1, above), Seller, as to any point or place in any
county in Arizona where Seller, prior to Closing Date, has conducted business
under any completed contract, or negotiated any pending or proposed contract
pertaining to Seller's Business, will not reenter that business, or any other
similar business dealing with, related or pertaining to, directly or indirectly,
respiratory therapy practice management or marketing on behalf of hospitals or
health care providers or other identical, comparable or similar entities
otherwise employing or obtaining the benefit of respiratory therapists, in which
business Seller is now engaged, and that Seller is herewith divesting itself of
its present corporate name and all of its service names. Seller is taking such
action and making such representation in exchange for the consideration it is
receiving from Buyer under the terms of this Agreement. Seller agrees that the
agreements and representations made under this Section 9.2 are reasonable and
necessary for the protection of Buyer in connection with acquisition of the
Purchased Assets, and expressly acknowledges that such is an essential part of
the benefit of the bargain for Buyer. Any breach of this Section 9.2 by Seller
will cause irreparable injury to Buyer for which damages would be an inadequate
remedy and that (in addition to and without limitation of any other rights Buyer
may have and exert against Seller) Buyer shall have the right to issuance of an
injunction by a court of competent jurisdiction, enjoining such breach upon
notice and without bond. Notwithstanding any other provision of this Agreement,
Seller may directly or indirectly do all or any of the following: (a) enforce
any and all rights and remedies afforded Seller under this Agreement; (b)
manage, collect, enforce and act as a lessor and otherwise realize upon all
assets of Seller as are not sold to Buyer under this Agreement. Further, this
provision shall not be construed as prohibiting Seller from entering into or
otherwise keeping or maintaining any other business not listed in this Section
9.2., and not presently or formerly a part of "Seller's Business" within the
meaning of this Agreement.
Section 9.3. Publicity. All public announcements relating to this
Agreement or the transactions contemplated hereby will be made only as
determined by Buyer.
Section 9.4. Expenses, etc. Buyer shall bear and pay all of the expenses
incident to the transactions contemplated by this Agreement which are incurred
by Buyer. Seller and Stockholders shall bear and pay all of the expenses
incident to the transactions contemplated by this Agreement which are incurred
by them.
Section 9.5. Notices. All notices and other communications required by or
in connection with this Agreement shall be in writing and be deemed given if
delivered by hand, or mailed by certified U.S. mail, or transmitted by Federal
Express United Parcel Service or similar nationwide overnight-priority courier
service, to the intended, appropriate recipient at the following address (or
such other address as the party shall specify by notice pursuant hereto):
If to Buyer, to: Mr. Jamison J. Ashby, Chief Operating Officer
SCRS & COMMUNICOLOGY, INC. OF OHIO
95 Argonaut, Suite 100
Laguna Hills, California 92656
with a copy to:
David A. Grant, Esq., SVP & General Counsel
REGENCY HEALTH SERVICES, INC.
2742 Dow Avenue
Tustin, California 92680-7245
If to Seller, to: Ms. Jean Mathews, Director
Mr. Joe Salazar, Director
3801 North 24th Street
Phoenix, Arizona 85016
with a copy to:
Kyle B. Hettinger, Esq.
BROWN & BAIN, P.A.
2901 North Central Avenue
Phoenix, Arizona 85012-2788
If to Stockholders, to: Ms. Jean Mathews
3801 North 24th Street
Phoenix, Arizona 85016
Mr. Joe Salazar
3801 North 24th Street
Phoenix, Arizona 85016
with a copy to:
Kyle B. Hettinger, Esq.
BROWN & BAIN, P.A.
2901 North Central Avenue
Phoenix, Arizona 85012-2788
Section 9.6. Binding Effect. Except as may be otherwise provided herein,
this Agreement and all provisions hereof shall be binding upon and inure to the
benefit of the parties hereto, their respective heirs, personal representatives,
successors, designatees, and assigns.
Section 9.7. Disclosure Schedules and Exhibits. All disclosure schedules
and exhibits referred to in this Agreement constitute an integral part of this
Agreement as if fully rewritten herein.
Section 9.8. Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same document.
Section 9.9. Governing Law. This Agreement and all disputes arising
hereunder shall be construed in accordance with and governed by the laws
of the State of California.
Section 9.10. Severability. If any provision of this Agreement shall be
held unenforceable, invalid or void to any extent and for any reason, such
provision shall remain in force and effect to the maximum extent allowable, if
any, and the enforceability or validity of the remaining provisions of this
Agreement shall not be affected thereby.
Section 9.11. Waivers. No waiver of any of the provisions of this Agreement
shall be valid and enforceable unless such waiver is in writing and signed by
the party to be charged therewith, and, unless otherwise stated therein, no such
waiver shall constitute a waiver of any other provision hereof, or a continuing
waiver.
Section 9.12. Termination. This Agreement may be terminated by (i) Buyer if
the conditions set forth in Section 4.2 hereof shall not have been met by
Closing Date, and by Seller and Stockholders if the conditions set forth in
Section 4.3. shall not have been met by Closing Date, and (ii) Buyer if any
change shall have occurred or be threatened in the business, financial
conditions, operations, results of operations, or prospects of Seller's Business
which is or will be materially adverse, or if Buyer shall become aware of any
presently existing facts which has or will have a material adverse effect on the
business, financial condition, operations, results of operations, or prospects
of Seller. Upon such termination, neither party shall have any further
obligations under this Agreement.
Section 9.13. Entire Agreement. This Agreement together with the
agreements, instruments, and other documents to be delivered hereunder,
constitute the entire understanding and agreements between the parties hereto
and concerning the subject matter hereof. All negotiations between the parties
hereto are merged into this Agreement, and there are no representations,
warranties, covenants, understandings, or agreements, oral or otherwise, in
relation thereto between the parties other than those incorporated herein and to
be delivered hereunder. Except as otherwise expressly contemplated by this
Agreement, nothing expressed or implied in this Agreement is intended or shall
be construed so as to grant or confer on any person, firm or corporation, other
than the parties hereto, any rights or privileges hereunder. No supplement,
modification, or amendment of this Agreement shall be binding unless executed in
writing by the parties wishing to be bound thereby.
Section 9.14. Right of Setoff. If Buyer be required to pay at any time any
obligation of Seller or all or any Stockholders arising out of or related to the
transaction covered by this Agreement and the agreements provided for herein,
which amount was not the obligation of Buyer, or should Buyer experience any
loss or expense by reason of Seller's or Stockholders' breach (whether all and
collectively or less than all of such Stockholders) of any provision of this
Agreement and the agreements provided for herein, Buyer shall have the right of
setoff against any money due Seller and/or Stockholders (whether collectively or
individually) under the terms of any agreement or transaction between or amongst
the parties, which right shall be in addition to the right of setoff as
identified in Section 8.1., above.
Section 9.15. Default and Remedies. In the event any party to this
Agreement fails to perform any material act, duty or obligation which said party
is bound to perform and is then due or owed to any other party hereto at any
time after Closing Date and said party is thereupon in breach of this Agreement
(including Section 3.9 hereof), then and in such event the party so aggrieved
may send written notice to the party in breach, specifying the material act,
duty or obligation due or owing, whereupon the party receiving such notice shall
have fifteen (15) days to cure such breach by performance to the reasonable
satisfaction of the party so aggrieved (if a longer or shorter period of time is
expressly provided in any section, as to a specific act, duty or obligation,
such other period of time shall control). In the absence of a timely cure after
such notice, the party so aggrieved (without further notice) shall have the
right to declare a default in the performance of this Agreement, and thereafter
may seek any relief or remedy as may then be available to such party, not
otherwise inconsistent with this Agreement, including damages arising out of
such breach, or, if applicable, specific performance, compelling performance of
the act, duty or obligation. Upon default, any party seeking relief, and
substantially prevailing therein, shall have the right to seek and recover of
the party in default, all costs of suit and reasonable attorneys' fees, in
addition to any other relief as may be available.
In Witness Whereof, the parties, personally and individually, or by and
through their duly authorized officers or agents, do hereby enter into this
Asset Purchase Agreement, intending to be bound by the provisions hereof, the
dates recorded below, due authority being warranted, and understanding and
agreeing that this instrument may be executed in two or more counterparts, each
party having executed each counterpart in original or facsimile form, each and
all such counterparts being one and the same instrument:
Buyer:
SCRS & COMMUNICOLOGY, INC. OF OHIO
By: Date:
Jamison J. Ashby, COO
Seller:
MANAGED RESPIRATORY CARE SERVICES, INC.
By: Date:
Jean Mathews, President
Stockholders:
Date:
Jean Mathews
Date:
Joe Salazar
Exhibit 10.43
FINANCING AGREEMENT
between
THE CITY OF BECKLEY, WEST VIRGINIA
and
BECKLEY HEALTH CARE CORP.
Dated as of September 1, 1996
NOTE: THIS FINANCING AGREEMENT AND A PROMISSORY NOTE IN THE FORM AS
DESCRIBED HEREIN HAVE BEEN ASSIGNED TO, AND ARE SUBJECT TO A
SECURITY INTEREST IN FAVOR OF ONE VALLEY BANK, NATIONAL
ASSOCIATION, AS TRUSTEE UNDER AN INDENTURE OF TRUST DATED AS
OF SEPTEMBER 1, 1996, WITH THE COMMON COUNCIL OF THE CITY OF
BECKLEY BY AND ON BEHALF OF CITY OF BECKLEY, WEST VIRGINIA, AS
AMENDED OR SUPPLEMENTED FROM TIME TO TIME. INFORMATION
CONCERNING SUCH SECURITY INTEREST MAY BE OBTAINED FROM THE
TRUSTEE AT ITS PRINCIPAL TRUST OFFICE IN CHARLESTON, WEST
VIRGINIA.
This FINANCING AGREEMENT, made as of the first day of October, 1996,
between THE COMMON COUNCIL OF THE CITY OF BECKLEY BY AND ON BEHALF OF CITY OF
BECKLEY, WEST VIRGINIA, a political subdivision of the State of West Virginia,
(the "Issuer"), and BECKLEY HEALTH CARE CORP., a corporation duly organized
under and validly existing by virtue of the laws of the State of West Virginia
(the "Company");
W I T N E S S E T H :
WHEREAS, the Issuer in a duly organized political subdivision of the
State of West Virginia and is authorized by Chapter 13, Article 2C, Code of West
Virginia of 1931, as amended (the "Act"), (a) to issue its revenue bonds for the
purpose of providing funds (i) to pay the cost of acquiring, constructing,
furnishing and equipping a commercial facility comprising a health care facility
and (ii) to refund one or more series of revenue bonds previously issued
pursuant to the Act to finance any such facility, in either case by lending the
proceeds of such revenue bonds or otherwise making such proceeds available for
such purposes to any person, firm or private corporation which will operate and
maintain such facility in such a manner as shall effectuate the purposes of the
Act and (b) to secure its revenue bonds by a trust agreement between the issuer
and a corporate trustee including therein the pledge and assignment of revenues
from any such loan to the payment of such revenue bonds; and
WHEREAS, pursuant to such authorization and in order to further the
purposes of the Act, the Issuer intends to issue and sell its Nursing Facility
Refunding Revenue Bonds (Beckley Health Care Corp. Project), Series 1996 in the
original principal amount of $2,830,000 (the "Bonds") and refund in full the
outstanding principal amount of its $2,830,000 First Mortgage Refunding Revenue
Bonds (Beckley Health Care Corp. Project) Series 1986 (the "Prior Bonds"), the
proceeds of which were used to refund those certain City of Beckley First
Mortgage Medical Facilities Revenue Bonds (Beckley Health Care Corp.), Series
1982, the proceeds of which were used to pay the cost of the acquisition,
construction and equipping of a 120-bed skilled and intermediate care nursing
home facility operated by the Company and situate within the City of Beckley,
West Virginia (the "Facility"); and
WHEREAS, by issuing the Bonds to refund the Prior Bonds, the Issuer and
the Company expect to finance the Facility more economically and thereby to
achieve interest cost savings; and
WHEREAS, in return for the use of the proceeds of the sale of the Bonds
by the Issuer to refund the Prior Bonds, the Company has agreed to repay the
amounts so used on the terms and conditions hereinafter set forth; and
WHEREAS, the Company has determined to issue its promissory note to the
Issuer in the principal amount of the Bonds (the "Note") to evidence the
Company's obligation to repay such amounts under the terms and conditions set
forth herein; and
WHEREAS, all things necessary to constitute the Note a valid and
binding obligation and to constitute this Financing Agreement a valid and
binding agreement securing the payments under the Note have been done and
performed and the execution and delivery of the Note and this Financing
Agreement, subject to the terms hereof, have in all respects been duly
authorized;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto covenant and agree as
follows:
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.1. Definitions. The following terms shall have the meaning
set forth hereinafter. All other defined terms used but not defined herein shall
have the same meaning as set forth elsewhere herein or in Article I of the
Indenture unless the context clearly indicates to the contrary.
"Agreement" or "Financing Agreement" shall mean this Financing
Agreement, including any amendments hereto.
"Financing Instruments" shall mean this Financing Agreement, the
Indenture, the Note, the Escrow Agreement, the Reimbursement Agreement and the
Bond Purchase Agreement.
"Indenture" shall mean the Indenture of Trust dated as of the date
hereof between the Issuer and the Trustee, as amended from time to time.
"1954 Code" shall mean the Internal Revenue Code of 1954, as amended.
"1982 Bonds" shall mean the revenue bonds issued by the Issuer under
the Act in 1982 in order to pay the cost of the acquisition, construction and
equipping of the Facility and refunded in full with the proceeds of the Prior
Bonds.
"Prime Rate" shall mean the rate per year announced from time to time
by the Trustee, as its prime rate, with any change in the Prime Rate being
effective as of the date such announced prime rate is changed.
"Prior Bonds Trustee" shall mean One Valley Bank, National Association
(formerly, Kanawha Valley Bank, N.A.), Charleston, West Virginia, as indenture
trustee for the Prior Bonds.
"Prior Indenture" shall mean the Trust Indenture dated as of July 1,
1986 between the Issuer and the Prior Bonds Trustee pursuant to which the
Prior Bonds were issued and secured.
"Regulations" shall mean the income tax regulations promulgated
pursuant to the 1954 Code, as such applicable proposed, temporary or final
regulations may be amended or supplemented from time to time.
Section 1.2. Rules of Construction. Unless the context clearly
indicates to the contrary, the following rules shall apply to the construction
of this Financing Agreement:
(a) Words importing the singular number shall include the plural
number and vice versa.
(b) Words importing the redemption or calling for redemption of Bonds
shall not be deemed to refer to or connote the payment of Bonds at their stated
maturity.
(c) All references herein to particular articles or sections are
references to articles or sections of this Financing Agreement unless otherwise
indicated.
(d) The headings and Table of Contents herein are solely for
convenience of reference and shall not constitute a part of this Financing
Agreement nor shall they affect its meaning, construction or effect.
(e) Accounting terms not otherwise defined have the meaning assigned to
them in accordance with generally accepted accounting principles.
ARTICLE II
REPRESENTATIONS
Section 2.1. Representations by Issuer. The Issuer makes the following
representations:
(a) The Issuer is a political subdivision of the State of West Virginia
and has the power to enter into the Financing Instruments to which it is a party
and the transactions contemplated thereby and to perform its obligations
thereunder, to issue the Bonds to refund the Prior Bonds, and to assign the Note
to the Trustee.
(b) By proper action in the form of resolutions adopted by The Common
Council of the City of Beckley, West Virginia, the Issuer has duly authorized
the execution and delivery of the Financing Instruments to which it is a party,
and the Bonds, the performance of its obligations thereunder and the issuance of
the Bonds and, simultaneously with the execution and delivery of this Financing
Agreement, the Issuer has duly executed and delivered the Financing Instruments
to which it is a party and issued and sold the Bonds.
(c) To the best of its knowledge, the Issuer is not in default in the
payment of the principal of or interest on any of its indebtedness for borrowed
money and is not in default under any instrument under or subject to which any
indebtedness for borrowed money has been incurred, and no event has occurred and
is continuing under the provisions of any such instrument that with the lapse of
time or the giving of notice, or both, would constitute an event of default
thereunder; provided, however, that no representation is expressed concerning
previously issued revenue bonds for private parties under the Act, the status of
which have no adverse effect on the Issuer's power or authority to carry out the
transactions contemplated by this Financing Agreement.
(d) The Issuer is not (1) in violation of the Act or any existing law,
rule or regulation applicable to it or (2) in default under any indenture,
mortgage, deed of trust, lien, lease, contract, note, order, judgment, decree or
other agreement, instrument or restriction of any kind to which any of its
assets are subject; provided, however, that no representation is expressed
concerning previously issued revenue bonds for private parties under the Act,
the status of which have no adverse effect on the Issuer's power or authority to
carry out the transactions contemplated by this Financing Agreement. The
execution and delivery by the Issuer of the Financing Instruments to which it is
a party and the Bonds and the compliance with the terms and conditions thereof
will not conflict with or result in the breach of or constitute a default under
any of the above described documents or other restrictions.
(e) No further approval, consent or withholding of objection on the
part of any regulatory body, federal, state or local, is required in connection
with (1) the issuance and delivery of the Bonds by the Issuer, (2) the execution
or delivery of or compliance by the Issuer with the terms and conditions of the
Financing Instruments to which it is a party, or (3) the assignment and pledge
by the Issuer pursuant to the Indenture of its rights under this Financing
Agreement including the Note and the payments thereon by the Company, as
security for payment of the principal of and interest on the Bonds. The
consummation by the Issuer of the transactions set forth in the manner and under
the terms and conditions as provided herein will comply with all applicable
state, local or federal laws and any rules and regulations promulgated
thereunder by any regulatory authority or agency.
(f) No litigation, inquiry or investigation of any kind in or by any
judicial or administrative court or agency is pending or, to its knowledge,
threatened against the Issuer with respect to (1) the organization and existence
of the Issuer, (2) its authority to execute or deliver the Financing Instruments
to which it is a party, the Indenture or the Bonds or the assignment of the
Note, (3) the validity or enforceability of any of such instruments or the
transactions contemplated hereby or thereby, (4) the title of any officer of the
Issuer who executed such instruments, or (5) any authority or proceedings
related to the execution and delivery of such instruments on behalf of the
Issuer. No such authority or proceedings have been repealed, revoked, rescinded
or amended, and all are in full force and effect.
(g) The Issuer hereby finds that the refunding of the Prior Bonds is
advisable and will serve the purposes of the Act.
(h) The issuance of the Prior Bonds was approved by the Issuer at a
meeting duly called and held on July 22, 1986, notice of which meeting was
published in a newspaper having general circulation in City of Beckley, West
Virginia on July 8, 1986.
Section 2.2. Representations by Company. The Company makes the
following representations:
(a) The Company is a corporation duly organized and validly existing
under the laws of the State of West Virginia; has the power to enter into the
Financing Instruments to which it is a party and the transactions contemplated
thereunder; and by proper action has duly authorized the execution and delivery
of such Financing Instruments and the Note and the performance of its
obligations thereunder.
(b) The Company is licensed by the appropriate West Virginia state and
local authorities and is authorized to operate the Facility in the manner in
which it is currently operated.
(c) The Company is not in default in the payment of the principal of or
interest on any of its indebtedness for borrowed money and is not in default
under any instrument under and subject to which any indebtedness has been
incurred, and no event has occurred and is continuing under the provisions of
any such agreement that with the lapse of time or the giving of notice, or both,
would constitute an event of default thereunder.
(d) There is no litigation at law or in equity or any proceeding before
any governmental agency involving the Company pending or, to the knowledge of
the Company, threatened against the Company in which any liability of the
Company is not adequately covered by insurance or for which adequate reserves
are not provided or for which any judgment or order would have a material
adverse effect upon the business or assets of the Company or affect its
existence or authority to do business, the operation of the Facility, the
validity of the Financing Instruments to which it is a party or the performance
of its obligations thereunder.
(e) The execution and delivery of the Financing Instruments to which it
is a party, the performance by the Company of its obligations thereunder and the
consummation of the transactions contemplated therein do not and will not
conflict with, or constitute a breach or result in a violation of, the Company's
articles of incorporation or bylaws, any agreement or other instrument to which
the Company is a party or by which it is bound or any constitutional or
statutory provision or order, rule, regulation, decree or ordinance of any
court, government or governmental authority having jurisdiction over the Company
or its property.
(f) The Company has obtained all consents, approvals, authorizations
and orders of any governmental or regulatory authority that are required to be
obtained by the Company as a condition precedent to the issuance of the Bonds,
the execution and delivery of the Financing Instruments to which it is a party
and the performance by the Company of its obligations thereunder, or that are
required for the operation of the Facility.
(g) The Facility complies with all presently applicable ordinances and
licensure and environmental protection laws, the noncompliance with which would
have a material adverse effect on the business or operations of the Company
conducted at the Facility.
(h) To the best of its knowledge, interest paid or accrued on the 1982
Bonds was at all times exempt from federal income taxation under Section 103 of
the 1954 Code. To the best of its knowledge, interest paid or accrued on the
Prior Bonds was at all times excluded from the gross income of the owners
thereof for purposes of federal income taxation.
(i) The Company intends to continue to cause the Facility to be
operated as a nursing home facility meeting all of the requirements of the Act
for so long as the Bonds are outstanding.
(j) To the best of its knowledge, at least 98% of the proceeds of the
Prior Bonds, together with other available moneys, were applied to redeem the
1982 Bonds in full within 90 days of the date the Prior Bonds were issued. To
the best of its knowledge, no more than 2% of the proceeds of the Prior Bonds
were applied to pay their costs of issuance.
ARTICLE III
ISSUANCE OF THE BONDS AND USE OF PROCEEDS;
EXECUTION AND DELIVERY OF THE NOTE
Section 3.1. Agreement to Issue Bonds; Application of Bond Proceeds.
The Issuer, concurrently with the execution and delivery of this Financing
Agreement, will issue, sell and deliver the Bonds and will deposit the proceeds
thereof with the Trustee. In accordance with the Indenture, the Trustee will
deliver or will cause the Underwriter to deliver all of such proceeds to the
Prior Bonds Trustee to be applied, together with other moneys provided by the
Company, to defease and redeem the Prior Bonds in full and discharge the Prior
Indenture.
Section 3.2. Refunding by the Issuer. Upon the terms and conditions of
this Financing Agreement and the Indenture, the Issuer agrees to use the
proceeds of the sale of the Bonds to refund the Prior Bonds.
Section 3.3. Execution and Delivery of the Note prior to or
simultaneously with the issuance of the Bonds, to evidence its repayment
obligations hereunder, the Company shall execute and deliver the Note in
substantially the form of Exhibit A to the Issuer for assignment to the Trustee
as security for the payment of the Bonds.
Section 3.4. No Lien on or Security Interest in Facility. This
Financing Agreement is not intended to create and does not create a lien on or
security interest in any part of the Facility as security for the payment of
amounts payable hereunder or under the Note.
ARTICLE IV
PAYMENTS ON THE NOTE
Section 4.1. Amounts Payable. (a) The Company shall make all
payments required by the Note as and when they become due and shall promptly
pay all other amounts necessary to enable the Trustee to make the transfers
required by Article IV of the Indenture.
(b) The Company shall also pay, as and when the same become due:
(1) To the Trustee, its reasonable fees for services rendered and for
expenses reasonably incurred by it as Trustee under the Indenture, including the
reasonable fees and disbursements of its counsel, the reasonable fees and
expenses of other paying agents and all other amounts that the Company herein
assumes or agrees to pay, including any cost or expense necessary to cancel and
discharge the Indenture upon payment of the Bonds.
(2) To the Issuer and its reasonable costs and expenses directly
related to the Bonds and the Facility, including the reasonable fees and
expenses of Bond Counsel and the Issuer's counsel (provided, however, that such
amounts so paid to the Issuer shall not equal or exceed an amount which would
cause the "yield" on the Note, this Financing Agreement or any other "acquired
purpose obligation" to be "materially higher" than the "yield" on the Bonds, as
such terms are defined in the Code).
(3) Amounts described in Section 4.6.
(4) All other amounts that the Company agrees to pay under the
terms of this Financing Agreement and the Indenture.
Section 4.2. Payments Assigned. The Company consents to the assignment
made by the Indenture of the Note and of the rights of the Issuer under this
Financing Agreement to the Trustee and agrees to pay to the Trustee all amounts
payable by the Company pursuant to the Note and this Financing Agreement, except
for payments made to the Issuer pursuant to Sections 4.1(b)(2) and 5.6.
Section 4.3. Default in Payments. If the Company fails to make any
payments required by the Note or this Financing Agreement when due, the Company
shall pay to the Trustee interest thereon until paid at a rate equal to the
highest rate on any Bonds then outstanding or, in case of the payment of any
amounts not to be used to pay principal of or interest on Bonds, at a rate equal
to the Prime Rate plus one percent per year.
Section 4.4. Obligations of Company Unconditional. The obligation of
the Company to make the payments on the Note and to observe and perform all
other covenants, conditions and agreements hereunder shall be absolute and
unconditional, irrespective of any rights of setoff, recoupment or counterclaim
it might otherwise have against the Issuer, the Bank or the Trustee. Subject to
the prepayment of the Note as provided therein, the Company shall not suspend or
discontinue any payment on the Note or hereunder or fail to observe and perform
any of its other covenants, conditions or agreements hereunder for any cause,
including without limitation, any acts or circumstances that may constitute an
eviction or constructive eviction, failure of consideration, failure of title to
any part or all of the Facility or commercial frustration of purpose, or any
damage to or destruction or condemnation of all or any part of the Facility, or
any change in the tax or other laws of the United States of America, the State
of West Virginia or any political subdivision of either, or any failure of the
Issuer, the Bank or the Trustee to observe and perform any covenant, condition
or agreement, whether express or implied, or any duty, liability or obligation
arising out of or in connection with any Financing Instrument. The Company may,
after giving to the Issuer and the Trustee 10 days' notice of its intention to
do so, at its own expense and in its own name, or in the name of the Issuer if
procedurally required, prosecute or defend any action or proceeding or take any
other action involving third persons that the Company reasonably deems necessary
to secure or protect any of its rights hereunder. In the event the Company takes
any such action, the Issuer shall cooperate fully with the Company and shall
take all necessary action to substitute the Company for the Issuer in such
action or proceeding if the Company shall so request.
Section 4.5. Advances by Issuer or Trustee. If the Company fails to
make any payment or perform any act required of it hereunder, the Issuer or the
Trustee, without prior notice or demand on the Company and without waiving or
releasing any obligation or default, may (but shall be under no obligation to)
make such payment or perform such act. All amounts so paid by the Issuer or the
Trustee and all costs, fees and expenses so incurred shall be payable by the
Company on demand as an additional obligation under the Note, together with
interest thereon at the Prime Rate plus one percent per year until paid.
Section 4.6. Rebate Requirement. (a) At its sole expense on behalf of
the Issuer, the Company shall determine and pay to the United States the Rebate
Amount, hereinafter defined, as and when due in accordance with the "rebate
requirement" described in Section 148(f) of the Code and Regulations thereunder,
including without limitation, Regulations Section 1.148-3. The Company shall
retain records of all such determinations until six years after Payment of the
Bonds.
(b) Reference is made to Exhibit B hereto for additional details of the
rebate requirement. Exhibit B may be amended or substituted without compliance
with Article XI of the Indenture or Section 8.3 hereof and without any action of
the Issuer upon the Company's delivery to the Trustee of the proposed amendment
or substitution together with an opinion of Bond Counsel that compliance with
this section and Exhibit B, as amended, will not adversely affect the exclusion
of interest on the Bonds from gross income for federal income tax purposes.
(c) Notwithstanding anything contained herein to the contrary, no such
payment will be required if the Company receives and delivers to the Issuer and
the Trustee an opinion of Bond Counsel that such payment is not required under
the Code to prevent any Bonds from becoming "arbitrage bonds" within the meaning
of Section 148 of the Code.
(d) The Issuer shall not be liable to the Company by way of
contribution, indemnification, counterclaim, set-off or otherwise for any
payment made or expense incurred by the Company pursuant to this section or the
Indenture.
Section 4.7. Letter of Credit. The Company shall provide for the
payment of amounts due under Section 4.1 (a) from Available Moneys, including,
delivery to the Trustee on the date of initial authentication and delivery of
the Bonds of a Letter of Credit in favor of the Trustee and for the benefit of
the holders of the Bonds. The Company shall be entitled to provide a Substitute
Letter of Credit under certain circumstances as provided in the Indenture. Any
extension of the Letter of Credit shall be for a period of at least one year or,
if less, the fifteenth day after the maturity date of the Bonds.
<PAGE>
ARTICLE V
SPECIAL COVENANTS
Section 5.1. Operation of Facility by the Company; No Warranty of
Condition or Suitability by the Issuer. (a) The Company shall operate the
Facility, or cause it to be operated, as a nursing home facility or other
purposes contemplated by the Act.
(b) The Issuer makes no warranty, either express or implied, as to the
Facility or the condition thereof, or that the Facility has been or will be
suitable for the purposes or needs of the Company.
Section 5.2. Reference to Bonds Ineffective after Bonds Paid and Other
Obligations Satisfied. Upon payment of the Bonds and upon payment of all
obligations under this Financing Agreement and the Note, subject to Section 8.1,
all references in this Financing Agreement to the Bonds, the Trustee and the
Issuer shall be ineffective, and neither the Trustee, the holder of the Note,
the Issuer nor the holders of any of the Bonds shall thereafter have any rights
hereunder except as provided in Sections 4.1(b), 4.6 and 5.6.
Section 5.3. Certificate as to No Default. The Company shall deliver to
the Issuer and the Trustee within 120 days after the close of each of its Fiscal
Years a certificate signed by the chief executive officer, the chief
administrative officer or the chief financial officer of its corporate general
partner stating that (a) (1) the Company is not in default under the Note or
this Financing Agreement, and (2) the Company has no knowledge of any violation
of any of the terms or provisions of the Note or this Financing Agreement or of
the occurrence of any condition, event or act that, with or without notice or
lapse of time or both, would constitute an event of default hereunder or
thereunder, or (b) if it is in default, specifying the nature and period of
default and what action the Company is taking or proposes to take with respect
thereto.
Section 5.4. [Reserved)
Section 5.5. Tax Exemption. (a) Unless the Company shall deliver to the
Trustee an opinion of Bond Counsel to the effect that such use, occupation or
ownership will not adversely affect the exclusion of interest on the Bonds from
gross income for federal income tax purposes, the Company shall not:
(1) take any action or approve the Trustees taking any action or making
any investment or use of the proceeds of the Bonds that would cause the Bonds to
be "arbitrage bonds" within the meaning of Section 148 of the Code.
(2) barring unforeseen circumstances, approve the use of the proceeds
of any Bonds or any other funds other than in accordance with its
"non-arbitrage" certificate with respect to such use given immediately prior to
the delivery of the Bonds;
(3) take or permit any action that would result in more than 5% of the
proceeds of the 1982 Bonds, the Prior Bonds or the Bonds being used directly or
indirectly to make or finance loans to any person who is not an "exempt person"
within the meaning of Section 103(b)(3) of the 1954 Code or a "governmental
unit" within the meaning of Section 141(c) of the Code or otherwise cause the
1982 Bonds, the Prior Bonds or the Bonds to be or become "consumer loan bonds"
within the meaning of Section 103(o) of the 1954 Code.
(4) permit any component of the Facility to be used or occupied by the
United States of America or an agency or instrumentality thereof in any manner
for compensation, including any entity with statutory authority to borrow from
the United States of America in any case within the meaning of Section 149(b) of
the Code, or in any way cause the Bonds to be "federally guaranteed" within the
meaning of Section 103(h) of the 1954 Code or Section 149(b) of the Code.
(5) permit the addition of any "principal user" of the Facility
within the meaning of Section 103(b)(6) of the 1954 Code or Section 144(a) of
the Code; or
(6) take any other action that would adversely affect the
exclusion of interest on the Bonds from gross income.
(b) The Company shall not take or omit to take any action the taking or
omission of which would result in any of the proceeds of the Bonds, within the
meaning of Section 147(g) of the Code, being used to finance the costs of
issuance of the Bonds.
(c) The Company represents and warrants that (i) the original principal
amount of the Prior Bonds, plus any amounts held as a sinking fund for payment
of the principal of the 1982 Bonds, did not exceed the aggregate outstanding
principal amount of the 1982 Bonds as determined on the date of issuance of the
Prior Bonds, and (ii) the principal amount of the Bonds, plus any amounts held
by the Prior Bonds Trustee as a sinking fund for payment of the principal of the
Prior Bonds, do not exceed the outstanding principal amount of the Prior Bonds
as determined on the date of issuance of the Bonds.
(d) The Company represents and warrants that, within the meaning of
Section 147(b) of the Code and comparable provisions of the 1954 Code, the
"average maturity" of the Bonds does not exceed 120% of the remaining "average
reasonably expected economic life" of the Facility, such "average maturity" and
remaining "average reasonably expected economic life" being computed in the
manner contemplated by Section 147(b) of the Code and comparable provisions of
the 1954 Code. The Company further represents and warrants that the "average
maturity" of the Bonds is less than the remaining "average maturity" of the
Prior Bonds.
(e) The Company represents, covenants and agrees that not more than 25%
of the proceeds of the 1982 Bonds, the Prior Bonds or the Bonds have been or
will be used to provide a facility the primary purpose of which is one of the
following: retail food and beverage services, automobile sales or service, or
the provision of recreation or entertainment. The Company further covenants and
agrees that no part of the proceeds of the 1982 Bonds, the Prior Bonds or the
Bonds have been or will be used to provide any of the following and that no part
of the Facility will be used for any of the following purposes or activities:
any airplane, skybox or other private luxury box, health club facility, facility
used primarily for gambling, store the principal business of which is the sale
of alcoholic beverages for consumption off premises, private or commercial golf
course, country club, massage parlor, tennis club, skating facility (including
roller skating, skateboard and/or ice skating), racquet sports facility
(including any handball or racquetball court), hot tub facility, suntan
facility, racetrack or residential real property for family units.
(f) The Company represents, covenants and agrees that (i) substantially
all (90% or more) of the proceeds of the 1982 Bonds (exclusive of such proceeds
applied to redeem other 1982 Bonds) were used for the acquisition, construction,
reconstruction or improvement of land or property of a character subject to the
allowance for depreciation within the meaning of Section 103(b)(6) of the 1954
Code, (ii) less than 25% of the proceeds of the 1982 Bonds, the Prior Bonds or
the Bonds have been or will be used directly or indirectly for the acquisition
of land or an interest in land, including mineral reserves, and (iii) none of
such proceeds were or will be used for the acquisition of land or an interest in
land to be used for farming purposes.
(g) The Company represents and warrants that except for the Prior Bonds
and the Bonds, no bonds, notes or other obligations of any state, territorial
possession or any political subdivision of the United States of America or any
political subdivision of any of the foregoing or of the District of Columbia
have been issued since April 30, 1968, and are now outstanding, the proceeds of
which have been or are to be used primarily with respect to projects (i) the
"principal user" of which is or will be the Company or any "related persons," as
defined in Section 103(b)(6) of the 1954 Code or Section 144(a) of the Code and
(ii) that are located within City of Beckley, West Virginia or are integrated
facilities located outside of City of Beckley within one-half mile of the
Facility. The Company further represents and warrants that (i) obligations have
not been assumed, expenditures have not been made and outstanding obligations do
not exist, including, without limitation, the leasing of equipment (pursuant to
leases which do not qualify as "true" leases within the meaning of the Code),
which would cause the "aggregate face amount" of the Bonds as computed under the
provisions of Section 103(b)(6) of the 1954 Code or 144(a)(4) of the Code and
the Regulations to exceed $10,000,000 and (ii) that, within three years after
the date any of the 1982 Bonds or the Prior Bonds were issued, the Company did
not make nor permit any user of the Facility to make any expenditure, assume any
obligations or take or permit any other action to be taken which caused the
"aggregate face amount" of any of the 1982 Bonds or the Prior Bonds as computed
under the provisions of Section 103(b)(6) of the 1954 Code to exceed
$10,000,000.
(h) The Company represents and warrants that the Facility is located
only at the place or places specified in the notice of public hearing published
with respect to the Prior Bonds pursuant to Section 103(k)(2) of the 1954 Code
and Section 147(f) of the Code.
(i) The Company represents and warrants that neither the Company
(including any "related person," within the meaning of Section 144(a)(3) of the
Code) nor any other "principal user" of the Facility (including any related
person), within the meaning of Section 144(a)(2) of the Code, is a principal
user of any facility other than the Facility that is financed with (i) an
"industrial development bond," within the meaning of Section 103(b) of the 1954
Code, (ii) a "qualified small issue bond," within the meaning of Section 144(a)
of the Code, or (iii) any other "outstanding tax-exempt facility-related bonds,"
within the meaning of Section 144(a)(10) of the Code. The Company covenants and
agrees that the aggregate authorized face amount of the bonds described in the
preceding sentence (including the Bonds) which can be allocated to any "test
period beneficiary" as such term is defined either in Section 103(b)(15)(D) of
the 1954 Code or in Section 144(a)(10)(D) of the Code (including, but not
limited to the Company) will not exceed $40,000,000. The Company further
covenants and agrees that it will not permit the use of the Facility by any
person (other than the Company or a "related person" within the meaning of
Section 103(b)(6) of the 1954 Code or Section 144 of the Code) to whom any part
of the 1982 Bonds, the Prior Bonds or the Bonds would be allocated pursuant to
Section 103(b)(15) of the 1954 Code or Section 144(a)(10) of the Code, if the
amount allocated, when increased as provided in Section 103(b)(15)(A) of the
1954 Code or Section 144(a)(10)(A) of the Code, would exceed $40,000,000.
(j) The Company represents and warrants that none of the proceeds of
the 1982 Bonds issued subsequent to 1983 were used to acquire any property or an
interest therein (other than land or an interest in land) unless:
(i) the first use of such property was pursuant to such
acquisition; or
(ii) "rehabilitation expenditures," within the meaning of Section
103(b)(17)(c) of the 1954 Code with respect to that part of such property
constituting:
(A) a building (and the equipment therefor), equalled or exceeded
fifteen percent (15%) of that portion of the cost of acquiring such building
(and the equipment therefor) that was financed with the proceeds of such 1982
Bonds; and
(B) a facility other than a building, equalled or exceeded one hundred
percent (100%) of that portion of the cost of acquiring such facility that was
financed with the proceeds of such 1982 Bonds.
(1) The Issuer covenants and agrees that, prior to the issuance of the
Bonds, it shall duly elect to have the provisions of Section 103(b)(6)(D) of the
1954 Code and Section 144(a)(4) of the Code apply to such issue and such
election shall be made in accordance with the applicable Regulations or
procedures of the Internal Revenue Service. The Company covenants and agrees
that it shall furnish to the Issuer whatever information is necessary for the
Issuer to make such election and shall compile such supplemental statements and
other information as required by the applicable Regulations and procedures of
the Internal Revenue Service.
(l) The Company will comply with, and make all filings required by, all
effective rules, rulings or Regulations promulgated by the Department of the
Treasury or the Internal Revenue Service, with respect to obligations issued
under Section 103(b)(6) of the 1954 Code as a "small issue industrial
development bond" the interest on which is exempt from federal income taxation
or issued under Section 144(a) of the Code as a "qualified small issue bond" the
interest on which is excludable from gross income for federal income tax
purposes.
(m) The Company represents and warrants that the Facility does not
share common facilities (such as an enclosed mall, heating and cooling
facilities or parking facilities) with any other part of the same building,
other portions of an enclosed shopping mall or a strip of offices, stores or
warehouses that were financed with tax-exempt small issue industrial development
bonds under Section 103(b)(6) of the 1954 Code or qualified small issue bonds
under Section 144(a) of the Code.
(n) The Company represents and warrants that no rebate with respect to
the Prior Bonds is payable to the United States pursuant to the provisions of
Section 148 of the Code.
(o) The Issuer will comply with the information reporting
requirements of Section 149(e) of the Code with respect to the Bonds.
(p) The Company represents and warrants that the information contained
in the certificates or representations for the Company with respect to
compliance with the requirements of Section 149(e) of the Code, including the
information in Form 8038, is true and correct in all material respects.
(q) The Company shall take all action necessary to ensure that interest
on the Bonds, for federal income tax purposes, is not included in gross income
of the owners thereof.
Section 5.6. Indemnification. (a) The Company shall at all times
protect, indemnify and save harmless the Issuer and the Trustee (collectively,
the "Indemnitees") from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (hereinafter referred
to as "Damages"), including without limitation (1) all amounts paid in
settlement of any litigation commenced or threatened against the Indemnitees, if
such settlement is effected with the written consent of the Company, (2) all
expenses reasonably incurred in the investigation of, preparation for or defense
of any litigation, proceeding or investigation of any nature whatsoever,
commenced or threatened against the Company, the Facility or the Indemnitees,
(3) any judgments, penalties, fines, damages, assessments, indemnities or
contributions, and (4) the reasonable fees of attorneys, auditors, and
consultants, provided that the Damages arise out of:
(A) failure by the Company or its partners, employees or agents, to
comply with the terms of this Financing Agreement or the Note, and any
agreements, covenants, obligations, or prohibitions set forth therein;
(B) any action, suit, claim or demand contesting or affecting the
title of the Facility;
(C) any breach by the Company of any representation or warranty set
forth in this Financing Agreement or the Note, or any certificate delivered by
the Company pursuant thereto, and any claim that any representation or warranty
of the Company contains or contained any untrue or misleading statement of fact
or omits or omitted to state any material facts necessary to make the statements
made therein not misleading in light of the circumstances under which they were
made;
(D) any action, suit, claim, proceeding or investigation of a judicial,
legislative, administrative or regulatory nature arising from or in connection
with the ownership, operation, occupation or use of the Facility; or
(E) any suit, action, administrative proceeding, enforcement action, or
governmental or private action of any kind whatsoever commenced against the
Company, the Facility or the Indemnitees that might adversely affect the
validity, enforceability or tax-exempt status of the Bonds, this Financing
Agreement or the Note, or the performance by the Company or any Indemnitee of
any of their respective obligations thereunder;
provided that such indemnity shall be effective only to the extent of any loss
that may be sustained by the Indemnitees in excess of the proceeds net of any
expenses of collection, received by them or from any insurance carried with
respect to such loss and provided further that the benefits of this section
shall not inure to any person other than the Indemnitees.
(b) If any action, suit or proceeding is brought against the
Indemnitees for any loss or damage for which the Company is required to provide
indemnification under this section, the Company, upon request, shall at its
expense resist and defend such action, suit or proceeding, or cause the same to
be resisted and defended by counsel designated by the Company and approved by
the Indemnitees, which approval shall not be unreasonably withheld, provided
that such approval shall not be required in the case of defense by counsel
designated by any insurance company undertaking such defense pursuant to any
applicable policy of insurance. If an Indemnitee shall have reasonably concluded
that there may be defenses available to it that are in conflict with those
available to the Company or to other Indemnitees (in which case the Company
shall not have the right to direct the defense of such action on behalf of such
Indemnitee), such Indemnitee may engage separate counsel and the reasonable
legal and other expenses incurred by such Indemnitee shall be borne by the
Company. The obligations of the Company under this section shall survive any
termination of this Agreement, including prepayment of the Note.
(c) Nothing contained herein shall require the Company to indemnify the
Issuer for any claim or liability resulting from its willful, wrongful acts or
the Trustee for any claim or liability resulting from its negligence (under the
standard of care set forth in Article IX of the Indenture) or its willful,
wrongful acts.
(d) All references in this section to the Issuer and the Trustee,
including references to Indemnitees, shall include their members, commissioners,
directors, officers, employees, representatives and agents.
Section 5.7. Maintenance and Insurance of Facility. (a) The Company
shall, at its own expense, keep the Facility in as reasonably safe condition as
its operations shall permit and shall keep the Facility in good repair and
operating condition, ordinary wear and tear excepted, making from time to time
all necessary repairs, renewals and replacements. The Company shall comply, in
all material respects, with all laws applicable to the Facility.
(b) The Company shall, at its own expense, continuously maintain
insurance in connection with the Facility and the Company's operations against
such risks as are customarily insured against by organizations of the same
general type, including without limitation insurance for property damage,
liability for bodily injury, liability for property damage and workers'
compensation.
Section 5.8. Corporate Existence. The Company shall maintain its
existence as a West Virginia corporation and shall not, without the prior
consent of the Trustee, dissolve or otherwise dispose of all or substantially
all of its assets, consolidate with or merge into another domestic partnership
or corporation (i.e. a partnership or corporation created under the laws of the
United States of America, one of the states thereof or the District of Columbia)
or permit one or more other domestic partnerships or corporations to consolidate
with or merge into it; provided, however, that with the prior written consent of
the Bank, the Company may consolidate with or merge into another domestic
partnership or corporation, or permit one or more domestic partnerships or
corporations to consolidate with or merge into it, or sell or otherwise transfer
to another domestic partnership or corporation all or substantially all of its
assets and thereafter dissolve, or sell or assign all or substantially all of
its assets to a governmental unit, if after giving effect to such consolidation,
merger, transfer, sale or assignment the surviving, resulting or transferee
partnership, corporation or governmental unit:
(1) will not be in default under any covenant under this Financing
Agreement;
(2) if it is not the Company, has the power to assume and
assumes in writing all of the obligations of the Company herein and in the
Note; and
(3) if it is not a West Virginia partnership or corporation or a
political subdivision of the State of West Virginia, either qualifies to do
business in West Virginia or files with the Trustee a consent to service of
process reasonably acceptable to the Trustee.
Section 5.9. Obligations Under the Indenture. The Company shall
undertake all actions and carry out all responsibilities prescribed for it
under the Indenture.
<PAGE>
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
Section 6.1. Event of Default Defined. Each of the following events
shall be an Event of Default:
(a) Failure of the Company to make any payment on the Note when
due and payable;
(b) Failure of the Company to observe and perform any of its other
covenants, conditions or agreements hereunder for a period of 30 days after
notice specifying such failure and requesting that it be remedied, given by the
Issuer or the Trustee to the Company;
(c) (1) Failure of the Company to pay generally its debts as they
become due, (2) commencement by the Company of a voluntary case under the
federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or similar law, (3) consent
by the Company to the appointment of a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official for the Company or any
substantial part of its property, or to the taking possession by any such
official of any substantial part of the property of the Company, (4) making by
the Company of any assignment for the benefit of creditors generally, or (5)
taking of corporate action by the Company in furtherance of any of the
foregoing;
(d) The (1) entry of any decree or order for relief by a court having
jurisdiction over the Company or its property in an involuntary case under the
federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or similar law, (2)
appointment of a receiver, liquidator, assignee, trustee, custodian,
sequestrator or similar official for the Company or any substantial part of its
property, or (3) entry of any order for the termination or liquidation of the
Company or its affairs;
(e) Failure of the Company within 60 days after the commencement of any
proceedings against it under the federal bankruptcy laws or other applicable
federal or state bankruptcy, insolvency or similar law, to have such proceedings
dismissed or stayed;
(f) Abandonment of the Facility by the Company for a period in
excess of thirty (30) days; or
(g) An Event of Default under the Indenture.
The foregoing provisions of subsection (b) are subject to the
limitation that if by reason of force majeure the Company is unable in whole or
in part to observe and perform any of its covenants, conditions or agreements
hereunder, other than its obligations contained in Sections 4.1, 4.6, 4.7, 5.1,
5.5, 5.6 and 5.8, the Company shall not be deemed in default during the
continuance of such inability. The term "force majeure" as used herein shall
include without limitation acts of God; strikes, lockouts or other disturbances;
acts of public enemies; orders of any kind of the government of the United
States of America or the State of West Virginia or any political subdivision
thereof or any of their departments, agencies or officials, or any civil or
military authority; insurrections; riots; epidemics; landslides; lightning;
earthquakes; fires; hurricanes; tornadoes; storms; floods; washouts; droughts;
arrests; restraint of government and people; civil disturbances; explosions;
breakage or accident to machinery, transmission pipes or canals; partial or
entire failure of utilities; or any other cause or event not reasonably within
the control of the Company. The Company shall remedy with all reasonable
dispatch the cause or causes preventing the Company from carrying out its
covenants, conditions and agreements, provided that the settlement of strikes,
lockouts and other industrial disturbances shall be entirely within the
discretion of the Company, and the Company shall not be required to make
settlement of strikes, lockouts and other industrial disturbances by acceding to
the demands of any opposing party when such course is in the judgment of the
Company not in its best interests.
Section 6.2. Remedies on Default. Whenever any Event of Default
hereunder shall have occurred and is continuing, the Trustee as the
assignee of the Issuer:
(a) May, and at the written direction of the holders of not less than
25% in aggregate principal amount of Bonds then outstanding, shall declare all
amounts payable as principal and interest on the Note to be immediately due and
payable, whereupon the same shall become immediately due and payable, except
that the Trustee shall not make such a declaration unless the Bank has either
(1) consented to such declaration or (2) has failed to honor any proper drawing
under the Letter of Credit.
(b) Have access to and inspect, examine and copy the financial
books, records and accounts of the Company pertaining to the Facility.
(c) Take whatever action at law or in equity may appear necessary or
desirable to collect the amounts then due and thereafter to become due or to
enforce observance or performance of any covenant, condition or agreement of the
Company under the Note or this Financing Agreement.
Section 6.3. Application of Amounts Realized in Enforcement of
Remedies. Any amounts collected pursuant to action taken under Section 6.2
hereof shall be applied in accordance with the provisions of the Indenture, or,
if payment of the Bonds shall have been made, shall be applied according to the
provisions of Section 8.06 of the Indenture.
Section 6.4. No Remedy Exclusive. No remedy herein conferred upon or
reserved to the Trustee is intended to be exclusive of any other remedy, and
every remedy shall be cumulative and in addition to every other remedy herein or
now or hereafter existing at law, in equity or by statute. No delay or omission
to exercise any right or power accruing upon an Event of Default shall impair
any such right or power or shall be construed to be a waiver thereof, but any
such right or power may be exercised from time to time and as often as may be
deemed expedient.
Section 6.5. Attorney Fees and Other Expenses. Upon an Event of
Default, the Company on demand shall pay to the Issuer and the Trustee the
reasonable fees and expenses of their attorneys and other reasonable fees and
expenses incurred by any of them in the collection of payments under the Note or
the enforcement of any other obligations of the Company.
Section 6.6. No Additional Waiver Implied by One Waiver. If either
party or its assignee waives a default by the other party under any covenant,
condition or agreement herein, such waiver shall be limited to the particular
breach so waived and shall not be deemed to waive any other default hereunder.
ARTICLE VII
PREPAYMENT OF THE NOTE
Section 7.1. Option To Prepay in Full. Subject to requirements under
the Indenture for Available Moneys in certain instances, the Company may prepay
in full the Note, without penalty or premium, and terminate this Financing
Agreement prior to payment of the Bonds by (a) paying to the Trustee an amount
of cash or U.S. Government Obligations that, together with existing investments
in the Bond Fund, will comply with the requirements for the defeasance of the
Bonds set forth in Article VII of the Indenture, and (b) by making arrangements
satisfactory to the Trustee for giving any required notice of redemption.
Section 7.2. Mandatory Payment. The Company shall prepay the Note in
full or in part (a) upon the occurrence of a Determination of Taxability as
defined in the Indenture, or (b) as otherwise provided in Section 3.01 of the
Indenture.
Section 7.3. Option To Prepay in Part. The Company may prepay the Note
in part, and the Issuer agrees that the Trustee may accept such payments to be
paid to the Trustee for deposit in the Bond Fund and used for redemption or, at
the election of the Company, purchase of outstanding Bonds, in the manner and to
the extent provided in the Indenture. The principal amount of each Bond so
purchased, delivered or credited shall be appropriately credited by the Trustee
against the obligation of the Company to make future payments on the Note.
Section 7.4. Relation of Options to Indenture. The options granted to
the Company in this Article may be exercised whether or not the Company is in
default under this Financing Agreement, provided that any such default will not
result in the nonfulfillment of any condition to the exercise of any such
option.
Section 7.5. Obligations After Payment of Note and Termination of
Financing Agreement. Anything contained in this Article VII to the contrary
notwithstanding, the obligations of the Company contained in Section 5.6 and the
obligation of the Company to pay the costs and expenses of the Issuer and the
Trustee shall continue after payment of the Note and termination of this
Financing Agreement.
ARTICLE X
MISCELLANEOUS
Section 8.1. Term of Financing Agreement; Amounts Remaining After
Payment of the Bonds. This Financing Agreement shall be effective upon execution
and delivery hereof, and subject to earlier termination upon prepayment in full
of the Note and all other amounts required to be paid hereunder, including all
amounts payable under the Indenture, shall expire at midnight on September 1,
2012, or if such payment of the Note has not been made on such date, when
payment in full of the Note and all other amounts required to be paid hereunder
shall have been made, except that, notwithstanding the foregoing, the obligation
of the Company to indemnify and pay the costs and expenses of the Issuer and the
Trustee shall survive the expiration of this Financing Agreement. Any amounts
remaining after payment of the Bonds and payment of the fees and expenses of the
Trustee and the Issuer in accordance with the Indenture shall be distributed as
set forth in Section 4.07 of the Indenture.
Section 8.2. Notices, etc. Unless otherwise provided herein, all
demands, notices, approvals, consents, requests and other communications
hereunder shall be in writing and shall be deemed to have been given when
delivered in person or mailed by first class registered or certified mail,
postage prepaid, addressed:
(a) if to the Issuer, to City of Beckley, West Virginia, City
Hall, 409 South Kanawha Street, Beckley, West Virginia 25801, Attention:
Mayor of City of Beckley;
(b) if to the Trustee, to One Valley Bank, National Association,
P.O. Box 1793, Charleston, West Virginia 25326,
Attention: Corporate Trust Department;
(c) if to the Company, to Beckley Health Care Corp., 405 Stanaford
Road, Beckley, West Virginia 25801;
(d) if to the Underwriter, to Crews and Associates, Inc. 2000
Union National Plaza, 124 West Capitol, Little Rock, Arkansas 72201;
(e) if to the Bank, to NationsBank of Texas, N.A, 901 Main Street,
13th Floor, Dallas, Texas 75202, Attention: Marie Lancanster; and
A duplicate copy of each demand, notice, approval, consent, request or
other communication given hereunder by either the Issuer or the Company to the
other shall also be given to the Trustee and the Bank. The Company, the Issuer,
the Trustee and the Bank may, by notice given hereunder, designate any further
or different addresses to which subsequent demands, notices, approvals,
consents, requests or other communications shall be sent or persons to whose
attention the same shall be directed.
Section 8.3. Amendments to financing Agreement and Note. Neither this
Financing Agreement nor the Note shall be amended or supplemented and no
substitution shall be made for the Note subsequent to the issuance of the Bonds
and before payment of the Bonds, without the consent of the Trustee, given in
accordance with Article XI of the Indenture.
Section 8.4. Successors and Assigns. This Financing Agreement shall be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns. Without the prior written consent of
the Issuer, the Trustee and the Bank, no assignment by the Company shall relieve
the Company of its obligations hereunder.
Section 8.5. Severability. If any provision of this Financing
Agreement shall be held invalid by any court of competent jurisdiction, such
holding shall not invalidate any other provision hereof.
Section 8.6. Applicable Law. This Financing Agreement shall be
governed by the applicable laws of the State of West
Virginia.
Section 8.7. Counterparts. This Financing Agreement may be executed in
counterparts, each of which shall be an original and all of which, taken
together, shall constitute but one and the same instrument; except that to the
extent, that this Financing Agreement shall constitute personal property under
the Uniform Commercial Code of West Virginia, no security interest in this
Financing Agreement may be created or perfected through the transfer or
possession of any counterpart of this Financing Agreement other than the
original counterpart, which shall be the counterpart containing the receipt
therefor executed by the Trustee following the signatures to this Financing
Agreement.
Section 8.8. Bank May Perform Company's Obligations. The Bank may
perform or observe any covenant, condition or agreement of the Company hereunder
and such performance or observance shall be treated in all respects as the act
of the Company.
Section 8.9. Entire Agreement. This Financing Agreement together with
the Indenture and the Note constitute the entire agreement between the Issuer
and the Company and supersede all prior agreements and understandings, both oral
and written, between the Issuer and the Company with respect to the subject
matter hereof.
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Financing Agreement to
be executed on its behalf and its seal to be affixed hereto and attested by the
duly authorized Mayor of the City of Beckley, West Virginia, and the Company has
caused this Financing Agreement to be executed in its name by the duly
authorized officer, all as of the date first above written.
THE CITY OF BECKLEY, WEST VIRGINIA
(SEAL) By
--------------------------------------------------------------
Mayor
ATTEST:
By
Its
BECKLEY HEALTH CARE CORP., a West Virginia
corporation
By
Its
ATTEST:
By
Its
<PAGE>
RECEIPT
Receipt of the foregoing original counterpart of the Financing
Agreement dated as of September 1, 1996, between the City of Beckley, West
Virginia and Beckley Health Care Corp., is hereby acknowledged as of the 30th
day of September, 1996.
ONE VALLEY BANK, NATIONAL ASSOCIATION,
as Trustee
By
Vice President
<PAGE>
The material exhibits to this document are as follows, and are available upon
request:
CONTINUING DISCLOSURE AGREEMENT executed and delivered by BECKLEY HEALTH CARE
CORP., a West Virginia limited partnership, as the borrower and ONE VALLEY BANK,
NATIONAL ASSOCIATION, in connection with the issuance of $2,830,000 City of
Beckley, West Virginia First Mortgage Refunding Revenue Bonds, Series 1996 being
issued pursuant to a Trust Indenture dated as of September 1, 1996, by and
between the City of Beckley, West Virginia and One Valley Bank, National
Association.
Official Statement regarding exemption from taxation.
TAX REGULATORY AGREEMENT AND NO ARBITRAGE CERTIFICATE by and among City of
Beckley, West Virginia, Beckley Health Care Corp. and One Valley Bank, National
Association, Charleston, West Virginia, as Trustee.
Exhibit 10.44
INDENTURE OF TRUST
relating to
$2,830,000
Nursing Facility Refunding Revenue Bonds
(Beckley Health Care Corp. Project),
Series 1996
between
THE CITY OF BECKLEY, WEST VIRGINIA
and
ONE VALLEY BANK, NATIONAL ASSOCIATION,
as Trustee
Dated as of September 1, 1996
<PAGE>
INDENTURE OF TRUST
INDENTURE OF TRUST dated as of September 1, 1996 (the "Indenture")
between THE CITY OF BECKLEY, WEST VIRGINIA, a municipality and a political
subdivision of the State of West Virginia (the "Issuer"), and ONE VALLEY BANK,
NATIONAL ASSOCIATION, a national banking association organized, existing and
authorized to accept and execute trusts of the character herein set out (in such
capacity, together with any successor in such capacity, the "Trustee"), as
trustee.
WHEREAS, the Issuer is a duly organized political subdivision of the
State of West Virginia and is authorized by Chapter 13, Article 2C, Code of West
Virginia of 1931, as amended (the "Act"), (a) to issue its revenue bonds for the
purpose of providing funds (i) to pay the cost of acquiring, constructing,
furnishing and equipping a commercial facility comprising a health care facility
and (ii) to refund one or more series of revenue bonds previously issued
pursuant to the Act to finance any such facility, in either case by lending the
proceeds of such revenue bonds or otherwise making such proceeds available for
such purposes to any person, firm or private corporation which will operate and
maintain such facility in such a manner as shall effectuate the purposes of the
Act and (b) to secure its revenue bonds by a trust agreement between the issuer
and a corporate trustee including therein the pledge and assignment of revenues
from any such loan to the payment of such revenue bonds; and
WHEREAS, at the request of Beckley Health Care Corp. (the "Company")
and in order to further the purposes of the Act, the Issuer has determined to
issue and sell its Nursing Facility Refunding Revenue Bonds (Beckley Health Care
Corp. Project), Series 1996 in the original principal amount of $2,830,000 (the
"Bonds") for the purpose of providing funds, together with other available
funds, to refund in full the outstanding principal amount of its $2,830,000
First Mortgage Refunding Revenue Bonds (Beckley Health Care Corp. Project)
Series 1986 (the "Prior Bonds"), the proceeds of which were used to refinance
the costs of acquisition, construction and equipping of a 120-bed intermediate
and skilled nursing facility, owned and operated by the Company, located at 405
Stanaford Road in the City of Beckley, West Virginia (the "Facility"); and
WHEREAS, by issuing the Bonds to refund the Prior Bonds, the Issuer and
the Company expect to finance the Facility more economically and thereby to
achieve interest cost savings; and
WHEREAS, the Issuer has undertaken to provide for the refunding of the
Prior Bonds and the refinancing of the acquisition, construction and equipping
of the Facility by making available the proceeds from the sale of the Bonds
pursuant to the provisions of a Financing Agreement (the "Agreement") between
the Issuer and the Company, dated as of even date herewith; and
WHEREAS, the Agreement provides that the Issuer shall issue and sell
the Bonds; and that the Company shall pay, or cause to be paid, pursuant to the
Agreement, in addition to other moneys available for such purpose, an amount
sufficient to pay the Bonds in full and related expenses; and
WHEREAS, the Issuer wishes to provide in this Indenture for the
issuance of its Bonds, and the Trustee is willing to accept the trusts provided
for in this Indenture; and
WHEREAS, the execution and delivery of the Bonds and of this Indenture
and the issuance and sale of the Bonds have been duly authorized by a resolution
duly adopted by the governing body of the Issuer and all things necessary to
make the Bonds, when executed by the Issuer and authenticated by the Trustee (as
hereinafter defined), valid and binding legal obligations of the Issuer and to
make this Indenture a valid and binding agreement have been done;
ACCORDINGLY, THE ISSUER AND THE TRUSTEE AGREE AS FOLLOWS FOR THE
BENEFIT OF THE OTHER AND FOR THE BENEFIT OF THE HOLDERS OF THE BONDS ISSUED
PURSUANT TO THIS INDENTURE (SUBJECT TO THE PROVISIONS OF SECTIONS 6.01 and
12.08):
GRANTING CLAUSE
To secure first, the payment of the Bonds, the Issuer assigns and
pledges to the Trustee, and grants to the Trustee, a security interest in, all
right, title and interest of the Issuer in and to (a) the Agreement, including
any right to delivery of the Letter of Credit, the Receipts and Revenues of the
Issuer from the Agreement (as hereinafter defined), any right to bring actions
and proceedings under the Agreement or for the enforcement of the Agreement and
any right to do all things that the Issuer is entitled to do under the
Agreement, but excluding the Unassigned Rights (as hereinafter defined) and the
right to enforce the Unassigned Rights, and (b) all moneys and securities held
from time to time by the Trustee under this Indenture, first, for the equal and
proportionate benefit of all holders of the Bonds without priority or
distinction as to lien or otherwise of any Bonds over any other Bonds.
<PAGE>
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.01. Definitions. For all purposes of this Indenture, unless
the context requires otherwise, the following terms
shall have the following meanings:
"Act" means Chapter 13, Article 2C, Code of West Virginia of 1931, as
amended.
"Additional Bonds" shall mean any Bonds authorized and issued pursuant
to Section 2.09 of this Indenture.
"Agreement" or "Financing Agreement" means the Financing Agreement,
dated as of the date of this Indenture, between the Issuer and the Company, as
such Agreement may be amended or supplemented from time to time in accordance
with its terms.
"Authorized Denominations" means with respect to all Bonds $5,000 and
any multiple thereof.
"Available Moneys" means moneys that (a) are continuously on deposit
with the Trustee in trust for the benefit of the Bondholders in a separate and
segregated account in which only Available Moneys are held and (b) are proceeds
of either (i) the Bonds received contemporaneously with and directly from the
issuance and sale of the Bonds, (ii) payments made by the Company (and, if the
bonds are then rated by any national securities rating agency, at the time of
the deposit of such payments and for a period of at least 366 days thereafter,
no Bankruptcy Filing shall have occurred), (iii) a draw by the Trustee on the
Letter of Credit, (iv) refunding bonds for which the Trustee has received a
written opinion of Bankruptcy Counsel to the effect that payment of such moneys
to the Bondholders would not constitute an avoidable preference under Section
547 of the United States Bankruptcy Code in the event the Company or the Issuer
were to become a debtor under the United States Bankruptcy Code, provided that
such opinion shall only be required if the Bonds are then rated by any national
rating agency, or (v) income derived from the investment of the foregoing.
"Bank" means the issuer of the Letter of Credit, initially NationsBank
of Texas, N.A., and, upon the issuance and delivery of a Substitute Letter of
Credit, shall mean the issuer of such Substitute Letter of Credit.
"Bankruptcy Counsel" means any counsel nationally recognized in
bankruptcy matters that is independent of the Company and the Issuer and is
reasonably acceptable to the Trustee.
"Bankruptcy Filing" means the filing of a petition by or against the
Company or the Issuer in respect of the Company, any of its partners or the
Issuer, as the case may be, as debtor under the United States Bankruptcy Code or
similar bankruptcy or insolvency act. If the petition has been dismissed and the
dismissal is final and not subject to appeal at the relevant time, the filing
will not be considered to have occurred.
"Beneficial Owner" shall have the meaning set forth in Section 2.05(c).
"Bonds" means the bonds issued pursuant to this Indenture.
"Bond Fund" means the fund by that name created by Section 4. 02.
"Bond Purchase Agreement" means the Bond Purchase Agreement dated
September ____, 1996, among the Company, the Issuer and the Underwriter, with
respect to the sale of the Bonds.
"Bond Year" means the one-year period beginning on the day after the
expiration of the preceding Bond Year. The first Bond Year begins on the date of
the delivery of the Bonds and ends on August 31, 1997. The first and the last
Bond Year may be for periods of less than one year.
"Business Day" means any day other than (a) a Saturday or Sunday, (b) a
day on which commercial banks in New York, New York, or the city or cities in
which the corporate trust office of the Trustee or the paying office of the Bank
are authorized by law or executive order to close or (c) a day on which the New
York Stock Exchange is closed. For purposes of this definition, "paying office
of the Bank" means the Bank office responsible for making payments under any
Letter of Credit, which initially shall be the office in Los Angeles,
California.
"Cede & Co." means Cede & Co., the nominee of DTC or any successor
nominee of DTC with respect to the Bonds.
"Code" means the Internal Revenue Code of 1986, as amended, the
regulations (whether proposed, temporary or final) under that Code or the
statutory predecessor of that Code, and any amendments of, or successor
provisions to, the foregoing and any official rulings, announcements, notices,
procedures and judicial determinations regarding any of the foregoing, all as
and to the extent applicable. Unless otherwise indicated, reference to a Section
of the Code means that Section of the Code, including such applicable
regulations, rulings, announcements, notices, procedures and determinations
pertinent to that Section of the Code.
"Company" means Beckley Health Care Corp., a West Virginia corporation,
or any successor or successors to the Company's obligations under the Agreement
as permitted under Section 5.8 of the Agreement.
"Company Representative" means a person at the time designated to act
on behalf of the Company by a written instrument furnished to the Trustee
containing the specimen signature of such person and signed on behalf of the
Company by its President, its Vice President or the Chairman of its Board of
Directors. The certificate may designate an alternate or alternates.
"DTC" means The Depository Trust Company, a limited purpose company
organized under the laws of the State of New York, and its successors and
assigns.
"DTC Participant" or "DTC Participants" means securities brokers and
dealers, banks, trust companies and clearing corporations that have access to
the DTC system.
"Determination of Taxability" shall have the meaning set forth in
Section 3.01(c).
"Escrow Agreement" means the Escrow Deposit Agreement, dated as of the
date of this Indenture, among the Issuer, the Company and the Prior Bonds
Trustee, as Escrow Agent.
"Event of Default" is defined in Section 8.01.
"Event of Taxability" shall mean delivery to the Trustee of (a) an
opinion of Bond Counsel or (b) a letter or notice from the Internal Revenue
Service to a Bondholder, in either event to the effect that interest on any Bond
is includable in gross income of the recipient thereof (other than a Bondholder
that is a "substantial user" of the Facility or a "related person" within the
meaning of Section 147(a) of the Code) for Federal income tax purposes. "Date"
of an Event of Taxability shall mean the date of receipt by the Trustee of the
material described in (a) or (b).
"Facility" or "Project" means the 120-bed intermediate and skilled
nursing and rehabilitation facility located at 405 Stanaford Road in the City of
Beckley, West Virginia.
"Indenture" means this Indenture of Trust, as it may be amended or
supplemented from time to time in accordance with its terms.
"Interest Payment Date" means the first day of each March and
September, commencing March 1, 1997.
"Issuer" means City of Beckley, West Virginia, a political subdivision
of the State of West Virginia, and its successors and assigns.
"Issuer Representative" means the Mayor of the City of Beckley or other
person designated at the time to act on behalf of the Issuer by a written
instrument furnished to the Trustee containing the specimen signature of such
person and signed on behalf of the Issuer by the Mayor of the City of Beckley.
"Letter of Credit" means an irrevocable letter of credit having the
characteristics of a "credit" or "letter of credit" set forth in Section 5-103
of the Uniform Commercial Code of the State except that a letter of credit (a)
may not be revocable and (b) may only be issued by (i) a national bank, (ii) any
banking institution organized under the laws of any state, territory or the
District of Columbia, the business of which is substantially confined to banking
and is supervised by the state or territorial banking commission or similar
officials or (iii) a branch or agency of a foreign bank, provided that the
nature and extent of federal and/or state regulation and the supervision of the
particular branch or agency is substantially equivalent to that applicable to
federal or state chartered domestic banks doing business in the same
jurisdiction. Initially, the term "Letter of Credit" shall mean the irrevocable
letter of credit issued by the Bank to the Trustee, including any permitted
supplements or amendments thereto and any renewals or extensions thereof, and,
upon the expiration or termination of the Letter of Credit and the issuance and
delivery of a Substitute Letter of Credit meeting the requirements set forth in
this paragraph and in Section 5.03 hereof, "Letter of Credit" shall mean such
Substitute Letter of Credit.
"Note" shall mean the promissory note of the Company in the principal
amount of $2,830,000, dated as of the date of the Bonds, in the form attached to
the Agreement as Exhibit A, issued pursuant to the Agreement and delivered to
the Issuer as consideration for the use of the proceeds of the Bonds to refund
the Prior Bonds, and any amendment or supplement thereto or substitution
therefor.
"Opinion of Bond Counsel" means an Opinion of Counsel by nationally
recognized bond counsel.
"Opinion of Counsel" means a written opinion of counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Issuer, the Trustee or the Company.
"Outstanding" when used with reference to Bonds, or "Bonds outstanding"
means all Bonds that have been authenticated and delivered by the under this
Indenture, except the following:
(a) Bonds canceled or purchased by or delivered to the Trustee
for cancellation pursuant to the provisions of this Indenture;
(b) Bonds that have become due (at maturity or on redemption,
acceleration or otherwise) and for the payment, including interest accrued to
the due date, of which sufficient moneys are held by the Trustee;
(c) Bonds deemed paid by Section 7.01; and
(d) Bonds in lieu of which others have been authenticated under Section
2.05 (relating to registration and exchange of Bonds) or Section 2.06 (relating
to mutilated, lost, stolen, destroyed or undelivered Bonds).
"Owner," "owners," "Bondholder," "bondholder," "Holder," "holder" or
words of similar import mean: (a) in the event that the book-entry system of
evidence and transfer of ownership in the Bonds is employed pursuant to Section
2.05(c), Cede & Co., as nominee for DTC, or its nominee, and (b) in all other
cases, the registered owner or owners of any Bond fully registered as shown on
the register maintained by the Trustee.
"Person" means (a) any individual, (b) any corporation, partnership,
joint venture, association, joint-stock company, business trust or
unincorporated organization, or grouping of any such entities, in each case
formed or organized under the laws of the United States of America, any state
thereof or the District of Columbia or (c) the United States of America or any
state thereof, or any political subdivision of either thereof, or any agency,
authority or other instrumentality of any of the foregoing.
"Parent" means Regency Health Services, Inc., a Delaware Corporation,
and owner of 100% of the stock of the Company.
"Prior Bonds" means City of Beckley, West Virginia First Mortgage
Refunding Revenue Bonds (Beckley Health Care Corp. Project), Series 1986, in the
original principal amount of $2,830,000.
"Prior Bonds Trustee" means One Valley Bank, National Association
(formerly Kanawha Valley Bank, N.A.), Charleston, West Virginia, as indenture
trustee for the Prior Bonds.
"Rating Agency" means Moody's Investors Service, Inc., if such agency's
ratings are in effect with respect to the Bonds, and Standard & Poor's Ratings
Group, if such agency's ratings are in effect with respect to the Bonds, and
their respective successors and assigns. If either such corporation ceases to
act as a securities rating agency, the Company may, with the approval of the
Bank, appoint any nationally recognized securities rating agency as a
replacement.
"Receipts and Revenues of the Issuer from the Agreement" means all
moneys paid to the Issuer pursuant to Section 4.1 of the Agreement, and receipts
of the Trustee credited under the provisions of this Indenture against such
payments, including all moneys (other than moneys drawn to purchase Bonds
pursuant to the terms hereof) received by the Trustee from a draw under the
Letter of Credit.
"Record Date" means the fifteenth day of the calendar month next
preceding an Interest Payment Date.
"Reimbursement Agreement" means the Credit Agreement among the Parent,
the Lenders Identified therein, NationsBank Capital Markets, Inc. and the Bank
pursuant to which the Letter of Credit is issued by the Bank and delivered to
the Trustee, and any and all modifications, alterations, amendments and
supplements thereto.
"Responsible Officer" means, when used with respect to the Trustee, any
officer within the Corporate Trust Division (or any successor group of the
Trustee), including any vice president, assistant vice president, assistant
secretary or any other officer or assistant officer of the Trustee customarily
performing functions similar to those performed by the persons who at the time
shall be such officers, respectively, or to whom any corporate trust matter is
referred at the Trustee's address set forth in Section 12.01 because of his
knowledge of and familiarity with the particular subject.
"State" means the State of West Virginia.
"Substitute Letter of Credit" shall have the meaning set forth in
Section 5.03.
"Tax Regulatory Agreement" means the Tax Regulatory Agreement dated as
of the date of the delivery of the Bonds among the Company, the Issuer and the
Trustee, as the same may be amended or supplemented from time to time in
accordance with its terms or with an opinion of Bond Counsel to the effect that
such amendment will not have an adverse effect on the tax-exempt status of the
Bonds under the Code.
"Trustee" means the entity identified as such in the heading of this
Indenture and such entity's successors under this Indenture, and any separate or
co-trustee at the time serving as such under this Indenture.
"Unassigned Rights" means the rights of the Issuer under Section
4.1(b)(2) (relating to fees and expenses) and Section 5.6 (relating to
indemnification) of the Agreement and the rights of the Issuer to receive
documentation and notices, to give or withhold consents in connection with the
provisions of this Indenture or the Agreement and the right to enforce any of
the foregoing.
"Underwriter" means Crews and Associates, Inc.
"U.S. Government Obligations" means (a) direct obligations of the
United States for which its full faith and credit are pledged for the timely
payment thereof, (b) obligations of a person controlled or supervised by and
acting as an agency or instrumentality of the United States, the payment of
which is unconditionally guaranteed as a full faith and credit obligation of the
United States for the timely payment thereof or (c) securities or receipts
evidencing ownership interests in obligations or specified portions (such as
principal or interest) of obligations described in (a) or (b).
All other terms used in this Indenture that are defined in Article I of
the Agreement have the same meanings assigned them in the Agreement unless the
context clearly requires otherwise.
Section 1.02. Rules of Construction. Unless the context otherwise
requires,
(a) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted
accounting principles applied on a consistent basis;
(b) references to Articles and Sections are to the Articles and
Sections of this Indenture;
(c) terms defined elsewhere in this Indenture shall have the
meanings therein prescribed for them;
(d) words of the masculine gender shall be deemed and construed to
include correlative words of the feminine and neuter genders;
(e) headings used in this Indenture are for convenience of
reference only and shall not define or limit the provisions
hereof;
(f) each reference herein or in the Bonds to a percentage of Bonds
required for notices, consents or for any other reason shall be deemed to refer
to Bonds then outstanding; and
(g) all references herein to time shall be Charleston, West
Virginia time unless otherwise expressly stated.
<PAGE>
ARTICLE II
THE BONDS
Section 2.01. Issuance of Bonds; Form; Dating.
(a) Authorization. The Issuer hereby authorizes and creates under this
Indenture an issue of Bonds, entitled to the benefit, security and protection of
this Indenture, to be designated "Nursing Facility Refunding Revenue Bonds
(Beckley Health Care Corp. Project), Series 1996." The total principal amount of
Bonds that may be issued and outstanding hereunder shall be $2,830,000, except
as provided in Section 2.06 with respect to replacement of mutilated, lost,
stolen, destroyed or undelivered Bonds and Section 2.09 with respect to
Additional Bonds. The Bonds shall be issuable only as fully registered bonds
without coupons in Authorized Denominations only, and in substantially the form
of Exhibit A to this Indenture, with appropriate variations, omissions,
insertions, notations, legends or endorsements required by law or usage or
permitted or required by this Indenture. The Bonds may be in printed or
typewritten form. No Bonds may be issued under the provisions of this Indenture
except in accordance with this Article.
The Bonds shall be payable in lawful money of the United States but
only from the sources pledged to such purpose. The Bonds are limited obligations
of the Issuer payable solely from the revenues and receipts derived from
payments made by the Company on the Note or by the Bank under the Letter of
Credit, which revenues and receipts and security have been pledged and assigned
to the Trustee to secure payment of the Bonds in the manner and to the extent
provided herein. NEITHER THE STATE OF WEST VIRGINIA, THE ISSUER, NOR ANY OTHER
POLITICAL SUBDIVISION THEREOF SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF OR
INTEREST ON THE BONDS OR OTHER COSTS INCIDENT THERETO EXCEPT FROM THE REVENUES,
MONIES AND PROPERTY PLEDGED THEREFOR, AND NEITHER THE TAXING POWER NOR THE FULL
FAITH AND CREDIT OF THE STATE OF WEST VIRGINIA, THE ISSUER, OR ANY OTHER
POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR
INTEREST ON THE BONDS OR OTHER COSTS INCIDENT THERETO. THE BONDS SHALL NEVER
CONSTITUTE AN INDEBTEDNESS OF THE ISSUER WITHIN THE MEANING OF ANY
CONSTITUTIONAL OR STATUTORY PROVISION AND SHALL NEVER CONSTITUTE OR GIVE RISE TO
A PECUNIARY LIABILITY OF THE ISSUER. NEITHER SHALL THE BONDS NOR THE INTEREST
THEREON BE A CHARGE AGAINST THE GENERAL CREDIT OR TAXING POWERS OF THE ISSUER.
NO PRESENT OR FUTURE OFFICER, MEMBER, EMPLOYEE OR AGENT OF THE ISSUER SHALL BE
PERSONALLY LIABLE ON THE BONDS; AND NO COVENANT, AGREEMENT OR OBLIGATION
CONTAINED HEREIN SHALL BE DEEMED TO BE A COVENANT, AGREEMENT OR OBLIGATION OF
ANY PRESENT OR FUTURE MEMBER, COMMISSIONER, OFFICER, EMPLOYEE OR AGENT OF THE
ISSUER IN HIS INDIVIDUAL CAPACITY.
(b) Details of Bonds. All Bonds shall be dated September 1, 1996 and
delivery of the Bonds and shall mature, subject to prior redemption, on
September 1, 2012. Interest on the Bonds shall be computed from the Interest
Payment Date next preceding the date of authentication thereof, unless such
authentication date (a) is prior to the first Interest Payment Date following
the initial delivery of the Bonds, in which case interest shall be computed from
such initial delivery date, (b) is after a Record Date and before the subsequent
Interest Payment Date, in which case interest shall be computed from the
subsequent Interest Payment Date, or (c) is an Interest Payment Date, in which
case interest shall be computed from such authentication date; provided, that if
interest on the Bonds is in default, Bonds shall bear interest from the last
date to which interest has been paid. The principal of, redemption or purchase
price and premium, if any, and interest on the Bonds shall be payable in lawful
currency of the United States. The principal of and redemption or purchase price
and premium, if any, on the Bonds shall be payable at the principal corporate
trust office of the Trustee upon presentation and surrender of the Bonds.
Payments of interest on the Bonds shall be mailed to the persons in whose names
the Bonds are registered on the register of the Trustee at the close of business
on the Record Date next preceding each Interest Payment Date; provided that, any
Holder of a Bond or Bonds in an aggregate principal amount of not less than
$500,000 may, by prior written instructions filed with the Trustee (which
instructions shall remain in effect until revoked by subsequent written
instructions), instruct that interest payments for any period be made by wire
transfer to an account in the continental United States or other means
acceptable to the Trustee. Bonds shall be numbered from 1 upward as determined
by the Trustee and shall contain the designation "R."
(c) Delivery. Upon the execution and delivery of this Indenture, the
Issuer shall execute and deliver the Bonds to the Trustee and, upon receipt by
the Trustee of the following, the Trustee shall authenticate the principal
amount of Bonds specified in the Issuer's authorization and request, and the
Trustee shall deliver the Bonds to the purchaser or purchasers as directed by
the Issuer:
(i) a copy of the resolution or resolutions of the Issuer
authorizing the issuance of the Bonds, certified by the
Recorder of the City of Beckley;
(ii) original executed counterparts of the Agreement, this
Indenture, the Escrow Agreement and the Tax Regulatory
Agreement and a copy of the Reimbursement Agreement;
(iii) confirmation that the Trustee has received the original,
executed Letter of Credit from the Bank;
(iv) an authorization and request from the Issuer to the Trustee to
authenticate and deliver the Bonds in specified Authorized Denominations to the
initial purchaser or purchasers upon payment to the Trustee, for the account of
the Issuer, of the purchase price for such principal amount of Bonds;
(v) an Opinion of Bond Counsel for the Bonds, addressed to the Trustee,
or upon which the Trustee may rely, to the effect that the Bonds so specified
have been validly authorized, executed and issued under the law of the State and
this Indenture has been duly authorized, executed and delivered by the Issuer;
(vi) an opinion of Counsel to the Bank addressed to the Trustee, or
upon which the Trustee may rely, to the effect that the Letter of Credit is a
binding and valid obligation of the Bank and is not subject to registration
under the Securities Act of 1933, as amended;
(vii) Internal Revenue Service Form 8038 completed by the Issuer
with respect to the Bonds; and
(viii) An Opinion of Counsel that (1) the Company is a corporation duly
organized and validly existing under the laws of the State, and (2) the
Agreement and the Note have been duly authorized, executed and delivered by the
Company and are enforceable against the Company, subject to usual exceptions for
matters relating to bankruptcy and equitable principles.
(d) Disbursement. On the date of issuance of the Bonds, the Trustee
shall disburse all of the proceeds derived from the issuance of the Bonds,
together with sufficient equity money provided by the Company, to the Prior
Bonds Trustee as Escrow Agent under the Escrow Agreement in order to provide for
the defeasance in full of the Prior Bonds. All additional moneys should be
deposited in the Bond Fund and shall be applied as set forth in Section 4.04.
Section 2.02. Interest on the Bonds. The Bonds shall bear interest as
herein provided from the date thereof until paid in full. The Bonds will be in
the principal amounts, shall bear interest and shall mature on September 1 in
the years as follows:
Year Principal Interest
(September 1) Amount Rate
------------- --------- ------
1997 $ 20,000.00 4.200%
1998 25,000.00 4.400
1999 25,000.00 4.500
2000 25,000.00 4.600
2001 160,000.00 4.700
2002 170,000.00 4.800
2003 180,000.00 4,900
2004 195,000.00 5.000
2005 205,000.00 5.100
2006 215,000.00 5.200
2007 230,000.00 5.300
2012 1,380,000.00 5.750
Interest accrued on the Bonds shall be paid on each Interest Payment
Date (or, if such day is not a Business Day, on the next succeeding Business
Day), commencing on March 1, 1997. The amount of interest payable on any
Interest Payment Date shall be computed on the basis of the actual number of
days elapsed over a year of 365 or 366 days, whichever may be applicable.
Section 2.03. Execution and Authentication. The Bonds shall be signed
on behalf of the Issuer with the manual or facsimile signature of the Mayor of
the Issuer, and the seal of the Issuer shall be impressed or imprinted on the
Bonds by facsimile or otherwise, and attested by the manual or facsimile
signature of the Recorder of the Issuer. If any officer whose signature is on a
Bond no longer holds that office at the time the Trustee authenticates the Bond,
the Bond shall nevertheless be valid. Also, if a person signing a Bond is the
proper officer on the actual date of execution, the Bond shall be valid even if
that person is not the proper officer on the nominal date of action.
A Bond shall not be valid for any purpose under this Indenture unless
and until the Trustee manually signs the certificate of authentication on the
Bond, and such signature shall be conclusive evidence that the Bond has been
authenticated under this Indenture.
Section 2.04. Bond Register. The Trustee shall keep a register of Bonds
and of their transfer and exchange. Bonds not held under a book-entry system
must be presented at the principal corporate trust operations office of the
Trustee for registration, transfer and exchange, and Bonds may be presented at
that office for payment.
Section 2.05. Registration and Exchange of Bonds; Persons Treated as
Owners; Book-Entry System.
(a) Bonds may be transferred only on the register maintained by the
Trustee. Upon surrender for transfer of any Bond to the Trustee, duly endorsed
for transfer or accompanied by an assignment duly executed by the holder or the
holder's attorney duly authorized in writing and in either case, with an
appropriate guarantee of signature conforming to the requirements of Exhibit A
hereto, the Trustee shall authenticate a new Bond or Bonds in an equal total
principal amount and registered in the name of the transferee.
Bonds may be exchanged for an equal total principal amount of Bonds of
different Authorized Denominations. The Trustee shall authenticate and deliver
Bonds that the Bondholder making the exchange is entitled to receive, bearing
numbers not then outstanding.
The Trustee shall not be required to transfer or exchange any Bond
during the period beginning 15 days before the mailing of notice calling the
Bond or any portion of the Bond for redemption and ending on the redemption
date. Bonds subject to redemption may be transferred or exchanged only if the
Trustee provides the new holder thereof with a copy of the notice of redemption.
The holder of a Bond as shown on the register of the Trustee shall be
the absolute owner of the Bond for all purposes, and payment of principal,
interest or purchase price shall be made only to or upon the written order of
such holder or the holder's legal representative; provided that interest shall
be paid to the Person shown on the register as a holder of a Bond on the
applicable Record Date.
(b) The Trustee may require the payment by a Bondholder requesting
exchange or registration of transfer of any tax or other governmental charge
required to be paid in respect of the exchange or registration of transfer but
shall not impose any other charge.
(c) The Trustee may make appropriate arrangements for the Bonds (or any
portion thereof) to be issued or held by means of a book-entry system
administered by DTC with no physical distribution of Bonds made to the public
(other than those Bonds, if any, not held under such book-entry system).
References in this Section 2.05(c) to a Bond or the Bonds shall be construed to
mean the Bond or the Bonds that are held under the book-entry system. In such
event, one Bond of each maturity shall be issued to DTC and immobilized in its
custody. A book-entry system shall be employed, evidencing ownership of the
Bonds in Authorized Denominations, with transfers of beneficial ownership
effected on the records of DTC and the DTC Participants pursuant to rules and
procedures established by DTC.
Each DTC Participant shall be credited in the records of DTC with the
amount of such DTC Participant's interest in the Bonds. Beneficial ownership
interests in the Bonds may be purchased by or through DTC Participants. The
holders of these beneficial ownership interests are hereinafter referred to as
the "Beneficial owners." The Beneficial Owners shall not receive Bonds
representing their beneficial ownership interests. The ownership interests of
each Beneficial Owner shall be recorded through the records of the DTC
Participant from which such Beneficial Owner purchased its Bonds. Transfers of
ownership interests in the Bonds shall be accomplished by book entries made by
DTC and, in turn, by DTC Participants acting on behalf of Beneficial Owners. SO
LONG AS CEDE & CO., AS NOMINEE FOR DTC, IS THE REGISTERED OWNER OF THE BONDS,
THE TRUSTEE SHALL TREAT CEDE & CO. AS THE ONLY HOLDER OF THE BONDS FOR ALL
PURPOSES UNDER THIS INDENTURE, INCLUDING RECEIPT OF ALL PRINCIPAL OF AND
INTEREST ON THE BONDS, RECEIPT OF NOTICES, VOTING AND REQUESTING OR DIRECTING
THE TRUSTEE TO TAKE OR NOT TO TAKE, OR CONSENTING TO, CERTAIN ACTIONS UNDER THIS
INDENTURE.
Payments of principal, interest and purchase price with respect to the
Bonds, so long as DTC is the only owner of the Bonds, shall be paid by the
Trustee directly to DTC or its nominee, Cede & Co. as provided in the Letter of
Representation dated as of September 1, 1996 from the Issuer, the Company, the
Trustee to DTC (the "Letter of Representation"). DTC shall remit such payments
to DTC Participants, and such payments thereafter shall be paid by DTC
Participants to the Beneficial owners. The Issuer, the Company, and the Trustee
shall not be responsible or liable for payment by DTC or DTC Participants, for
sending transaction statements or for maintaining, supervising or reviewing
records maintained by DTC or DTC Participants.
In the event that (1) DTC determines not to continue to act as
securities depository for the Bonds or (2) the Company determines that the
continuation of the book-entry system of evidence and transfer of ownership of
the Bonds would adversely affect its interests or the interests of the
Beneficial Owners of the Bonds, the Issuer shall, at the request of the Company,
discontinue the book-entry system with DTC. If the Trustee fails to identify
another qualified securities depository to replace DTC, the Trustee shall
authenticate and deliver replacement Bonds in the form of fully registered Bonds
to each Beneficial Owner.
THE ISSUER, THE COMPANY AND THE TRUSTEE SHALL NOT HAVE ANY
RESPONSIBILITY OR OBLIGATIONS TO ANY DTC PARTICIPANT OR ANY BENEFICIAL OWNER
WITH RESPECT TO (i) THE BONDS; (ii) THE ACCURACY OF ANY RECORDS MAINTAINED BY
DTC OR ANY DTC PARTICIPANT; (iii) THE PAYMENT BY DTC OR ANY DTC PARTICIPANT OF
ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL OF AND
INTEREST ON THE BONDS; (iv) THE DELIVERY OR TIMELINESS OF DELIVERY BY DTC OR ANY
DTC PARTICIPANT OF ANY NOTICE DUE TO ANY BENEFICIAL OWNER THAT IS REQUIRED OR
PERMITTED UNDER THE TERMS OF THIS INDENTURE TO BE GIVEN TO BENEFICIAL OWNERS;
(v) THE SELECTION OF BENEFICIAL OWNERS TO RECEIVE PAYMENTS IN THE EVENT OF ANY
PARTIAL REDEMPTION OF THE BONDS; OR (vi) ANY CONSENT GIVEN OR OTHER ACTION TAKEN
BY DTC, OR ITS NOMINEE, CEDE & CO., AS OWNER.
In the event that a book-entry system of evidence and transfer of
ownership of the Bonds is discontinued pursuant to the provisions of this
Section, the Bonds shall be delivered solely as fully registered Bonds without
coupons in the Authorized Denominations, shall be lettered "IR" and numbered
separately from 1 upward, and shall be payable, executed, authenticated,
registered, exchanged and canceled pursuant to the provisions hereof.
(d) The Trustee shall not be limited to utilizing a book-entry system
maintained by DTC but may enter into a custody agreement with any bank or trust
company serving as custodian (which may be the Trustee serving in the capacity
of custodian) to provide for a book-entry or similar method for the registration
and registration of transfer of all or a portion of the Bonds.
SO LONG AS A BOOK-ENTRY SYSTEM OF EVIDENCE OF TRANSFER OF OWNERSHIP OF
ALL THE BONDS IS MAINTAINED IN ACCORDANCE HEREWITH, THE PROVISIONS OF THIS
INDENTURE RELATING TO THE DELIVERY OF PHYSICAL BOND CERTIFICATES SHALL BE DEEMED
INAPPLICABLE OR BE OTHERWISE SO CONSTRUED AS TO GIVE FULL EFFECT TO SUCH
BOOK-ENTRY SYSTEM.
Section 2.06. Mutilated, Lost, Stolen, Destroyed or Undelivered Bonds.
(a) If any Bond is mutilated, lost, stolen or destroyed, the Trustee
shall authenticate a new Bond of the same denomination for any mutilated, lost,
stolen or destroyed Bond if there is delivered to the Trustee at its principal
corporate trust operations office, (1) in the case of a mutilated Bond, such
mutilated Bond and (2) in the case of any lost, stolen or destroyed Bond,
evidence of such loss, theft or destruction reasonably satisfactory to the
Issuer, Bank, Trustee and Company, together with an indemnity from the
Bondholder, reasonably satisfactory to them. If the Bond has matured and if the
evidence and indemnity described above have been provided by the Bondholder,
instead of issuing a duplicate Bond, the Trustee, with the consent of the
Company, shall pay the Bond without requiring surrender of the Bond and make
such requirements as the Trustee deems fit for its protection, including a lost
instrument bond. The Issuer, the Company and the Trustee may charge the
Bondholder their reasonable fees and expenses in this connection.
(b) Every new Bond issued pursuant to this Section 2.06 shall (i)
constitute an additional contractual obligation of the Issuer regardless of
whether, in the case of (a) above, the mutilated, lost, stolen or destroyed
Bond, and (ii) be entitled to all of the benefits of this Indenture equally and
proportionately with any and all other Bonds issued and outstanding hereunder.
(c) All Bonds shall be held and owned on the express condition that the
foregoing provisions of this Section 2.06 are exclusive with respect to the
replacement or payment of mutilated, lost, stolen or destroyed Bonds and, to the
extent permitted by law, and shall preclude any and all other rights and
remedies with respect to the replacement or payment of negotiable instruments or
other investment securities without their surrender, notwithstanding any law or
statute to the contrary now existing or enacted hereafter.
Section 2.07. Cancellation of Bonds. All Bonds paid, redeemed or
purchased, either at or before maturity, shall be delivered to the Trustee when
such payment, redemption or purchase is made, and except as otherwise provided
herein shall be canceled. Whenever a Bond is delivered to the Trustee for
cancellation (upon payment, redemption, defeasance or otherwise), or for
transfer, exchange or replacement pursuant to Section 2.05 or 2.06, the Trustee
shall safeguard such Bond for such period of time as may be required by
governmental regulations and thereafter promptly cancel the Bond and prepare a
certificate of destruction therefor.
Section 2.08. Temporary Bonds. Until definitive Bonds are ready for
delivery, the Issuer may execute and the Trustee shall authenticate temporary
Bonds substantially in the form of the definitive Bonds, with appropriate
variations. The Issuer shall, without unreasonable delay, prepare and the
Trustee shall authenticate definitive Bonds in exchange for the temporary Bonds.
Such exchange shall be made by the Trustee without charge to the Bondholders.
Temporary Bonds shall not otherwise be eligible for transfer or exchange under
Section 2.05.
Section 2.09. Additional Bonds.
(a) At any time while the Issuer is not in default under this Indenture
and subject to the approval and execution of a supplemental Indenture making
appropriate provisions therefor in accordance with Section 10.01 hereof and
subject to receipt by the Trustee of the documents listed below, the Issuer may
issue one or more series of Additional Bonds for the purpose of providing funds
to be used, with any other available funds, for the purpose of (i) paying the
cost of all improvements, restoration, repairing, rebuilding, rearranging and
replacements of the Project or any part thereof by the Company pursuant to, or
(ii) refunding all or part of any prior series of Bonds, or any combination of
the above. Each series of Additional Bonds shall be issued pursuant to a
supplement to this Indenture. Unless otherwise provided in a supplemental
Indenture, all such Additional Bonds shall be in substantially the same form as
the Bonds, but shall be of such denominations, bear such dates, bear interest at
such rates, have such maturity dates, redemption dates and redemption premiums,
contain an appropriate series designation, and be issued at such prices all as
approved by Company.
The Trustee shall authenticate and deliver such Additional Bonds, but
only upon receipt of the following:
(1) A certificate of the Issuer, signed by its President, that it
is not in default under this Indenture.
(2) A certificate of the Company, signed by a Company
Representative approving the issuance and terms of such
Additional Bonds and that it is not in default under the
Agreement.
(3) A certified copy of a resolution or resolutions of the Issuer
authorizing a)the execution and delivery of the amendment to
the Agreement referred to in subparagraph 4 of this Section
2.09, (b) the execution and delivery of the supplemental
Indenture referred to in subparagraph 5 hereof, and (c) the
issuance, award, execution and delivery of such Additional
Bonds.
(4) An original executed counterpart of an amendment to the
Agreement providing, among other things, for increasing the
amounts payable by the Company thereunder to include payment
of principal of, premium, if any, and interest on such
Additional Bonds.
(5) An original executed counterpart of a supplemental Indenture
providing for the issuance of such Additional Bonds.
(6) Evidence of the consent of the Bank to the issuance of such
Additional Bonds.
(7) An opinion of Counsel that the amendment to the Agreement and
a new promissory note each has been properly authorized,
executed, and delivered by Company, that the supplemental
Indenture has been properly authorized, executed, and
delivered by the Issuer, and that such amendment to the
Agreement, new promissory note, and supplemental Indenture
(assuming in the case of the supplemental Indenture, proper
authorization and execution and delivery thereof by the
Trustee), are valid and binding and enforceable in accordance
with their respective terms, except as same is affected by
laws affecting creditors' rights and the enforcement thereof
generally and except to the extent that the remedy of specific
performance and other equitable remedies are always within the
discretion of the Court, and that the amendment to the
Agreement and the supplemental Indenture have been duly
recorded in every necessary recording office and appropriate
financing statements have been filed in all filing offices
where such filing shall be necessary;
(8) A written opinion of Nationally Recognized Bond Counsel that
the issuance of such Additional Bonds has been duly authorized
by the Issuer and will have no adverse effect upon the
exemption from Federal income taxes of interest on the Bonds
or any other then outstanding series of Additional Bonds.
(9) A request and authorization by the Issuer, signed by its
President, to the Trustee to authenticate and deliver such
Additional Bonds upon payment to the Trustee for the account
of the Issuer of a specified sum.
(b) When the requirements of subsection A of this Section have been met
to the reasonable satisfaction of the Trustee and when the Additional Bonds
shall have been executed and authenticated in the manner required by this
Indenture, the Trustee shall deliver such Additional Bonds but only upon payment
to the Trustee of the purchase price of such Additional Bonds.
(c) The proceeds of all Bonds issued under the provisions of this
Section (other than refunding Bonds) shall be deposited with the Trustee in a
special fund appropriately designated and held in trust for the purpose of
paying the costs for which such Additional Bonds were issued to finance except
that any accrued interest received on the sale of such Additional Bonds and any
amount authorized for the payment of interest during any period of acquisition
and construction and for a reasonable period thereafter shall be deposited to
the credit of the Bond Fund (i.e., in the designated subaccount therein). The
proceeds of all refunding Bonds issued under the provisions of this Section
shall be deposited with the Trustee in a special escrow account pledged solely
to the payment of the principal of, premium, if any, and interest on the
refunded Bonds, except that the accrued interest received on the sale of such
Additional Bonds may be deposited instead in the Bond Fund.
<PAGE>
ARTICLE III
REDEMPTION AND PURCHASE
Section 3.01. Redemption of Bonds.
(a) Optional Redemption. The Bonds maturing September 1, 2007 and
thereafter are subject to optional redemption in whole or in part at any time on
any date on or after September 1, 2006 (less than all of the Bonds to be
selected as designated by the Company) at the redemption prices (expressed as
percentages of principal amount of Bonds to be redeemed) set forth in the
following table plus accrued interest to the Redemption Date:
Redemption Date Redemption Date
September 1, 2006 through August 31, 2007 102.0%
September 1, 2007 through August 31, 2008 101.0
September 1, 2008 and thereafter 100.0
NOTWITHSTANDING ANYTHING IN THIS INDENTURE TO THE CONTRARY, IN NO EVENT
SHALL PROCEEDS OF THE LETTER OF CREDIT BE USED TO PAY THE REDEMPTION PRICE OF
BONDS CALLED FOR REDEMPTION PURSUANT TO SECTION 3.01(a).
(b) Mandatory Sinking Fund Redemption. (i) The Bonds maturing September
1, 2012 are subject to mandatory sinking fund redemption prior to their
scheduled maturity, on September 1, 2008, and on each succeeding September 1 to
and including September 1, 2012, or if any such date is not a Business Day, on
the next succeeding Business Day, without premium, at a redemption price of the
principal amount thereof with interest accrued to, but excluding, the redemption
date, in the following principal amounts:
Principal
Year Amount
2008 $245,000
2009 260,000
2010 275,000
2011 290,000
2012 (Maturity) 310,000
(ii) At its option, to be exercised on or before the 45th day next
preceding any such sinking fund redemption date, the Issuer, or the Company on
behalf of the Issuer, may:
(x) deliver to the Trustee for cancellation Bonds in
any aggregate principal amount desired to be credited
against the Issuer's sinking fund redemption obligations; or
(y) instruct the Trustee, to credit against the Issuer's
sinking fund redemption obligations any Bonds that prior to
such date have been redeemed (otherwise than through the
operation of the sinking fund) and canceled by the Trustee and
not theretofore applied as a credit against any sinking fund
redemption obligation.
Each Bond so delivered or previously redeemed shall be credited by the
Trustee at 100% of the principal amount thereof against the obligation of the
Issuer on such sinking fund redemption dates. Any excess over such obligation
shall be credited against future sinking fund redemption obligations in
chronological order, and the principal amount of the Bonds to be redeemed by
operation of the sinking fund shall be accordingly reduced.
(c) Mandatory Redemption on Determination of Taxability. The Bonds are
also subject to mandatory redemption at a redemption price equal to the
principal amount thereof with interest to, but excluding, the redemption date in
whole (or in part as provided below), without premium, on the first day of a
month within 180 days after the Company receives written notice from a
Bondholder or former Bondholder or the Trustee of a final determination by the
Internal Revenue Service or a court of competent jurisdiction that the interest
paid or to be paid on any Bond is or was includable in the gross income of the
Bond's owner (other than an owner that is a "substantial user" of the Facility
or a "related person" within the meaning of Section 147(a) of the Code) for
federal income tax purposes (a "Determination of Taxability"), or if such date
is not a Business Day, on the next succeeding Business Day. No such
determination will be considered final unless the Bondholder or former
Bondholder involved in the determination gives the Company, the Trustee and the
Bank prompt written notice of the commencement of the proceedings resulting in
the determination and offers the Company, subject to the Company's agreeing to
pay all expenses of the proceeding and to indemnify the holder against all
liabilities that might result from it, the opportunity to control the defense of
the proceeding and either the Company does not agree within 30 days to pay the
expenses, indemnify the holder and control the defense or the Company exhausts
or chooses not to exhaust available procedures to contest or obtain review of
the result of the proceedings. Fewer than all the Bonds may be redeemed if
redemption of fewer than all would result in the interest payable on the Bonds
remaining outstanding being not includable in the gross income for federal
income tax purposes of any holder. If fewer than all Bonds are redeemed, the
Trustee shall select the Bonds to be redeemed by lot as provided in Section 3.03
or by such other method acceptable to the Trustee as may be approved in an
opinion of Bond Counsel.
(d) Mandatory Redemption on Expiration or Termination of Letter of
Credit Without Extension or Providing a Substitute Letter of Credit. The Bonds
are subject to mandatory redemption, in whole without premium at a redemption
price equal to 100% of the principal amount thereof plus accrued and unpaid
interest thereon to, but not including, the redemption date, on the Interest
Payment Date that next precedes by at least 14 days the stated expiration or
termination date of the Letter of Credit or, if such Interest Payment Date is
not a Business Day, on the next succeeding Business Day, unless by the 15th day
prior to such Interest Payment Date the Company provides to the Trustee, and the
Trustee has accepted, (1) evidence that such Letter of Credit has been extended
or (2) a Substitute Letter of Credit to be effective on or prior to such
Interest Payment Date.
Section 3.02. Redemption Date. The redemption date of Bonds to be
redeemed pursuant to the optional redemption provisions in Section 3.01(a) shall
be a date permitted by such clauses and specified by the Company in the notice
delivered pursuant to the preceding Section. The redemption date for mandatory
redemptions shall be as specified in Section 3.01(b) through (d), as the case
may be, or determined by the Trustee consistently with the provisions thereof.
Section 3.03. Selection of Bonds To Be Redeemed. Except as otherwise
provided in this Section 3.03, if fewer than all the Bonds are to be redeemed,
the Trustee shall select the Bonds to be redeemed by lot or such other method as
it deems in its sole discretion to be fair and appropriate. The Trustee shall
treat each holder of Bonds as the owner of one Bond for purposes of selection
for redemption and shall select Bonds for redemption by lot (1) from among the
holders of less than $1,000,000 in aggregate principal amount, provided that if
there are no such holders, or if, after selection from among such holders such
selection has not resulted in redemption of a sufficient amount of Bonds, then
(2) from among the holders of $1,000,000 or more in aggregate principal amount
of Bonds. No portion of a Bond may be redeemed that would result in a Bond that
is smaller than the then permitted minimum Authorized Denomination. For this
purpose, the Trustee shall consider each Bond in a denomination larger than the
minimum denomination permitted by the Bonds at the time to be separate Bonds
each in the minimum denomination. Provisions of this Indenture that apply to
Bonds called for redemption also apply to portions of Bonds called for
redemption.
Notwithstanding anything to the contrary in this Indenture, there shall
be no redemption of less than all of the Bonds if there shall have occurred and
be continuing an Event of Default.
Section 3.04. Notice to Trustee; Notice of Redemption.
(a) If the Company wishes that any Bonds be redeemed pursuant to the
optional redemption provisions in Section 3.01(a) hereof, the Company shall
notify the Trustee and the Bank in writing of the applicable provision, the
redemption date, the principal amount of Bonds to be redeemed and other
necessary particulars. The Company shall give such notices at least 40 days
before the redemption date.
(b) For Bonds being redeemed pursuant to Subsections (a) through (c) of
Section 3.01, the Trustee shall prepare and send notice of each redemption to
each Bondholder whose Bonds are being redeemed, the Company and the Bank by
first-class mail at least 30 days but not more than 60 days before each
redemption. If the Bonds are being held under a book-entry system administered
by DTC and less than all of the Bonds are called for redemption, the Trustee
shall prepare and send notice of such redemption to each such Beneficial owner
at the time and in the manner provided in this Section 3.04(b). The notice shall
identify the Bonds or portions thereof to be redeemed and shall state (i) the
type of redemption and the redemption date, (ii) the redemption price, (iii)
that the Bonds called for redemption must be surrendered to collect the
redemption price, (iv) the address at which the Bonds must be surrendered, (v)
that interest on the Bonds called for redemption ceases to accrue on the
redemption date, (vi) the CUSIP number of the Bonds and (vii) any condition to
the redemption.
The procedure for redemption of Bonds pursuant to 3.01(d) shall be
identical except that notice shall be sent at least 7
days before each redemption.
With respect to any Bonds to be redeemed that have not been presented
for redemption within 60 days after the redemption date, the Trustee, at the
expense of the Company, shall prepare and the Trustee shall give a second notice
of redemption to the holder of any such Bonds that have not been presented for
redemption, by first-class mail, within 30 days of the end of such 60-day
period.
Failure by the Trustee to give any notice of redemption as to any
particular Bonds will not affect the validity of the call for redemption of any
Bonds in respect of which no such failure has occurred. Any notice mailed as
provided in the Bonds will be conclusively presumed to have been given whether
or not actually received by any holder.
Section 3.05. Payment of Bonds Called for Redemption. Upon surrender to
the Trustee, Bonds called for redemption shall be paid as provided in this
Article at the redemption price provided for in this Article. On the date fixed
for redemption, notice having been given in the manner and under the conditions
hereinabove provided, the Bonds or portions thereof called for redemption shall
be due and payable at the redemption price provided therefor, plus accrued
interest to such date. On such redemption date, if moneys sufficient to pay the
redemption price of the Bonds to be redeemed, plus accrued interest thereon to
the date fixed for redemption, are held by the Trustee, interest on the Bonds
called for redemption shall cease to accrue; such Bonds shall cease to be
entitled to any benefits or security under this Indenture or to be deemed
outstanding; and the holders of such Bonds shall have no rights in respect
thereof except to receive payment of the redemption price thereof, plus accrued
interest to the date of redemption.
Section 3.06. Bonds Redeemed in Part. Upon surrender of a Bond redeemed
in part, the Trustee shall authenticate for the holder a new Bond or Bonds equal
in principal amount to the unredeemed portion of the Bond surrendered.
ARTICLE IV
PAYMENT OF BONDS AND
CREATION OF FUNDS
Section 4.01. Payment of Bonds. The Trustee shall make payments when
due of principal of and interest on Bonds (including upon the redemption of the
Bonds as described in Article III hereof):
(a) first, from Available Moneys held by the Trustee in the Bond
Fund; and
(b) second, from moneys drawn by the Trustee under the Letter of
Credit and deposited in the Bond Fund;
(c) last, from any other moneys available to the Trustee.
The proceeds of investments of any moneys in any of these categories may be used
to the same extent as the moneys invested could be used.
Section 4.02. Creation of Bond Fund. There is hereby created by the
Issuer and ordered established with the Trustee a trust fund to be designated
"City of Beckley, West Virginia/Beckley Health Care Corp.: Bond Fund." The money
and securities in such fund shall be held in trust by the Trustee and applied as
herein provided and, until such application, the money and securities in such
Fund shall be subject to a lien and charge in favor of the Bondholders.
Section 4.03. Payments into Bond Fund. There shall be deposited into
the Bond Fund, as and when received:
(a) all moneys received from a drawing under the Letter of Credit;
(b) all payments specified in section 4.1 of the Agreement; and
(c) all other moneys received by the Trustee under and pursuant to any
of the provisions of the Agreement (other than Sections 4.1(b) and 5.6 thereof)
that are required or that are accompanied by directions that such moneys are to
be paid into the Bond Fund. To the extent that moneys described in (a), (b) or
(c) above would not constitute Available Moneys at the time of such deposit, the
Trustee shall create separate subaccounts in the Bond Fund in which moneys
described in each of such (a), (b) and (c) above shall be held until such moneys
constitute Available Moneys. The Trustee shall create a separate subaccount in
the Bond Fund for, and shall not commingle moneys described in Section 4.01(a)
with, any other moneys hereunder. So long as any of the Bonds issued hereunder
are Outstanding the Issuer shall deposit, or cause to be paid to the Trustee for
deposit in the Bond Fund for its account, sufficient sums from the amounts
derived from the Agreement promptly to pay when due the principal of all Bonds
(whether at maturity, upon redemption or acceleration or otherwise), interest on
the Bonds and the purchase price of the Bonds as the same become due and
payable, except that all payments shall be limited as provided in Section 2.01
and the Issuer makes no representation or warranty that the amount deposited
will be adequate to make all payments when due.
Section 4.04. Use of Moneys in Bond Fund. Except as provided in Section
4.06, moneys in the Bond Fund shall be used solely for the payment of the
principal of and interest on the Bonds as the same shall become due and payable
whether at maturity, upon redemption or otherwise and for the purchase price of
the Bonds as the same shall become due, and the Trustee shall make such payment
in accordance with the provisions of the Bonds and this Indenture; provided,
however, that to the extent such principal, interest or purchase price is paid
with proceeds of a drawing under the Letter of Credit and the Parent does not
reimburse the Bank directly, the Trustee shall promptly reimburse the Bank from
funds on deposit in the Bond Fund.
Section 4.05. Custody of Bond Fund. The Bond Fund shall be held in the
custody of the Trustee but in the name of the Issuer. The Issuer hereby
authorizes and directs (a) the Trustee to withdraw sufficient funds from the
Bond Fund to pay the principal of, interest on and the purchase price of the
Bonds as the same become due and payable, and to withdraw from the Bond Fund
funds sufficient to pay any other amounts payable therefrom as the same become
due and payable; provided however, that to the extent such principal, interest
or purchase price is paid with proceeds of a drawing under the Letter of Credit
and the Parent does not reimburse the Bank directly, the Trustee shall promptly
reimburse the Bank from funds on deposit in the Bond Fund other than proceeds
from a drawing on the Letter of Credit.
Section 4.06. Moneys To Be Held in Trust. All money that the Trustee
shall have withdrawn from the Bond Fund or shall have received from any other
source and set aside for the purpose of paying any of the Bonds hereby secured,
either at the maturity thereof or call for redemption or for the purpose of
paying any interest on the Bonds hereby secured, shall be held in trust by the
Trustee for the respective Holders. Any money that is so set aside or
transferred and that remains unclaimed by the Holders for the escheat period
provided by State law shall be treated as abandoned property, and the Trustee
shall report and remit this property according to the requirements of State law
and thereafter the Holders shall look only to the appropriate State agency or
official for payment and then only to the extent of the amounts so received,
without any interest thereon, and the Trustee and the Issuer shall have no
responsibility with respect to such money.
Section 4.07. Payment to Company From Bond Fund. After payment in full
of the principal of and interest on the outstanding Bonds, the fees, charges and
expenses of the Issuer, the Trustee and the Bank (including without limitation
the fees and expenses of their respective counsel) and all other amounts
required to be paid hereunder, including payments of rebatable arbitrage, any
amounts remaining in the Bond Fund shall be paid immediately to the Company.
Section 4.08. Investment of Moneys. To the extent permitted by law, the
Trustee shall invest and reinvest moneys held by it representing proceeds of
drawings under the Letter of Credit and Available Moneys on deposit in the Bond
Fund only in U.S. Government obligations (or in a mutual fund composed solely of
U.S. Government Obligations) maturing at such times as such amounts will be
needed for the purposes thereof. Unclaimed moneys held by the Trustee under
Section 4.06 shall be held uninvested by the Trustee.
The Trustee may make investments permitted by this Article through or
from their own bond departments or the bond departments of any bank or trust
company under common control with the Trustee. Investments shall be registered
in the name of the Trustee, or its nominee and held by or under the control of
the Trustee. The Trustee shall sell and reduce to cash a sufficient amount of
investments whenever the cash held by them is insufficient. The Issuer
represents that it will take no action that would cause moneys held by the
Trustee in connection with the Bonds to be used in a manner that would cause the
Bonds to be classified as "arbitrage bonds" within the meaning of Section 148 of
the Code.
<PAGE>
ARTICLE V
LETTER OF CREDIT
Section 5.01. Requirements for Letter of Credit. In order to secure its
obligations under the Agreement, pursuant to Section 4.7 of the Financing
Agreement, the Company has agreed (a) upon the initial authentication and
delivery of the Bonds, to deliver to the Trustee the Letter of Credit, issued by
the Bank in favor of the Trustee and for the benefit of the holders of the
Bonds; and (b) to ensure that so long as any Bonds remain outstanding, a Letter
of Credit shall be in effect with respect to such Bonds with terms substantially
conforming to those of the original Letter of Credit.
Section 5.02. Draws on Letter of Credit; Extensions.
(a) The Trustee shall make timely draws in accordance with the Letter
of Credit such that timely payment under Section 4.01 is made without resort to
the sources of payment described in Subsections (b) and (c) of Section 4.01.
Such draws shall be in amounts equal to the total principal and interest due on
redemption price, or purchase price payable with respect to, the Bonds, less the
amounts (if any) available under Subsection (a) of Section 4.01. The Trustee
shall make such draws in such a fashion as to be able to obtain by 3:15 p.m. and
to make such payment when due in accordance with this Indenture and the Bonds.
(b) In drawing on the Letter of Credit, the Trustee will be acting on
behalf of the Bondholders by facilitating payment of the Bonds and not on behalf
of the Issuer or Company and shall not be subject to the control of either.
Proceeds of draws on the Letter of Credit shall be held in the Bond Fund.
(c) The Trustee shall advise the Company and the Parent by telecopy or
telex on the date of each draw on the Letter of Credit of the amount and date of
such draw and of the reason for such draw.
(d) For extensions of the term of the Letter of Credit, the Trustee
shall, at the direction of a Company Representative, but only if required to
evidence an extension of the term of the Letter of Credit, surrender the Letter
of Credit to the Bank in exchange for a new Letter of Credit of the Bank or the
Letter of Credit with notations thereon, as the Bank may so elect, conforming in
all material respects to the Letter of Credit except that the expiration date
shall be extended. Any such extension shall be for a period of at least one year
or, if less, until the 15th day following the maturity date of the Bonds.
Section 5.03. Substitute Letter of Credit.
(a) At any time while a Letter of Credit is in effect with respect to
the Bonds, upon at least 60 days' prior written notice to the Trustee, the
Company may, provide for the delivery to the Trustee of a substitute Letter of
Credit complying with the provisions of this Indenture (the "Substitute Letter
of Credit"), which shall be effective upon acceptance by the Trustee. Any
Substitute Letter of Credit shall have a stated expiration date of at least one
year following the effective date thereof.
(b) On or before the date of delivery of any Substitute Letter of
Credit to the Trustee, as a condition to the acceptance by the Trustee of such
Substitute Letter of Credit, the Company shall furnish to the Trustee:
(i) An opinion of Counsel addressed to the Trustee to the effect that
(A) the Substitute Letter of Credit is the valid and binding obligation of the
issuer thereof enforceable against such issuer in accordance with its terms
except insofar as its enforceability may be limited by any insolvency or similar
proceedings applicable to the issuer or by proceedings affecting generally the
rights of the issuer's creditors or by general equitable principles; (B)
payments of principal, interest or purchase price on the Bonds from the proceeds
of a draw on the Substitute Letter of Credit will not constitute avoidable
preferences under any applicable bankruptcy, reorganization, insolvency or other
similar laws; and (C) the Substitute Letter of Credit does not constitute a
separate security requiring registration under any applicable federal or state
securities laws. In the case of a Substitute Letter of Credit issued by a branch
or agency of a foreign commercial bank, there shall also be delivered an opinion
of Counsel from a firm licensed to practice law in the jurisdiction in which the
head office of such bank is located, addressed to the Trustee, to the effect
that the Substitute Letter of Credit is the valid and binding obligation of such
bank, enforceable against such bank in accordance with its terms, subject to the
limitations referred to in Section 5.03(b)(i)(A) above;
(ii) written evidence that the issuer of the Substitute Letter of
Credit meets the requirements for an issuer of a Letter of Credit as set forth
in the definition of Letter of Credit; and
(iii) an opinion of Bond Counsel addressed to the Trustee to the effect
that the delivery and acceptance of such Substitute Letter of Credit is
authorized under this Indenture and its delivery and acceptance will not
adversely affect the exclusion from gross income of the interest on the Bonds
for federal income tax purposes;
The Trustee shall accept any such Substitute Letter of Credit only in
accordance with the terms, and upon satisfaction of the conditions, contained in
this Section and any other applicable provisions of this Indenture.
(c) Not more than 60 days and not less than 15 days prior to the
effective date of the Substitute Letter of Credit, the Trustee shall, in
addition to the notice required by Section 12.01(b), send by registered or
certified mail, to each holder of the Bonds, notice of the issuance of the
Substitute Letter of Credit, which notice shall include (i) the identity of the
issuer thereof and (ii) the date the Substitute Letter of Credit will be
effective.
Section 5.04. Enforcement of the Letter of Credit. The Trustee shall
hold and maintain the Letter of Credit for the benefit of the Owners of the
Bonds until the Letter of Credit terminates or expires in accordance with its
terms.
When the Letter of Credit terminates or expires in accordance with its
terms, the Trustee shall immediately surrender it to the Bank. Except in the
case of a redemption in part pursuant to Article III hereof or any other
reduction in the principal amount of Bonds outstanding, the Trustee shall not
request that the Bank reduce the amount of the Letter of Credit. If at any time,
all Bonds shall cease to be outstanding, the Trustee shall surrender the Letter
of Credit to the Bank in accordance with the terms thereof.
If at any time the Bank fails to honor a draft presented under the
Letter of Credit in conformity with the terms thereof, the Trustee shall give
immediate telephonic notice thereof to the Company.
<PAGE>
ARTICLE VI
COVENANTS
Section 6.01. Payment of Bonds. The Issuer shall promptly pay, or cause
to be paid, the principal of, whether at maturity, by acceleration, call for
redemption, or otherwise, and purchase price and interest on the Bonds, to the
Trustee for payment to the registered owners of the Bonds on the dates and in
the manner provided herein authorizing the issuance thereof and in the Bonds,
according to the true intent and meaning thereof, but subject to the limitations
set forth in Section 2.01(a) hereof.
Section 6.02. Covenants and Representations of Issuer. The Issuer shall
observe and perform all covenants, conditions and agreements on its part
contained in this Indenture, in every Bond executed, authenticated and delivered
hereunder and in all of its proceedings pertaining thereto; provided, however,
that the liability of the Issuer under any such covenant, condition or agreement
for any breach or default by the Issuer thereof or thereunder shall be limited
solely to the Receipts and Revenues of the Issuer from the Agreement. The Issuer
represents that it is duly authorized under the Constitution and laws of the
State, including particularly and without limitation the Act, to issue the Bonds
authorized by this Indenture and to execute this Indenture, to assign the
Financing Agreement and the Note and to pledge the Receipts and Revenues of the
Issuer from the Agreement in the manner and to the extent herein set forth; that
all action on its part with respect to the issuance of the Bonds and the
execution and delivery of this Indenture duly and effectively has been taken;
and that the Bonds in the hands of the owners thereof are and will be valid and
enforceable limited obligations of the Issuer according to the terms thereof
except as limited by bankruptcy and usual equity principles.
Section 6.03. Further Assurances. The Issuer shall execute and deliver
such supplemental indentures and such further instruments, and do such further
acts, as the Trustee may reasonably require for the better assuring, assigning
and confirming to the Trustee the amounts assigned under this Indenture for the
payment of the Bonds.
<PAGE>
ARTICLE VII
DISCHARGE OF INDENTURE
Section 7.01. Bonds Deemed Paid; Discharge of Indenture. All Bonds
shall be deemed paid for all purposes of this Indenture when
(a) payment of the greater of the principal of and the maximum amount
of interest that may become due on the Bonds to the due date of such principal
and interest (whether at maturity, upon redemption, acceleration or otherwise)
and the payment of the purchase price of any Bond either has been provided for
by depositing with the Trustee (A) moneys sufficient to make such payment, which
moneys must comply with the provisions of Section 4.01(b) or (c) and/or (B)
noncallable U.S. Government Obligations maturing as to principal and interest in
such amounts and at such times as will insure the availability of sufficient
moneys to make such payment without regard to the reinvestment thereof, provided
that (i) such U.S. Government Obligations must be purchased from Available
Moneys and (ii) the Trustee shall have received written evidence from each
Rating Agency, if any, rating the Bonds that as a result of such action, their
rating on the Bonds will not be lowered or eliminated; and
(b) all compensation and expenses of the Issuer and the Trustee (as
well as the fees and expenses of their Counsel) pertaining to each Bond in
respect of which such payment or deposit is made have been paid or provided for
to the respective satisfaction of the Trustee.
When a Bond is deemed paid, it shall no longer be secured by or
entitled to the benefits of this Indenture, except for payment from moneys or
U.S. Government Obligations under (a)(ii) above.
Notwithstanding the foregoing, no deposit under (a)(ii) above made for
the purpose of paying the redemption price of a Bond (as opposed to the final
payment thereof upon maturity) will be deemed a payment of a Bond as aforesaid
until (x) notice of redemption of the Bond is given in accordance with Article
III or, if the Bond is not to be redeemed within the next 60 days, until the
Company has given the Trustee, in form satisfactory to the Trustee, irrevocable
instructions to notify, as soon as practicable, the holder of the Bond, in
accordance with Article III, that the deposit required by (a)(ii) above has been
made with the Trustee and that the Bond is deemed to be paid under this Article
and stating the redemption date upon which moneys are to be available for the
payment of the principal of the Bond or (y) the maturity of the Bond.
Additionally, and while the deposit under clause (a)(ii) above made for the
purpose of paying the final payment of a Bond upon its maturity will be deemed a
payment of such Bond as aforesaid, the Trustee shall mail notice to the Owner of
such Bond, as soon as practicable, stating that the deposit required by (a)(ii)
above has been made with the Trustee and that the Bond is deemed to be paid
under this. Article.
When all Outstanding Bonds are deemed paid under the foregoing
provisions of this Section and other sums due hereunder, under the Agreement are
paid, the Trustee shall upon request acknowledge the discharge of the Issuer's
obligations under this Indenture, obligations under Article II in respect of the
transfer, exchange, registration, discharge from registration and replacement of
Bonds, and obligations under Section 9.06 hereof with respect to the Trustee's
compensation and indemnification, and the Trustee without further direction
shall surrender the Letter of Credit to the Bank, in accordance with the terms
of the Letter of Credit. Bonds delivered to the Trustee for payment shall be
canceled by the Trustee pursuant to Section 2.07.
A Company Representative shall direct the deposit, investment and use
of the moneys and securities described in this Section such that no deposit will
be made and no use made of any such deposit which would cause any Bonds to be
treated as "arbitrage bonds" within the meaning of Section 148 of the Code.
Before accepting or using any such deposit, the Trustee may request an opinion
of Bond Counsel as to whether such use or acceptance would cause the Bonds to be
so treated and that all conditions hereunder have been satisfied, and the
Trustee may conclusively rely on such opinion with regard thereto.
The Trustee may request a certificate of an independent certified
public accountant to the effect that a deposit will be sufficient to defease the
Bonds as provided in this Section 7.01.
Section 7.02. Application of Trust Money. The Trustee shall hold in
trust money or U.S. Government Obligations deposited with it pursuant to the
preceding Section and shall apply the deposited money and the money from the
U.S. Government Obligations in accordance with this Indenture only to the
payment of principal of, interest on, or purchase prince of, the Bonds.
<PAGE>
ARTICLE VIII
DEFAULTS AND REMEDIES
Section 8.01. Events of Default. Each of the following events shall be
an Event of Default:
(a) Default in the due and punctual payment of any interest on any
Bond;
(b) Default in the due and punctual payment of the principal
of any Bond (whether at maturity, by acceleration or
redemption, upon purchase or otherwise);
(c) Subject to the provisions of Section 8.11, default in the
observance or performance of any other of the covenants, conditions or
agreements on the part of the Issuer under the Indenture or in the Bonds;
(d) Receipt by the Trustee of notice from the Bank that an Event of
Default has occurred under the Reimbursement Agreement accompanied by a demand
by the Bank that the Trustee declare the Bonds to be immediately due and
payable; or
(e) The occurrence of an Event of Default under the Financing
Agreement.
Section 8.02. Acceleration and Duty to Draw on Letter of Credit.
(a) Upon the occurrence of an Event of Default under Section 8.01(a),
(b) or (d) hereof, the Trustee shall, by notice to the Issuer, the Holders, the
Bank and the Company, declare the entire unpaid principal of and interest on the
Bonds immediately due and payable and, thereupon, the entire unpaid principal of
and interest on the Bonds shall forthwith become immediately due and payable.
Upon the occurrence of any other Event of Default, the Trustee may and, if
requested by the holders of 25% in aggregate principal amount of Bonds then
Outstanding, shall, by notice to the Issuer, the Holders, the Bank and the
Company, declare the entire unpaid principal of and interest on the Bonds
immediately due and payable and, thereupon, the entire unpaid principal of and
interest on the Bonds shall forthwith become due and payable; provided, however,
that anything in this Article VIII to the contrary, so long as the Bank has
honored all proper drawings under the Letter of Credit, without the prior
written consent of the Bank, the Trustee shall not have the right to declare the
principal of all Bonds and the interest accrued thereon to become immediately
due and payable as a result of the occurrence.of an Event of Default under
Section 8.01(c) or (e). Upon any such declaration the Issuer shall forthwith pay
to the holders of the Bonds the entire unpaid principal of and accrued interest
on the Bonds, but only from the revenues and receipts herein specifically
pledged for such purpose. Upon the occurrence of an Event of Default specified
in Section 8.01 and a declaration of acceleration hereunder, the Trustee as
assignee of the Issuer shall immediately exercise its right under the Note and
the Agreement to declare all installments on the Note to be immediately due and
payable. In the event the Trustee fails to accelerate as required by this
Section 8.02(a), the owners of a majority in aggregate principal amount of Bonds
outstanding shall have the right to take such actions.
(b) Upon the acceleration of the maturity of the Bonds, by declaration
or otherwise, the Trustee shall immediately draw upon the Letter of Credit for
the aggregate unpaid principal amount of the Bonds and all interest accrued
thereon, which shall be applied immediately as set forth in Section 8.03. Upon
such acceleration, interest on the Bonds shall cease to accrue as of the date of
declaration of such acceleration.
Section 8.03. Disposition of Amounts Drawn on Letter of Credit;
Assignment of Rights to Contest.
(a) All amounts drawn on the Letter of Credit by the Trustee in
accordance with Section 8.02(b) shall be held by the Trustee in the Bond Fund
(and invested in accordance with Section 4.08), shall be applied immediately to
the payment of principal and interest accrued on the Bonds.
(b) The Trustee hereby assigns to the Bank all its rights to contest or
otherwise dispute in the Trustee's name, place and stead and at the Bank's sole
election and cost any claim of preferential transfer made by a bankruptcy
trustee, debtor-in-possession or other similar official with respect to any
amount paid to the Trustee by or on behalf of the Company or the Issuer to be
applied to principal of or interest on the Bonds, to the extent of payments made
to the Trustee pursuant to a drawing under the Letter of Credit. The Trustee
shall cooperate with and assist the Bank in any such contest or dispute as the
Bank may reasonably request; provided, however, that the Bank shall reimburse
the Trustee for its reasonable costs incurred in connection with providing such
cooperation and assistance. The Trustee shall give the Bank prompt notice of any
claim of preferential transfer of which the Trustee has knowledge. The foregoing
assignment shall not be deemed to confer upon the Bank any right to contest or
otherwise dispute any claim of preferential transfer with respect to any amount
as to which there has been no drawing under the Letter of Credit. The assignment
set forth above shall in no event be effective until the Bank shall have first
furnished to the Trustee an agreement to indemnify the Trustee and the holders
of the Bonds against any claim, liability or damage that they might suffer by
reason of any such contest or dispute.
Section 8.04. Other Remedies; Rights of Bondholders. Upon the
occurrence of an Event of Default the Trustee, subject to the terms of this
Indenture, may proceed to protect and enforce its rights and the rights of the
Bondholders by mandamus or other suit, action or proceeding at law or in equity,
including but not limited to an action for specific performance of any agreement
herein contained or making a demand for payment from the Company and taking
action pursuant to any other document to which the Trustee is a party.
Upon the occurrence of an Event of Default, if requested to do so by
the holders of 25% in aggregate principal amount of Bonds then outstanding and
if indemnified as provided in Section 9.01(d), the Trustee, subject to the terms
of this Indenture, shall exercise such one or more of the rights and powers
conferred by this Article as the Trustee, upon being advised by counsel, shall
deem most expedient in the interests of the Bondholders.
No remedy conferred by this Indenture upon or reserved to the Trustee
or to the Bondholders is intended to be exclusive of any other remedy, but each
such remedy shall be cumulative and shall be in addition to any other remedy
given to the Trustee or to the Bondholders hereunder or now or hereafter
existing at law or in equity or by statute.
No delay or omission to exercise any right or power accruing upon any
default or Event of Default shall impair any such right or power or shall be
construed to be a waiver of any such default or Event of Default or acquiescence
therein, and every such right and power may be exercised from time to time and
as often as may be deemed expedient.
No waiver of any default or Event of Default hereunder, whether by the
Trustee pursuant to Section 8.10 or by the Bondholders, shall extend to or shall
affect any subsequent default or Event of Default or shall impair any rights or
remedies consequent thereon.
Section 8.05. Right of Bondholders To Direct Proceedings. Anything in
this Indenture to the contrary notwithstanding, the holders of a majority in
aggregate principal amount of Bonds then outstanding shall have the right, at
any time, by an instrument or instruments in writing executed and delivered to
the Trustee, to direct the method and place of conducting all proceedings to be
taken in connection with the enforcement of the terms and conditions of this
Indenture or for the appointment of a receiver or any other proceedings
hereunder; provided, however, that such direction shall not be otherwise than in
accordance with the provisions of law and of this Indenture.
Section 8.06. Application of Moneys. All moneys received by the Trustee
pursuant to any right given or action taken under the provisions of this Article
shall, after payment of the cost and expenses of the proceedings resulting in
the collection of such moneys and of the expenses, liabilities and advances
incurred or made by the Trustee and the fees and expenses, if any, of the Issuer
in carrying out this Indenture or the Agreement, be deposited in the Bond Fund;
provided, however, that no proceeds from any draw on the Letter of Credit shall
be used for any purpose other than payment of principal of and interest on the
Bonds or purchase thereof.
All moneys in the Bond Fund shall be applied as follows:
(a) Unless the principal of all the Bonds shall have become of shall
have been declared due and payable:
First - To the payment to the persons entitled thereto of all
installments of interest then due on the Bonds, in the order of the maturity of
the installments of such interest and, if the amount available shall not be
sufficient to pay in full any particular installment, then to the payment
ratably, according to the amounts due on such installment, to the persons
entitled thereto, without any discrimination or preference except as provided in
Section 8.13 and as to any difference in the respective rates of interest
specified in the Bonds;
Second - To the payment to the persons entitled thereto of the unpaid
principal of any of the Bonds which shall have become due (other than Bonds
called for redemption for the payment of which moneys are held pursuant to the
provisions of this Indenture), in the order of their due dates, with interest on
such Bonds at the respective rates specified therein from the respective dates
upon which they become due and, if the amount available shall not be sufficient
to pay in full Bonds due on any particular date, together with such interest,
then first to the payment of such interest ratably, according to the amount of
such interest due on such date, and then to the amount of such principal,
ratably, according to the amount of such principal due on such date, to the
persons entitled thereto, without any discrimination or preference except as
provided in Section 8.13 and as to any difference in the respective rates of
interest specified in the Bonds; and
Third - To the extent permitted by law, to the payment to the persons
entitled thereto of the unpaid interest on overdue installments of interest
ratably, according to the amounts of such interest due on such date, without any
discrimination or preference except as provided in Section 8.13 and as to any
difference in the respective rates of interest specified in the Bonds.
(b) If the principal of all the Bonds shall have become due or shall
have been declared due and payable, all such moneys shall be applied to the
payment of the principal and interest then due and unpaid upon the Bonds,
including to the extent permitted by law interest on overdue installments of
interest, without preference or priority of principal over interest or of
interest over principal, or of any installment of interest over any other
installment of interest, or of any Bond over any other Bond, ratably, according
to the amounts due respectively for principal and interest, to the persons
entitled thereto, without any discrimination or privilege except as provided in
Section 8.13.
(c) If the principal of all the Bonds shall have been declared due and
payable, and if such declaration shall thereafter have been rescinded and
annulled under the provisions of this Article, then, subject to the provisions
of subsection (b) of this Section in the event that the principal of all the
Bonds shall later become due or be declared due and payable, the moneys shall be
applied in accordance with the provisions of subsection (a) of this Section.
(d) All amounts received by the Trustee from a draw upon the Letter of
Credit shall be applied exclusively to the payment of principal of and interest
on the Bonds.
Whenever moneys are to be applied pursuant to the provisions of this
section, such moneys shall be applied at such times and from time to time as the
Trustee shall determine, having due regard to the amount of such moneys
available for application and the likelihood of additional moneys becoming
available for such application in the future. Whenever the Trustee shall apply
such moneys, it shall fix the date (which shall be an Interest Payment Date
unless it shall deem another date more suitable) upon which such application is
to be made. The Trustee shall give such notice as it may deem appropriate of the
deposit with it of any such moneys and of the fixing of any such date, and shall
not be required to make payment to the holder of any Bond until such Bond is
presented to the Trustee for appropriate endorsement or for cancellation if
fully paid.
Whenever all principal of and interest on all Bonds have been paid
under the provisions of this Section and all expenses and charges of the Trustee
and the Issuer have been paid, and all obligations of the Company to the Bank
pursuant to the Reimbursement Agreement have been paid in full the balance
remaining in the Bond Fund shall be paid to the Company as provided in Section
4.07.
Section 8.07. Remedies Vested in Trustee. All rights of action
(including the right to file proof of claims) under this Indenture or under any
of the Bonds may be enforced by the Trustee without the possession of any of the
Bonds or the production thereof in any trial or other proceeding relating
thereto and any such suit or proceeding instituted by the Trustee may be brought
in its name as Trustee without the necessity of joining as plaintiffs or
defendants any holders of the Bonds, and any recovery of judgment shall be for
the equal benefit of the holders of the outstanding Bonds.
Section 8.08. Limitations on Suits. Except to enforce the rights given
under Sections 8.02(a), 8.05 and 8.12, no holder of any Bond shall have any
right to institute any suit, action or proceeding in equity or at law for the
enforcement of this Indenture or for the execution of any trust thereof or any
other remedy hereunder, unless (a) a default has occurred of which the Trustee
has been notified as provided in Section 9.05, or of which by such Section it is
deemed to have notice, (b) such default shall have become an Event of Default
and the holders of at least 25% in aggregate principal amount of Bonds then
outstanding shall have made written request to the Trustee and shall have
offered it reasonable opportunity either to proceed to exercise the powers
hereinbefore granted or to institute such action, suit or proceeding in its own
name, (c) such holders have offered to the Trustee indemnity as provided in
Section 9.01(d), (d) the Trustee for 60 days after such notice shall fail or
refuse to exercise the powers hereinbefore granted, or to institute such action,
suit or proceeding in its own name or in the name of such holders, (e) no
direction inconsistent with such request has been given to the Trustee during
such 60 day period by the holders of a majority in aggregate principal amount of
Bonds then outstanding, and (f) notice of such action, suit or proceeding is
given to the Trustee; it being understood and intended that no one or more
holders of the Bonds shall have any right in any manner whatsoever to affect,
disturb or prejudice this Indenture by its, his or their action or to enforce
any right hereunder except in the manner herein provided, and that all
proceedings at law or in equity shall be instituted and maintained in the manner
herein provided and for the equal benefit of the holders of all Bonds then
outstanding.
The notification, request and offer of indemnity set forth in the
preceding paragraph, at the option of the Trustee, shall be conditions precedent
to the execution of the powers and trusts in this Indenture and to any action or
cause of action for the enforcement of this Indenture or for any other remedy
hereunder.
Section 8.09. Termination of Proceedings. In case the Trustee shall
have proceeded to enforce any right under this Indenture by the appointment of a
receiver, by entry or otherwise, and such proceedings shall have been
discontinued or abandoned for any reason, or shall have been determined
adversely, then.and in every such case the Issuer, the Company, the Bondholders
and the Trustee shall be restored to their former positions and rights
hereunder, and all rights, remedies and powers of the Trustee shall continue as
if no such proceedings had been taken.
Section 8.10. Waivers of Events of Default. The Trustee, with the
written consent of the Bank, may waive any Event of Default hereunder and its
consequences and rescind any declaration of maturity of principal of and
interest on the Bonds and the Note, and shall do so with the consent of the
Bank, upon the written request of the holders of (a) a majority in aggregate
principal amount of Bonds then outstanding in respect of which default in the
payment of principal and/or interest exists, or (b) a majority in aggregate
principal amount of Bonds then outstanding in the case of any other default;
provided, however, that:
(1) there shall not be waived without the consent of the holders of all
Bonds then outstanding:
(A) any default in the payment of the principal of any
outstanding Bonds when due (whether at maturity or by mandatory
or optional redemption), or
(B) any default in the payment when due of the interest on any such
Bonds unless, prior to such waiver or rescission:
(i) there shall have been paid or provided for all arrears of interest
at the rate borne by the Bonds on overdue installments of principal, all arrears
of payments of principal when due and all expenses of the Trustee in connection
with such default, and
(ii) in case of any such waiver or rescission, or in case of the
discontinuance, abandonment or adverse determination of any proceeding taken by
the Trustee on account of any such default, the Trustee and the Bondholders
shall be restored to their respective former positions and rights hereunder;
(2) no declaration of maturity under Section 8.02 made at the request
of the holders of 25% in aggregate principal amount of Bonds then outstanding
shall be rescinded unless requested by the holders of a majority in aggregate
principal amount of Bonds then outstanding; and
(3) unless the Trustee has received written evidence that the Letter of
Credit is reinstated in full as to principal and interest, there shall be no
waiver or rescission if the Letter of Credit shall have been drawn upon due to
the occurrence of an Event of Default.
No such waiver or rescission shall extend to any subsequent or other
default, or impair any right consequent thereon.
Section 8.11. Notice of Defaults; Opportunity of Company to Cure
Defaults. Anything contained in this Indenture to the contrary notwithstanding,
no default specified in Section 8.01(c) on the part of the Issuer shall
constitute an Event of Default until (a) notice of such default shall be given
(1) by the Trustee to the Issuer, the Bank and the Company or (2) by the holders
of 25% in aggregate principal amount of Bonds then outstanding to the Trustee,
the Issuer, the Bank and the Company, and (b) the Issuer and the Company shall
have had 30 days after such notice to correct such default or cause such default
to be corrected, and shall not have corrected such default or caused such
default to be corrected within such period; provided, however, if any default
specified in Section 8.01(c) shall be such that it cannot be corrected within
such period, it shall not constitute an event of default if corrective action is
instituted by the Issuer or the Company within such period and diligently
pursued until such default is corrected; provided, further, that the period for
corrective action shall not in any event extend more than 180 days after such
notice to correct such default.
With regard to any alleged default concerning which notice is given to
the Company, the Company may, but is under no obligation to, perform any
covenant, condition or agreement the nonperformance of which is alleged in such
notice to constitute a default, in the name and stead of the Issuer with full
power to do any and all things and acts to the same extent that the Issuer could
do and perform any such things and acts with power of substitution.
Section 8.12. Unconditional Right To Receive Principal and Interest.
Nothing in this Indenture shall, however, affect or impair the right of any
Bondholder to enforce, by action at law, payment of the principal or purchase
price of or interest on any Bond at and after the maturity thereof, or on the
date fixed for redemption or purchase or (subject to the provisions of Section
8.02) on the same being declared due prior to maturity as herein provided, or
the obligation of the Issuer to pay the principal or purchase price of and
interest on each of the Bonds issued hereunder to the respective holders thereof
at the time, place, from the source and in the manner herein and in the Bonds
expressed.
Section 8.13. Bonds Outstanding. In the event the Bonds are held under
a book entry system, the securities depositary shall provide the Trustee, upon
request of the Trustee, the names, addresses and principal amount of the
Beneficial Owners of the Bonds. Subject to the provisions of Section 8.14, such
Beneficial Owners shall be treated in all respects as the holders of the Bonds
for purposes of this Article, and the Trustee shall send notices to such
Beneficial owners as required by this Article. Notwithstanding anything else in
this Article to the contrary, Company Bonds shall not be deemed to be
outstanding for purposes of this Article and the Company as holder thereof shall
not be entitled to any rights or payments therefor pursuant to Sections 8.05,
8.06, 8.08 and 8.10.
Section 8.14. Bank Deemed Holder. For all purposes of this Article VIII
(other than receipt of payments), the Bank shall, so long as the Letter of
Credit shall not have been dishonored (other than for a reason permitted by the
Letter of Credit), be deemed the holder and registered owner of all Bonds. As
such, the Bank may take all actions permitted by this Article VIII to be taken
by the holders or Beneficial Owners of the Bonds, to the exclusion of the actual
holders and Beneficial Owners of the Bonds; the purpose of this Section 8.14
being to permit the Bank to direct the taking of actions and enforcement of
remedies permitted by this Article VIII so long as the Letter of Credit shall
not have been dishonored (other than for a reason permitted by the Letter of
Credit).
<PAGE>
ARTICLE IX
TRUSTEE
Section 9.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise its rights and powers and use the same degree of care and skill
in its exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) 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
(ii) in the absence of bad faith, gross negligence or willful
misconduct on its part, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed, upon certificates
or opinions furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates and opinions to
determine whether they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own grossly
negligent action, its own grossly negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of (b) above;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee was
grossly 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 8.05.
(d) The Trustee may refuse to perform any duty or exercise any right or
power unless it receives indemnity reasonably satisfactory to it against any
loss, liability or expense, but the Trustee may not require indemnity as a
condition to declaring the principal of and interest on the Bonds to be due
immediately under Section 8.02 or to drawing on the Letter of Credit or to
taking action under the Letter of Credit. The Trustee shall not be required to
give any bond or surety in respect of the execution of the trust created hereby
or the powers granted hereunder.
(e) The Trustee shall not be liable for interest on any cash held by it
except as the Trustee may agree with the Company or with the Issuer with the
consent of the Company.
(f) The Trustee may conclusively rely on a Company
Representative's certificate as to whether a Bankruptcy Filing has occurred.
(g) The Trustee shall strictly comply with the terms of the Letter
of Credit.
(h) The Trustee shall maintain adequate records pertaining to the funds
held by the Trustee, the investment thereof and the disbursement therefrom;
notwithstanding anything to the contrary in this Indenture or the Agreement, the
Trustee shall not be required to advance its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder.
(i) Every provision of this Indenture that in any way relates to
the Trustee is subject to all the foregoing paragraphs of this Section.
(j) The Trustee shall in no event be responsible for ensuring that the
rate of interest due and payable on the Bonds under this Indenture does not
exceed the highest legal rate of interest permissible under federal or state law
applicable thereto.
Section 9.02. Rights of Trustee.
(a) Subject to the foregoing Section, including, but not limited to,
Sections 9.01(b)(ii) and 9.01(c), the Trustee may rely on any document believed
by it to be genuine and to have been signed or presented by the proper person.
The Trustee need not investigate any fact or matter stated in the document. Any
action taken by the Trustee pursuant to this Indenture upon the request or
authority or consent of any person, who at the time of making such request or
authority or consent is the owner of any Bond, shall be conclusive and binding
upon all future owners of any Bond issued in replacement thereof.
(b) Before the Trustee acts or refrains from acting, it may require a
certificate of an appropriate officer or officers of the Issuer or the Company
or an opinion of Counsel stating that (i) the person making such certificate or
opinion has read such covenant or condition; (ii) the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based; (iii) 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 (iv) a statement as to whether or not, in the opinion of
such person, such condition or covenant has been complied with. The Trustee
shall not be liable for any loss or damage or action it takes or omits to take
in good faith in reliance on the certificate or opinion of Counsel.
(c) The Trustee may execute any of the trusts or powers hereunder and
perform any of its duties through agents, attorneys or employees or co-trustees
and shall not be responsible for the misconduct or negligence of any agent,
attorney, employee or co-trustee appointed with due care.
Section 9.03. Individual Rights of Trustee, Etc. The Trustee in its
individual or any other capacity may become the owner, custodian or pledgee of
Bonds and may otherwise deal with the Issuer, the Bank or with the Company or
its affiliates with the same rights it would have if it were not Trustee.
Section 9.04. Trustee's Disclaimer. Subject to Sections 9.01(b) and
9.01(c):
(a) the Trustee makes no representation as to the validity or adequacy
of this Indenture or the Bonds, and it shall not be responsible for any
statement in the Bonds or for the perfection of any lien created by this
Indenture or otherwise as security for the Bonds;
(b) the Trustee may construe any of the provisions of this Indenture
insofar as same may appear to be ambiguous or inconsistent with any other
provision hereof, and any construction of any such provisions hereof by Trustee
in good faith shall be binding upon the Bondholders, the Issuer and the Company;
(c) the Trustee shall not be responsible for the application of any of
the proceeds of the Bonds or any other moneys deposited with it and paid out,
withdrawn or transferred hereunder if such application, payment, withdrawal or
transfer shall be made in accordance with the provisions of this Indenture;
(d) the Trustee shall not be under any obligation to see to the
recording or filing of this Indenture, the Agreement, any financing statements
or any other instrument or otherwise to the giving to any person of notice of
the provisions hereof or thereof; and
(e) the Trustee shall not be under any obligation to effect or maintain
insurance or to renew any policies of insurance or to inquire as to the
sufficiency of any policies of insurance carried by the Company, or to report,
or make or file claims or proof of loss for, any loss or damage insured against
or that may occur, or, to keep itself informed or advised as to the payment of
any taxes or assessments, or to require any such payment to be made.
Section 9.05. Notice of Defaults. The Trustee shall not be required to
take notice, or be deemed to have notice, of any default or Event of Default
under this Indenture, other than an Event of Default under Section 8.01(a), (b)
or (d), unless specifically notified in writing at such address as set forth in
Section 12.01 hereof of such default or Event of Default by the holders of at
least 25% in principal amount of the Bonds then Outstanding, by the Bank, by the
Company.
If an event occurs that with the giving of notice or lapse of time or
both would be an Event of Default, and if the event is continuing and if the
Trustee has actual notice or is deemed to have notice thereof as herein
provided, the Trustee shall mail to each Bondholder and the Bank notice of the
event upon such occurrence. Except in the case of a default in payment or
purchase of any Bonds, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of Bondholders; provided that, in any event such
notice shall not be withheld from the Bank.
Section 9.06. Compensation and Indemnification of Trustee. For acting
under this Indenture, the Trustee shall be entitled to compensation by the
Company (which shall not be limited by any statute regulating the compensation
of a trustee of an express trust) of reasonable fees for the Trustee's services
and reimbursement of advances, counsel fees and other expenses reasonably and
necessarily made or incurred by the Trustee in connection with its services
under this indenture.
The Trustee shall be indemnified by the Company for, and shall be held
harmless against, any loss, liability or expense incurred without gross
negligence, willful misconduct or bad faith on the Trustee's part, arising out
of or in connection with the acceptance or administration of the trust created
by this Indenture, including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder.
To secure the payment or reimbursement to the Trustee provided for in
this Section, the Trustee shall have a senior claim, to which the Bonds are made
subordinate, on all money or property held or collected by the Trustee, except
moneys held under Article VII or otherwise held in trust to pay principal of,
interest on and purchase price of the Bonds, and except amounts drawn under the
Letter of Credit and Available Moneys on deposit in the Bond Fund.
Section 9.07. Eligibility of Trustee. Each of the initial Trustee and
any successor Trustee at the time of its appointment shall: (i) be a corporation
or national banking association duly organized under the laws of the United
States of America or any state or territory thereof, doing business and having
an office in such location as shall be approved by the Issuer, (ii) have a
combined capital and surplus of at least $25,000,000 as set forth in its most
recent published annual report of condition, and (iii) be authorized by law to
perform all the duties imposed upon it by this Indenture.
Section 9.08. Replacement of Trustee. The Trustee may resign and be
discharged of the trust created by this Indenture by notifying the Issuer, the
Bank and the Company; provided, however, that no such resignation shall become
effective until the appointment of a successor trustee, as hereinafter provided.
The holders of not less than a majority in principal amount of the Bonds may
remove the Trustee by notifying the removed Trustee and may appoint a successor
Trustee with the Issuer's, the Bank's and the Company's prior written consent;
provided, however, that no such removal-shall become effective until the
appointment of a successor trustee, as hereinafter provided. The Issuer may, in
its sole discretion, and at the request of the Company shall, remove the
Trustee, but in the case where such removal is requested by the Company, only
after obtaining the prior written consent of the Bank. Upon the removal or
replacement of the Trustee for any reason, the Issuer and the Company shall give
written notice thereof to the Bank by first-class mail, postage prepaid.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Issuer, with the prior written consent of
the Bank and the Company, shall, at the expense of the Company, use its best
efforts to appoint promptly a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuer, the Bank and the Company.
Immediately thereafter, the retiring Trustee shall transfer all property held by
it as Trustee to the successor Trustee, the resignation or removal of the
retiring Trustee shall then (but only then) become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall notify the holders of the Bonds of its
acceptance of the trusts hereunder by first-class mail promptly following such
acceptance.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuer, the
Bank, the Company or the holders of a majority in principal amount of the Bonds
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 9.07, any Bondholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Section 9.09. Successor Trustee or Agent by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its assets (or, in the case of a bank or trust company, its corporate trust
assets) to, another corporation or national banking association, the resulting,
surviving or transferee corporation or national banking association without any
further act shall be the successor Trustee, provided that such corporation or
national banking association shall otherwise be eligible to serve in such
capacity under this Indenture.
Section 9.10. Appointment of Co-Trustee. It is the purpose of this
Indenture that there shall be no violation of any law of any jurisdiction
(including particularly the law of the State) denying or restricting the right
of banking corporations or associations to transact business as trustee in such
jurisdiction. It is recognized that in case of litigation under this Indenture
or the Agreement, and in particular in case of the enforcement thereof upon a
default or an Event of Default, or in case the Trustee deems that by reason of
any present or future law of any jurisdiction it may not exercise any of the
powers, rights or remedies herein granted to the Trustee or hold title to the
properties, in trust, as herein granted, or take any action which may be
desirable or necessary in connection therewith, it may be necessary that the
Trustee appoint an additional individual or institution as a separate or
co-trustee. The following provisions of this Section are adapted to these ends.
In the event that the Trustee appoints an additional individual or
institution as a separate or co-trustee, each and every remedy, power, right,
claim, demand, cause of action, immunity, estate, title, interest and lien
expressed or intended by this Indenture to be exercised by or vested in or
conveyed to the Trustee with respect thereto shall be exercisable by and vest in
such separate or co-trustee but only to the extent necessary to enable such
separate or co-trustee to exercise such powers, rights and remedies, and every
covenant and obligation necessary to the exercise thereof by such separate or
co-trustee shall run to and be enforceable by either of them; provided, however,
that no co-trustee shall be liable by reason of any act or omission of any other
such co-trustee.
Should any instrument in writing from the Issuer be required by the
separate or co-trustee so appointed by the Trustee for more fully and certainly
vesting in and confirming to him or it such properties, rights, powers, trusts,
duties and obligations, any and all such instruments in writing shall, on
request, be executed, acknowledged and delivered by the Issuer. In case any
separate or co-trustee or a successor to either shall die, become incapable of
acting, resign or be removed, all the estates, properties, rights, powers,
trusts, duties and obligations of such separate or co-trustee, so far as
permitted by law, shall vest in and be exercised by the Trustee until the
appointment of a new co-trustee or successor to such separate or co-trustee.
<PAGE>
ARTICLE X
AMENDMENTS OF AND
SUPPLEMENTS TO INDENTURE
Section 10.01. Without Consent of Bondholders. The Issuer and the
Trustee may amend or supplement this Indenture or the
Bonds without prior notice to or consent of any Bondholder:
(a) to cure any ambiguity, inconsistency or formal defect or
omission;
(b) to grant to the Trustee for the benefit of the Bondholders
additional rights, remedies, powers or authority;
(c) to subject to this Indenture additional collateral or to add
other agreements of the Issuer;
(d) to modify this Indenture or the Bonds to permit qualification under
the Trust Indenture Act of 1939, as amended, or any similar federal statute at
the time in effect; to permit the qualification of the Bonds for sale under the
securities laws of any state of the United States; or to prevent the application
of the Investment Company Act of 1940, as amended, to any of the transactions
contemplated by, or any of the parties to this Indenture, the Agreement or the
Bonds;
(e) to provide for uncertificated Bonds or to make any change
necessary to give effect to a custody agreement pursuant to Section 2.05(d);
(f) to evidence the succession of a new Trustee or the appointment
by the Trustee of a co-trustee;
(g) to make any change to reflect any provision in the Code or the
interpretations thereof by the Internal Revenue Service provided that such
change does not materially adversely affect the rights of any Bondholder;
(h) to make any change not materially adversely affecting any
Bondholder's rights requested by the Rating Agency in order (i) to obtain a
rating from the Rating Agency after the initial issuance of the Bonds if the
Bonds are initially issued without a rating equivalent to the rating assigned to
other securities supported by a Letter of Credit of the Bank or (ii) to maintain
any rating on the Bonds;
(i) to make any change not materially adversely affecting any
Bondholder's rights to provide for or to implement the
provisions of a Letter of Credit;
(j) to make any change that does not materially adversely affect
the rights of any Bondholder;
(k) to add to this Indenture the obligation of the Trustee, the Issuer
or the Company to disclose such information regarding the Bonds, the Facility,
the Issuer, the Company or the Bank as shall be required or recommended to be
disclosed in accordance with applicable regulations or guidelines established
by, among others, the American Bankers Association Corporate Trust Committee; or
(l) to provide for the issuance of Additional Bonds under Section
2.09.
Section 10.02. With Consent of Bondholders. If an amendment of or
supplement to this Indenture or the Bonds without any consent of Bondholders is
not permitted by the preceding Section, the Issuer and the Trustee may enter
into such amendment or supplement without prior notice to any Bondholders but
with the consent of the holders of at least a majority in principal amount of
the Bonds then outstanding. However, without the consent of all Bondholders
affected, no amendment or supplement may (a) extend the maturity of the
principal of, or interest on, any Bond, (b) reduce the principal amount of, or
rate of interest on, any Bond or change the terms of any redemption, (c) effect
a privilege or priority of any Bond or Bonds over any other Bond or Bonds
(except as provided herein), (d) reduce the percentage of the principal amount
of the Bonds required for consent to such amendment or supplement, (e) impair
the exclusion from gross income for purposes of federal income taxation of
interest on any Bond, (f) create a lien ranking prior to or on a parity with the
lien of this Indenture on the property described in the Granting Clause of this
Indenture or (g) deprive any Bondholder of the lien created by this Indenture on
such property. In addition, if moneys or U.S. Government Obligations have been
deposited or set aside with the Trustee pursuant to Article VII for the payment
of Bonds and those Bonds shall not have in fact been actually paid in full, no
amendment to the provisions of that Article shall be made without the consent of
the holder of each of those Bonds affected.
Section 10.03. Effect of Consents. After an amendment or supplement
becomes effective, it shall bind every Bondholder unless it makes a change
described in any of the lettered clauses of the preceding Section. In such case,
the amendment or supplement shall bind each Bondholder who consented to it and
each subsequent holder of a Bond or portion of a Bond evidencing the same debt
as the consenting holder's Bond.
Section 10.04. Notation on or Exchange of Bonds. If an amendment or
supplement changes the terms of a Bond, the Trustee may request that the holder
deliver the Bond to it. The Trustee may place an appropriate notation on the
Bond regarding the changed terms and return it to the holder. Alternatively, if
the Trustee, the Issuer and the Company determine, the Issuer in exchange for
the Bond shall issue and the Trustee shall authenticate a new Bond that reflects
the changed terms. In either event, the cost of placing such notation on the
Bond(s) shall be borne by the Company.
Section 10.05. Signing by Trustee of Amendments and Supplements. The
Trustee shall sign any amendment or supplement to this Indenture or the Bonds
authorized by this Article if the amendment or supplement 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 an amendment or supplement,
the Trustee shall be entitled to receive and (subject to Section 9.01) shall be
fully protected in relying on an Opinion of Counsel stating that such amendment
or supplement is authorized by this Indenture and is duly authorized, executed
and delivered and enforceable in accordance with its terms.
Section 10.06. Company and Bank Consent Required. An amendment or
supplement to this Indenture or the Bonds shall not become effective unless the
Company and the Bank deliver to the Trustee their written consents to the
amendment or supplement.
Section 10.07. Notice to Bondholders. The Trustee shall cause notice of
the execution of a supplemental indenture to be mailed promptly by first-class
mail to each Bondholder at the holder's registered address. The notice shall
state briefly the nature of the supplemental indenture and that copies thereof
are on file with the Trustee for inspection by all Bondholders.
Section 10.08. Opinion of Bond Counsel Required. An amendment or
supplement to this Indenture shall not become effective unless the Trustee has
received an opinion of Bond Counsel addressed to the Trustee, the Bank and the
Company to the effect that the amendment or supplement will not impair the
exclusion of interest on the Bonds from the gross income of the recipients
thereof for purposes of federal income taxation.
<PAGE>
ARTICLE XI
AMENDMENTS OF AND SUPPLEMENTS TO AGREEMENT
Section 11.01. Without Consent of Bondholders. The Issuer, with the
consent of the Company, may enter into, and the Trustee may consent to, any
amendment of or supplement to the Agreement or the Note, without prior notice to
or consent of any Bondholder, if the amendment or supplement is required (a) by
the provisions of the Agreement or this Indenture, (b) to cure any ambiguity,
inconsistency or formal defect or omission, (c) to identify more precisely the
Facility, (d) in connection with any authorized amendment of or supplement to
this Indenture, or (e) to make any change comparable to those described in
Section 10.01.
Section 11.02. With Consent of Bondholders. If an amendment of or
supplement to the Agreement or the Note without any consent of Bondholders is
not permitted by the foregoing Section, the Issuer may enter into, and the
Trustee may consent to, such amendment or supplement without prior notice to any
Bondholder but with the consent of the holders of at least a majority in
principal amount of the Bonds then outstanding. However, without the consent of
each Bondholder affected, no amendment or supplement may result in a change
comparable to those described in the lettered clauses of Section 10.02.
Section 11.03. Consent by Trustee to Amendments or Supplements. The
Trustee shall consent to any amendment or supplement to the Agreement or the
Note authorized by this Article if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may, but need not, consent to such an amendment or
supplement. In consenting to an amendment or supplement, the Trustee shall be
entitled to receive and (subject to Section 9.01) shall be fully protected in
relying on an opinion of Counsel stating that such amendment or supplement is
authorized by this Indenture and has been duly authorized, executed and
delivered and is enforceable in accordance with its terms.
Section 11.04. Notice to Bondholders. The Trustee shall cause notice of
the execution of an amendment or supplement to the Agreement or the Note to be
mailed promptly by first-class mail to each Bondholder at the holder's
registered address. The notice shall state briefly the nature of the amendment
or supplement and that copies thereof are on file with the Trustee for
inspection by all Bondholders.
Section 11.05. Bank Consent Required. An amendment or supplement to the
Agreement or the Note shall not become effective unless the Bank delivers to the
Trustee their written consents to the amendment or supplement.
<PAGE>
ARTICLE XII
MISCELLANEOUS
Section 12.01. Notices.
(a) Any notice, request, direction, designation, consent,
acknowledgment, certification, appointment, waiver or other communication
required or permitted by this Indenture or the Bonds must be in writing except
as expressly provided otherwise in this Indenture or the Bonds.
(b) Except as otherwise provided herein, any notice or other
communication shall be sufficiently given and deemed given when delivered by
hand or mailed by first-class mail, postage prepaid, addressed as follows or, if
the communication may be given by telex or telecopy under the provisions of this
Indenture, when telexed or telecopied to the following numbers:
(1) if to the Issuer, to City of Beckley, West Virginia, City
Hall, 409 South Kanawha Street, Beckley, West Virginia
25801, Attention: Mayor of City of Beckley;
(2) if to the Trustee, to One Valley Bank, National
Association, P.O. Box 1793, Charleston, West Virginia 25326,
Attention: Corporate Trust Department;
(3) if to the Company, to Beckley Health Care Corp., 405 Stanaford
Road, Beckley, West Virginia 25801;
(4) if to the Underwriter, to Crews and Associates, Inc. 2000
Union National Plaza, 124 West Capitol, Little Rock,
Arkansas 72201;
(5) if to the Bank, to NationsBank of Texas, N.A, 901 Main Street,
13th Floor, Dallas, Texas 75202, Attention: Marie
Lancanster; and
(6) if to the Parent, Regency Health Services, Inc. 2742 Dow
Avenue, Tustin, California 96280, Attention: David Grant, Esquire.
Any addressee may designate additional or different addresses or telex
or telecopy numbers for purposes of this Section. Notwithstanding the provisions
of this Section 12.01, any notice to the Trustee shall only be sufficient and
deemed given when mailed to the Trustee at the address provided in this Section
12.01 by certified mail, return receipt requested, and received by the Trustee.
The Beneficial Owner of $1,000,000 or more or Bonds may, by written
notice to the Trustee, request that all notices given with respect to such Bonds
be given to the registered owner thereof and to a second address provided in
such written notice to the Trustee. Upon receipt of such notice described in the
preceding sentence, the Trustee shall send all notices relating to the relevant
Bonds to the registered owner and the second address so designated.
Section 12.02. Bondholders' Consents. Any consent or other instrument
required by this Indenture to be signed by Bondholders may be in any number of
concurrent documents and may be signed by a Bondholder or by the holder's agent
appointed in writing. Proof of the execution of such instrument or of the
instrument appointing an agent and of the ownership of Bonds, if made in the
following manner, shall be conclusive for any purposes of this Indenture with
regard to any action taken by the Trustee under the instrument:
(a) The fact and date of a person's signing an instrument may be proved
by the certificate of any officer in any jurisdiction who by law has power to
take acknowledgments within that jurisdiction that the person signing the
writing acknowledged before the officer the execution of the writing, or by an
affidavit of any witness to the signing.
(b) The fact of ownership of Bonds, the amount or amounts, numbers and
other identification of such Bonds and the date of holding shall be proved by
the registration books kept pursuant to this Indenture.
In determining whether the holders of the required principal amount of
Bonds Outstanding have taken any action under this Indenture, Bonds owned by the
Issuer, the Company or any partner or affiliate of either thereof shall be
disregarded and deemed not to be Outstanding; provided, however, that Bank Bonds
shall not be disregarded and shall be deemed to be outstanding for such purpose.
In determining whether the Trustee shall be protected in relying on any such
action, only Bonds that the Trustee knows to be so owned shall be disregarded.
Section 12.03. Notices to Rating Agency. If applicable, the Trustee
shall notify any Rating Agency rating the Bonds, in writing, of the occurrence
of any of the following events prior to the occurrence thereof: (a) any change
in the identity of the Trustee; (b) any amendment or modification of or change
to this Indenture, the Agreement, the Reimbursement Agreement or the Letter of
Credit; (c) the expiration or termination of the Letter of Credit, or any
extension thereof; (d) the payment in full of the principal of and interest on
the Bonds; and (e) the delivery of any written opinion of Bankruptcy Counsel
required to be delivered under the terms of this Indenture.
Section 12.04. Limitation of Rights. Nothing expressed or implied in
this Indenture or the Bonds shall give any person other than the Trustee, the
Issuer, the Bank, the Company and the Bondholders any right, remedy or claim
under or with respect to this Indenture.
Section 12.05. Severability. If any provision of this Indenture shall
be determined to be unenforceable by a court of law, that shall not affect any
other provision of this Indenture; provided, no holding or invalidity shall
require the Trustee to make any payment from any source except those pledged
hereunder.
Section 12.06. Payments Due on Non-Business Days. If a payment date is
not a Business Day at the place of payment, then payment shall be made at that
place on the next succeeding Business Day, with the same force and effect as if
made on the payment date, and, in the case of any such payment, no interest
shall accrue for the intervening period.
Section 12.07. Governing Law. This Indenture and the authority of the
Issuer to issue the Bonds shall be governed by and construed in accordance with
the laws of the State, but it is the intention of the Issuer that the situs of
the trust created by this Indenture be in the state in which is located the
corporate trust office of the Trustee from time to time acting under this
Indenture. The word "Trustee" as used in the preceding sentence shall not be
deemed to include any additional individual or institution appointed as a
separate or co-trustee pursuant to Section 9.15 of this Indenture. It is the
further intention of the Issuer that the Trustee administer said trust in the
state in which it is located, from time to time, and that same be for all
purposes hereunder, the situs of said trust.
Section 12.08. No Liability. No provision, covenant or agreement
contained in this Indenture or in the Bonds, or any obligation herein or therein
imposed upon the Issuer, or the breach thereof, shall constitute or give rise to
or impose upon the Issuer a pecuniary liability or a charge upon its general
credit or taxing power. In making the agreements, provisions, and covenants set
forth in this Indenture, the Issuer has not obligated itself except with respect
to the Facility and the application of the revenues, income and all other
property therefrom and the security therefor including the Letter of Credit, as
hereinabove provided. No official or member of the Issuer shall be personally
liable on the Indenture or the Bonds, nor shall the issuance of the Bonds be
considered as misfeasance in office.
Section 12.09. Counterparts. This Indenture may be signed in several
counterparts, each of which shall be an original and
all of which together shall constitute the same instrument.
Section 12.10. References to the Bank. The Bank shall have no rights to
enforce any provision of this Indenture during any period in which it is in
default under the Letter of Credit.
IN WITNESS WHEREOF, the Issuer has caused this Indenture to be executed
in its name and on its behalf by the Mayor of the City of Beckley, West Virginia
and its official seal to be impressed hereon and attested by the Recorder of the
City of Beckley, West Virginia, and the Trustee, to evidence its acceptance of
the trust hereby created, has caused this Indenture to be executed in its name
and on its behalf by its duly authorized officers, all as of the day and year
first above written.
CITY OF BECKLEY, WEST VIRGINIA
By:
Mayor, City of Beckley
[SEAL]
ATTEST:
Recorder, City of Beckley
ONE VALLEY BANK, NATIONAL ASSOCIATION
By:
Its:
[SEAL]
ATTEST:
By:
Its:
Exhibit 10.45
FINANCING AGREEMENT
between
THE BOARD OF COMMISSIONERS OF THE COUNTY OF PERRY, OHIO
BY AND ON BEHALF OF THE COUNTY OF PERRY, OHIO
and
NEW LEXINGTON HEALTH CARE CORP.
Dated as of September 1, 1996
NOTE: THIS FINANCING AGREEMENT AND A PROMISSORY NOTE IN THE FORM AS DESCRIBED
HEREIN HAVE BEEN ASSIGNED TO, AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION, AS TRUSTEE UNDER AN
INDENTURE OF TRUST DATED AS OF SEPTEMBER 1, 1996, WITH THE BOARD OF
COMMISSIONERS OF THE COUNTY OF PERRY, OHIO BY AND ON BEHALF OF THE COUNTY OF
PERRY, OHIO, AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME. INFORMATION
CONCERNING SUCH SECURITY INTEREST MAY BE OBTAINED FROM THE TRUSTEE AT ITS
PRINCIPAL TRUST OFFICE IN CHARLESTON, WEST VIRGINIA.
This FINANCING AGREEMENT, made as of the first day of October, 1996,
between THE BOARD OF COMMISSIONERS OF THE COUNTY OF PERRY, OHIO BY AND ON BEHALF
OF THE COUNTY OF PERRY, OHIO, a political subdivision of the State of Ohio, (the
"Issuer"), and NEW LEXINGTON HEALTH CARE CORP., a corporation duly organized
under and validly existing by virtue of the laws of the State of Went Virginia
(the "Company");
W I T N E S S E T H :
WHEREAS, Section 13 of Article VIII of the Ohio Constitution provides,
among other things, for the passage of laws authorizing the State of Ohio (the
"State"), its political subdivisions and their agencies or instrumentalities,
and others, to acquire, construct, enlarge, improve or equip, and to sell or
lease property, structures, equipment and facilities for industry, commerce,
distribution and research and to make loans for such purposes and to issue bonds
to provide monies therefor in order to create or preserve jobs and employment
opportunities and improve the economic welfare of the people of the State; and
WHEREAS, pursuant thereto, Chapter 165 of the Ohio Revised Code (the
"Act") provides, among other things, for the issuance of revenue bonds of a city
or county to provide funds to make loans to others to acquire, construct,
reconstruct, enlarge, improve, furnish and equip real or personal property or
both, or interests therein, to create or preserve jobs and employment
opportunities and to improve the economic welfare of the people of the State,
for the use of such property for industry, commerce, distribution or research;
and
WHEREAS, pursuant to such authorization, the County of Perry, Ohio,
(the "Issuer") issued its First Mortgage Refunding Revenue Bonds (New Lexington
Health Care Corp. Project), Series 1986 (the "Prior Bonds") in the original
amount of $2,545,000 and used the proceeds to refund those certain County of
Perry, Ohio Industrial Development Revenue Bonds (New Lexington Health Care
Corp.), Series 1980, the proceeds of which were used to pay the cost of the
acquisition, construction and equipping of a 100-bed skilled and intermediate
care commercial nursing home facility operated by New Lexington Health Care
Corp. (the "Company") and situate at 980 South Main Street, New Lexington, Perry
County, Ohio (the "Project"); and
WHEREAS, the Company has advised the Issuer that significant debt
service savings would result in connection with the refinancing of the Prior
Bonds; and
WHEREAS, the Company has requested that the Issuer issue and sell its
refunding revenue bonds in the principal amount of not to exceed $2,750,000 for
the purpose of refunding the Prior Bonds; and
WHEREAS, by issuing the Bonds to refund the Prior Bonds, the Issuer and
the Company expect to finance the Facility more economically and thereby to
achieve interest cost savings; and
WHEREAS, in return for the use of the proceeds of the sale of the Bonds
by the Issuer to refund the Prior Bonds, the Company has agreed to repay the
amounts so used on the terms and conditions hereinafter set forth; and
WHEREAS, the Company has determined to issue its promissory note to the
Issuer in the principal amount of the Bonds (the "Note") to evidence the
Company's obligation to repay such amounts under the terms and conditions set
forth herein; and
WHEREAS, all things necessary to constitute the Note a valid and
binding obligation and to constitute this Financing Agreement a valid and
binding agreement securing the payments under the Note have been done and
performed and the execution and delivery of the Note and this Financing
Agreement, subject to the terms hereof, have in all respects been duly
authorized;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto covenant and agree as
follows:
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.1. Definitions. The following terms shall have the meaning
set forth hereinafter. All other defined terms used but not defined herein shall
have the same meaning as set forth elsewhere herein or in Article I of the
Indenture unless the context clearly indicates to the contrary.
"Agreement" or "Financing Agreement" shall mean this Financing
Agreement, including any amendments hereto.
"Financing Instruments" shall mean this Financing Agreement, the
Indenture, the Note, the Escrow Agreement, the Reimbursement Agreement, the Bond
Purchase Agreement and the Remarketing Agreement.
"Indenture" shall mean the Indenture of Trust dated as of the date
hereof between the Issuer and the Trustee, as amended from time to time.
"1954 Code" shall mean the Internal Revenue Code of 1954, as amended.
"1980 Bonds" shall mean the revenue bonds issued by the Issuer under
the Act in 1980 in order to pay the cost of the acquisition, construction and
equipping of the Facility and refunded in full with the proceeds of the Prior
Bonds.
"Prime Rate" shall mean the rate per year announced from time to time
by the Trustee, as its prime rate, with any change in the Prime Rate being
effective as of the date such announced prime rate is changed.
"Prior Bonds Trustee" shall mean SunTrust Bank, Central Florida,
National Association, Orlando, Florida, as successor-in-interest to Mid-American
National Bank & Trust Company, as indenture trustee for the Prior Bonds.
"Prior Indenture" shall mean the Trust Indenture dated as of August
1, 1986 between the Issuer and the Prior Bonds Trustee
pursuant to which the Prior Bonds were issued and secured.
"Regulations" shall mean the income tax regulations promulgated
pursuant to the 1954 Code, as such applicable proposed, temporary or final
regulations may be amended or supplemented from time to time.
Section 1.2. Rules of Construction. Unless the context clearly
indicates to the contrary, the following rules shall apply
to the construction of this Financing Agreement:
(a) Words importing the singular number shall include the plural
number and vice versa.
(b) Words importing the redemption or calling for redemption of Bonds
shall not be deemed to refer to or connote the payment of Bonds at their stated
maturity.
(c) All references herein to particular articles or sections are
references to articles or sections of this Financing Agreement unless otherwise
indicated.
(d) The headings and Table of Contents herein are solely for
convenience of reference and shall not constitute a part of this Financing
Agreement nor shall they affect its meaning, construction or effect.
(e) Accounting terms not otherwise defined have the meaning assigned to
them in accordance with generally accepted accounting principles.
ARTICLE II
REPRESENTATIONS
Section 2.1. Representations by Issuer. The Issuer makes the following
representations:
(a) The Issuer is a political subdivision of the State of Ohio and has
the power to enter into the Financing Instruments to which it is a party and the
transactions contemplated thereby and to perform its obligations thereunder, to
issue the Bonds to refund the Prior Bonds, and to assign the Note to the
Trustee.
(b) By proper action in the form of resolutions adopted by The Board of
Commissioners of the County of Perry, Ohio, the Issuer has duly authorized the
execution and delivery of the Financing Instruments to which it is a party, and
the Bonds, the performance of its obligations thereunder and the issuance of the
Bonds and, simultaneously with the execution and delivery of this Financing
Agreement, the Issuer has duly executed and delivered the Financing Instruments
to which it is a party and issued and sold the Bonds.
(c) To the best of its knowledge, the Issuer is not in default in the
payment of the principal of or interest on any of its indebtedness for borrowed
money and is not in default under any instrument under or subject to which any
indebtedness for borrowed money has been incurred, and no event has occurred and
is continuing under the provisions of any such instrument that with the lapse of
time or the giving of notice, or both, would constitute an event of default
thereunder; provided, however, that no representation is expressed concerning
previously issued revenue bonds for private parties under the Act, the status of
which have no adverse effect on the Issuer's power or authority to carry out the
transactions contemplated by this Financing Agreement.
(d) The Issuer is not (1) in violation of the Act or any existing law,
rule or regulation applicable to it or (2) in default under any indenture,
mortgage, deed of trust, lien, lease, contract, note, order, judgment, decree or
other agreement, instrument or restriction of any kind to which any of its
assets are subject; provided, however, that no representation is expressed
concerning previously issued revenue bonds for private parties under the Act,
the status of which have no adverse effect on the Issuer's power or authority to
carry out the transactions contemplated by this Financing Agreement. The
execution and delivery by the Issuer of the Financing Instruments to which it is
a party and the Bonds and the compliance with the terms and conditions thereof
will not conflict with or result in the breach of or constitute a default under
any of the above described documents or other restrictions.
(e) No further approval, consent or withholding of objection on the
part of any regulatory body, federal, state or local, is required in connection
with (1) the issuance and delivery of the Bonds by the Issuer, (2) the execution
or delivery of or compliance by the Issuer with the terms and conditions of the
Financing Instruments to which it is a party, or (3) the assignment and pledge
by the Issuer pursuant to the Indenture of its rights under this Financing
Agreement including the Note and the payments thereon by the Company, as
security for payment of the principal of and interest on the Bonds. The
consummation by the Issuer of the transactions set forth in the manner and under
the terms and conditions as provided herein will comply with all applicable
state, local or federal laws and any rules and regulations promulgated
thereunder by any regulatory authority or agency.
(f) No litigation, inquiry or investigation of any kind in or by any
judicial or administrative court or agency is pending or, to its knowledge,
threatened against the Issuer with respect to (1) the organization and existence
of the Issuer, (2) its authority to execute or deliver the Financing Instruments
to which it is a party, the Indenture or the Bonds or the assignment of the
Note, (3) the validity or enforceability of any of such instruments or the
transactions contemplated hereby or thereby, (4) the title of any officer of the
Issuer who executed such instruments, or (5) any authority or proceedings
related to the execution and delivery of such instruments on behalf of the
Issuer. No such authority or proceedings have been repealed, revoked, rescinded
or amended, and all are in full force and effect.
(g) The Issuer hereby finds that the refunding of the Prior Bonds is
advisable and will serve the purposes of the Act.
(h) The issuance of the Prior Bonds was approved by the Issuer at a
meeting duly called and held on August 21, 1986, notice of which meeting was
published in a newspaper having general circulation in Perry County, Ohio on
August 6, 1986.
Section 2.2. Representations by Company. The Company makes the
following representations:
(a) The Company is a corporation duly organized and validly existing
under the laws of the State of Ohio; has the power to enter into the Financing
Instruments to which it is a party and the transactions contemplated thereunder;
and by proper action has duly authorized the execution and delivery of such
Financing Instruments and the Note and the performance of its obligations
thereunder.
(b) The Company is licensed by the appropriate Ohio state and local
authorities and is authorized to operate the Facility in the manner in which it
is currently operated.
(c) The Company is not in default in the payment of the principal of or
interest on any of its indebtedness for borrowed money and is not in default
under any instrument under and subject to which any indebtedness has been
incurred, and no event has occurred and is continuing under the provisions of
any such agreement that with the lapse of time or the giving of notice, or both,
would constitute an event of default thereunder.
(d) There is no litigation at law or in equity or any proceeding before
any governmental agency involving the Company pending or, to the knowledge of
the Company, threatened against the Company in which any liability of the
Company is not adequately covered by insurance or for which adequate reserves
are not provided or for which any judgment or order would have a material
adverse effect upon the business or assets of the Company or affect its
existence or authority to do business, the operation of the Facility, the
validity of the Financing Instruments to which it is a party or the performance
of its obligations thereunder.
(e) The execution and delivery of the Financing Instruments to which it
is a party, the performance by the Company of its obligations thereunder and the
consummation of the transactions contemplated therein do not and will not
conflict with, or constitute a breach or result in a violation of, the Company's
articles of incorporation or bylaws, any agreement or other instrument to which
the Company is a party or by which it is bound or any constitutional or
statutory provision or order, rule, regulation, decree or ordinance of any
court, government or governmental authority having jurisdiction over the Company
or its property.
(f) The Company has obtained all consents, approvals, authorizations
and orders of any governmental or regulatory authority that are required to be
obtained by the Company as a condition precedent to the issuance of the Bonds,
the execution and delivery of the Financing Instruments to which it is a party
and the performance by the Company of its obligations thereunder, or that are
required for the operation of the Facility.
(g) The Facility complies with all presently applicable ordinances and
licensure and environmental protection laws, the noncompliance with which would
have a material adverse effect on the business or operations of the Company
conducted at the Facility.
(h) To the best of its knowledge, interest paid or accrued on the 1980
Bonds was at all times exempt from federal income taxation under Section 103 of
the 1954 Code. To the best of its knowledge, interest paid or accrued on the
Prior Bonds was at all times excluded from the gross income of the owners
thereof for purposes of federal income taxation.
(i) The Company intends to continue to cause the Facility to be
operated as a nursing home facility meeting all of the requirements of the Act
for so long as the Bonds are outstanding.
(j) To the best of its knowledge, at least 98% of the proceeds of the
Prior Bonds, together with other available moneys, were applied to redeem the
1980 Bonds in full within 90 days of the date the Prior Bonds were issued. To
the best of its knowledge, no more than 2% of the proceeds of the Prior Bonds
were applied to pay their costs of issuance.
ARTICLE III
ISSUANCE OF THE BONDS AND USE OF PROCEEDS;
EXECUTION AND DELIVERY OF THE NOTE
Section 3.1. Agreement to Issue Bonds; Application of Bond Proceeds.
The Issuer, concurrently with the execution and delivery of this Financing
Agreement, will issue, sell and deliver the Bonds and will deposit the proceeds
thereof with the Trustee. In accordance with the Indenture, the Trustee will
deliver or will cause the Underwriter to deliver all of such proceeds to the
Prior Bonds Trustee to be applied, together with other moneys provided by the
Company, to defease and redeem the Prior Bonds in full and discharge the Prior
Indenture.
Section 3.2. Refunding by the Issuer. Upon the terms and conditions of
this Financing Agreement and the Indenture, the Issuer agrees to use the
proceeds of the sale of the Bonds to refund the Prior Bonds.
Section 3.3. Execution and Delivery of the Note prior to or
simultaneously with the issuance of the Bonds, to evidence its repayment
obligations hereunder, the Company shall execute and deliver the Note in
substantially the form of Exhibit A to the Issuer for assignment to the Trustee
as security for the payment of the Bonds.
Section 3.4. No Lien on or Security Interest in Facility. This
Financing Agreement is not intended to create and does not create a lien on or
security interest in any part of the Facility as security for the payment of
amounts payable hereunder or under the Note.
ARTICLE IV
PAYMENTS ON THE NOTE
Section 4.1. Amounts Payable. (a) The Company shall make all
payments required by the Note as and when they become due and
shall promptly pay all other amounts necessary to enable the Trustee to make the
transfers required by Article IV of the Indenture.
(b) The Company shall also pay, as and when the same become due:
(1) To the Trustee, its reasonable fees for services rendered and for
expenses reasonably incurred by it as Trustee under the Indenture, including the
reasonable fees and disbursements of its counsel, the reasonable fees and
expenses of the Remarketing Agent and any other paying agents and all other
amounts that the Company herein assumes or agrees to pay, including any cost or
expense necessary to cancel and discharge the Indenture upon payment of the
Bonds.
(2) To the Issuer and its reasonable costs and expenses directly
related to the Bonds and the Facility, including the reasonable fees and
expenses of Bond Counsel and the Issuer's counsel (provided, however, that such
amounts so paid to the Issuer shall not equal or exceed an amount which would
cause the "yield" on the Note, this Financing Agreement or any other "acquired
purpose obligation" to be "materially higher" than the "yield" on the Bonds, as
such terms are defined in the Code).
(3) Amounts described in Section 4.6.
(4) All other amounts that the Company agrees to pay under the
terms of this Financing Agreement and the Indenture.
Section 4.2. Payments Assigned. The Company consents to the assignment
made by the Indenture of the Note and of the rights of the Issuer under this
Financing Agreement to the Trustee and agrees to pay to the Trustee all amounts
payable by the Company pursuant to the Note and this Financing Agreement, except
for payments made to the Issuer pursuant to Sections 4.1(b)(2) and 5.6.
Section 4.3. Default in Payments. If the Company fails to make any
payments required by the Note or this Financing Agreement when due, the Company
shall pay to the Trustee interest thereon until paid at a rate equal to the
highest rate on any Bonds then outstanding or, in case of the payment of any
amounts not to be used to pay principal of or interest on Bonds, at a rate equal
to the Prime Rate plus one percent per year.
Section 4.4. Obligations of Company Unconditional. The obligation of
the Company to make the payments on the Note and to observe and perform all
other covenants, conditions and agreements hereunder shall be absolute and
unconditional, irrespective of any rights of setoff, recoupment or counterclaim
it might otherwise have against the Issuer, the Bank, the Remarketing Agent or
the Trustee. Subject to the prepayment of the Note as provided therein, the
Company shall not suspend or discontinue any payment on the Note or hereunder or
fail to observe and perform any of its other covenants, conditions or agreements
hereunder for any cause, including without limitation, any acts or circumstances
that may constitute an eviction or constructive eviction, failure of
consideration, failure of title to any part or all of the Facility or commercial
frustration of purpose, or any damage to or destruction or condemnation of all
or any part of the Facility, or any change in the tax or other laws of the
United States of America, the State of Ohio or any political subdivision of
either, or any failure of the Issuer, the Bank, the Remarketing Agent or the
Trustee to observe and perform any covenant, condition or agreement, whether
express or implied, or any duty, liability or obligation arising out of or in
connection with any Financing Instrument. The Company may, after giving to the
Issuer and the Trustee 10 days' notice of its intention to do so, at its own
expense and in its own name, or in the name of the Issuer if procedurally
required, prosecute or defend any action or proceeding or take any other action
involving third persons that the Company reasonably deems necessary to secure or
protect any of its rights hereunder. In the event the Company takes any such
action, the Issuer shall cooperate fully with the Company and shall take all
necessary action to substitute the Company for the Issuer in such action or
proceeding if the Company shall so request.
Section 4.5. Advances by Issuer or Trustee. If the Company fails to
make any payment or perform any act required of it hereunder, the Issuer or the
Trustee, without prior notice or demand on the Company and without waiving or
releasing any obligation or default, may (but shall be under no obligation to)
make such payment or perform such act. All amounts so paid by the Issuer or the
Trustee and all costs, fees and expenses so incurred shall be payable by the
Company on demand as an additional obligation under the Note, together with
interest thereon at the Prime Rate plus one percent per year until paid.
Section 4.6. Rebate Requirement. (a) At its sole expense on behalf of
the Issuer, the Company shall determine and pay to the United States the Rebate
Amount, hereinafter defined, as and when due in accordance with the "rebate
requirement" described in Section 148(f) of the Code and Regulations thereunder,
including without limitation, Regulations Section 1.148-3. The Company shall
retain records of all such determinations until six years after Payment of the
Bonds.
(b) Reference is made to Exhibit B hereto for additional details of the
rebate requirement. Exhibit B may be amended or substituted without compliance
with Article XI of the Indenture or Section 8.3 hereof and without any action of
the Issuer upon the Company's delivery to the Trustee of the proposed amendment
or substitution together with an opinion of Bond Counsel that compliance with
this section and Exhibit B, as amended, will not adversely affect the exclusion
of interest on the Bonds from gross income for federal income tax purposes.
(c) Notwithstanding anything contained herein to the contrary, no such
payment will be required if the Company receives and delivers to the Issuer and
the Trustee an opinion of Bond Counsel that such payment is not required under
the Code to prevent any Bonds from becoming "arbitrage bonds" within the meaning
of Section 148 of the Code.
(d) The Issuer shall not be liable to the Company by way of
contribution, indemnification, counterclaim, set-off or otherwise for any
payment made or expense incurred by the Company pursuant to this section or the
Indenture.
Section 4.7. Letter of Credit. The Company shall provide for the
payment of amounts due under Section 4.1 (a) from Available Moneys, including,
delivery to the Trustee on the date of initial authentication and delivery of
the Bonds of a Letter of Credit in favor of the Trustee and for the benefit of
the holders of the Bonds. The Company shall be entitled to provide a Substitute
Letter of Credit under certain circumstances as provided in the Indenture. Any
extension of the Letter of Credit shall be for a period of at least one year or,
if less, the fifteenth day after the maturity date of the Bonds.
<PAGE>
ARTICLE V
SPECIAL COVENANTS
Section 5.1. Operation of Facility by the Company; No Warranty of
Condition or Suitability by the Issuer. (a) The Company shall operate the
Facility, or cause it to be operated, as a nursing home facility or other
purposes contemplated by the Act.
(b) The Issuer makes no warranty, either express or implied, as to the
Facility or the condition thereof, or that the Facility has been or will be
suitable for the purposes or needs of the Company.
Section 5.2. Reference to Bonds Ineffective after Bonds Paid and Other
Obligations Satisfied. Upon payment of the Bonds and upon payment of all
obligations under this Financing Agreement and the Note, subject to Section 8.1,
all references in this Financing Agreement to the Bonds, the Trustee and the
Issuer shall be ineffective, and neither the Trustee, the holder of the Note,
the Issuer nor the holders of any of the Bonds shall thereafter have any rights
hereunder except as provided in Sections 4.1(b), 4.6 and 5.6.
Section 5.3. Certificate as to No Default. The Company shall deliver to
the Issuer and the Trustee within 120 days after the close of each of its Fiscal
Years a certificate signed by the chief executive officer, the chief
administrative officer or the chief financial officer of its corporate general
partner stating that (a) (1) the Company is not in default under the Note or
this Financing Agreement, and (2) the Company has no knowledge of any violation
of any of the terms or provisions of the Note or this Financing Agreement or of
the occurrence of any condition, event or act that, with or without notice or
lapse of time or both, would constitute an event of default hereunder or
thereunder, or (b) if it is in default, specifying the nature and period of
default and what action the Company is taking or proposes to take with respect
thereto.
Section 5.4. [Reserved)
Section 5.5. Tax Exemption. (a) Unless the Company shall deliver to the
Trustee an opinion of Bond Counsel to the effect that such use, occupation or
ownership will not adversely affect the exclusion of interest on the Bonds from
gross income for federal income tax purposes, the Company shall not:
(1) take any action or approve the Trustees taking any action or making
any investment or use of the proceeds of the Bonds that would cause the Bonds to
be "arbitrage bonds" within the meaning of Section 148 of the Code.
(2) barring unforeseen circumstances, approve the use of the proceeds
of any Bonds or any other funds other than in accordance with its
"non-arbitrage" certificate with respect to such use given immediately prior to
the delivery of the Bonds;
(3) take or permit any action that would result in more than 5% of the
proceeds of the 1980 Bonds, the Prior Bonds or the Bonds being used directly or
indirectly to make or finance loans to any person who is not an "exempt person"
within the meaning of Section 103(b)(3) of the 1954 Code or a "governmental
unit" within the meaning of Section 141(c) of the Code or otherwise cause the
1980 Bonds, the Prior Bonds or the Bonds to be or become "consumer loan bonds"
within the meaning of Section 103(o) of the 1954 Code.
(4) permit any component of the Facility to be used or occupied by the
United States of America or an agency or instrumentality thereof in any manner
for compensation, including any entity with statutory authority to borrow from
the United States of America in any case within the meaning of Section 149(b) of
the Code, or in any way cause the Bonds to be "federally guaranteed" within the
meaning of Section 103(h) of the 1954 Code or Section 149(b) of the Code.
(5) permit the addition of any "principal user" of the Facility
within the meaning of Section 103(b)(6) of the 1954 Code
or Section 144(a) of the Code; or
(6) take any other action that would adversely affect the
exclusion of interest on the Bonds from gross income.
(b) The Company shall not take or omit to take any action the taking or
omission of which would result in any of the proceeds of the Bonds, within the
meaning of Section 147(g) of the Code, being used to finance the costs of
issuance of the Bonds.
(c) The Company represents and warrants that (i) the original principal
amount of the Prior Bonds, plus any amounts held as a sinking fund for payment
of the principal of the 1980 Bonds, did not exceed the aggregate outstanding
principal amount of the 1980 Bonds as determined on the date of issuance of the
Prior Bonds, and (ii) the principal amount of the Bonds, plus any amounts held
by the Prior Bonds Trustee as a sinking fund for payment of the principal of the
Prior Bonds, do not exceed the outstanding principal amount of the Prior Bonds
as determined on the date of issuance of the Bonds.
(d) The Company represents and warrants that, within the meaning of
Section 147(b) of the Code and comparable provisions of the 1954 Code, the
"average maturity" of the Bonds does not exceed 120% of the remaining "average
reasonably expected economic life" of the Facility, such "average maturity" and
remaining "average reasonably expected economic life" being computed in the
manner contemplated by Section 147(b) of the Code and comparable provisions of
the 1954 Code. The Company further represents and warrants that the "average
maturity" of the Bonds is less than the remaining "average maturity" of the
Prior Bonds.
(e) The Company represents, covenants and agrees that not more than 25%
of the proceeds of the 1980 Bonds, the Prior Bonds or the Bonds have been or
will be used to provide a facility the primary purpose of which is one of the
following: retail food and beverage services, automobile sales or service, or
the provision of recreation or entertainment. The Company further covenants and
agrees that no part of the proceeds of the 1980 Bonds, the Prior Bonds or the
Bonds have been or will be used to provide any of the following and that no part
of the Facility will be used for any of the following purposes or activities:
any airplane, skybox or other private luxury box, health club facility, facility
used primarily for gambling, store the principal business of which is the sale
of alcoholic beverages for consumption off premises, private or commercial golf
course, country club, massage parlor, tennis club, skating facility (including
roller skating, skateboard and/or ice skating), racquet sports facility
(including any handball or racquetball court), hot tub facility, suntan
facility, racetrack or residential real property for family units.
(f) The Company represents, covenants and agrees that (i) substantially
all (90% or more) of the proceeds of the 1980 Bonds (exclusive of such proceeds
applied to redeem other 1980 Bonds) were used for the acquisition, construction,
reconstruction or improvement of land or property of a character subject to the
allowance for depreciation within the meaning of Section 103(b)(6) of the 1954
Code, (ii) less than 25% of the proceeds of the 1980 Bonds, the Prior Bonds or
the Bonds have been or will be used directly or indirectly for the acquisition
of land or an interest in land, including mineral reserves, and (iii) none of
such proceeds were or will be used for the acquisition of land or an interest in
land to be used for farming purposes.
(g) The Company represents and warrants that except for the Prior Bonds
and the Bonds, no bonds, notes or other obligations of any state, territorial
possession or any political subdivision of the United States of America or any
political subdivision of any of the foregoing or of the District of Columbia
have been issued since April 30, 1968, and are now outstanding, the proceeds of
which have been or are to be used primarily with respect to projects (i) the
"principal user" of which is or will be the Company or any "related persons," as
defined in Section 103(b)(6) of the 1954 Code or Section 144(a) of the Code and
(ii) that are located within Perry County, Ohio or are integrated facilities
located outside of Perry County within one-half mile of the Facility. The
Company further represents and warrants that (i) obligations have not been
assumed, expenditures have not been made and outstanding obligations do not
exist, including, without limitation, the leasing of equipment (pursuant to
leases which do not qualify as "true" leases within the meaning of the Code),
which would cause the "aggregate face amount" of the Bonds as computed under the
provisions of Section 103(b)(6) of the 1954 Code or 144(a)(4) of the Code and
the Regulations to exceed $10,000,000 and (ii) that, within three years after
the date any of the 1980 Bonds or the Prior Bonds were issued, the Company did
not make nor permit any user of the Facility to make any expenditure, assume any
obligations or take or permit any other action to be taken which caused the
"aggregate face amount" of any of the 1980 Bonds or the Prior Bonds as computed
under the provisions of Section 103(b)(6) of the 1954 Code to exceed
$10,000,000.
(h) The Company represents and warrants that the Facility is located
only at the place or places specified in the notice of public hearing published
with respect to the Prior Bonds pursuant to Section 103(k)(2) of the 1954 Code
and Section 147(f) of the Code.
(i) The Company represents and warrants that neither the Company
(including any "related person," within the meaning of Section 144(a)(3) of the
Code) nor any other "principal user" of the Facility (including any related
person), within the meaning of Section 144(a)(2) of the Code, is a principal
user of any facility other than the Facility that is financed with (i) an
"industrial development bond," within the meaning of Section 103(b) of the 1954
Code, (ii) a "qualified small issue bond," within the meaning of Section 144(a)
of the Code, or (iii) any other "outstanding tax-exempt facility-related bonds,"
within the meaning of Section 144(a)(10) of the Code. The Company covenants and
agrees that the aggregate authorized face amount of the bonds described in the
preceding sentence (including the Bonds) which can be allocated to any "test
period beneficiary" as such term is defined either in Section 103(b)(15)(D) of
the 1954 Code or in Section 144(a)(10)(D) of the Code (including, but not
limited to the Company) will not exceed $40,000,000. The Company further
covenants and agrees that it will not permit the use of the Facility by any
person (other than the Company or a "related person" within the meaning of
Section 103(b)(6) of the 1954 Code or Section 144 of the Code) to whom any part
of the 1980 Bonds, the Prior Bonds or the Bonds would be allocated pursuant to
Section 103(b)(15) of the 1954 Code or Section 144(a)(10) of the Code, if the
amount allocated, when increased as provided in Section 103(b)(15)(A) of the
1954 Code or Section 144(a)(10)(A) of the Code, would exceed $40,000,000.
(j) The Company represents and warrants that none of the proceeds of
the 1980 Bonds issued subsequent to 1983 were used to acquire any property or an
interest therein (other than land or an interest in land) unless:
(i) the first use of such property was pursuant to such
acquisition; or
(ii) "rehabilitation expenditures," within the meaning of Section
103(b)(17)(c) of the 1954 Code with respect to that part of such property
constituting:
(A) a building (and the equipment therefor), equalled or exceeded
fifteen percent (15%) of that portion of the cost of acquiring such building
(and the equipment therefor) that was financed with the proceeds of such 1980
Bonds; and
(B) a facility other than a building, equalled or exceeded one hundred
percent (100%) of that portion of the cost of acquiring such facility that was
financed with the proceeds of such 1980 Bonds.
(1) The Issuer covenants and agrees that, prior to the issuance of the
Bonds, it shall duly elect to have the provisions of Section 103(b)(6)(D) of the
1954 Code and Section 144(a)(4) of the Code apply to such issue and such
election shall be made in accordance with the applicable Regulations or
procedures of the Internal Revenue Service. The Company covenants and agrees
that it shall furnish to the Issuer whatever information is necessary for the
Issuer to make such election and shall compile such supplemental statements and
other information as required by the applicable Regulations and procedures of
the Internal Revenue Service.
(l) The Company will comply with, and make all filings required by, all
effective rules, rulings or Regulations promulgated by the Department of the
Treasury or the Internal Revenue Service, with respect to obligations issued
under Section 103(b)(6) of the 1954 Code as a "small issue industrial
development bond" the interest on which is exempt from federal income taxation
or issued under Section 144(a) of the Code as a "qualified small issue bond" the
interest on which is excludable from gross income for federal income tax
purposes.
(m) The Company represents and warrants that the Facility does not
share common facilities (such as an enclosed mall, heating and cooling
facilities or parking facilities) with any other part of the same building,
other portions of an enclosed shopping mall or a strip of offices, stores or
warehouses that were financed with tax-exempt small issue industrial development
bonds under Section 103(b)(6) of the 1954 Code or qualified small issue bonds
under Section 144(a) of the Code.
(n) The Company represents and warrants that no rebate with respect to
the Prior Bonds is payable to the United States pursuant to the provisions of
Section 148 of the Code.
(o) The Issuer will comply with the information reporting
requirements of Section 149(e) of the Code with respect to the Bonds.
(p) The Company represents and warrants that the information contained
in the certificates or representations for the Company with respect to
compliance with the requirements of Section 149(e) of the Code, including the
information in Form 8038, is true and correct in all material respects.
(q) The Company shall take all action necessary to ensure that interest
on the Bonds, for federal income tax purposes, is not included in gross income
of the owners thereof.
Section 5.6. Indemnification. (a) The Company shall at all times
protect, indemnify and save harmless the Issuer, the Trustee and the Remarketing
Agent (collectively, the "Indemnitees") from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(hereinafter referred to as "Damages"), including without limitation (1) all
amounts paid in settlement of any litigation commenced or threatened against the
Indemnitees, if such settlement is effected with the written consent of the
Company, (2) all expenses reasonably incurred in the investigation of,
preparation for or defense of any litigation, proceeding or investigation of any
nature whatsoever, commenced or threatened against the Company, the Facility or
the Indemnitees, (3) any judgments, penalties, fines, damages, assessments,
indemnities or contributions, and (4) the reasonable fees of attorneys,
auditors, and consultants, provided that the Damages arise out of:
(A) failure by the Company or its partners, employees or agents, to
comply with the terms of this Financing Agreement or the Note, and any
agreements, covenants, obligations, or prohibitions set forth therein;
(B) any action, suit, claim or demand contesting or affecting the
title of the Facility;
(C) any breach by the Company of any representation or warranty set
forth in this Financing Agreement or the Note, or any certificate delivered by
the Company pursuant thereto, and any claim that any representation or warranty
of the Company contains or contained any untrue or misleading statement of fact
or omits or omitted to state any material facts necessary to make the statements
made therein not misleading in light of the circumstances under which they were
made;
(D) any action, suit, claim, proceeding or investigation of a judicial,
legislative, administrative or regulatory nature arising from or in connection
with the ownership, operation, occupation or use of the Facility; or
(E) any suit, action, administrative proceeding, enforcement action, or
governmental or private action of any kind whatsoever commenced against the
Company, the Facility or the Indemnitees that might adversely affect the
validity, enforceability or tax-exempt status of the Bonds, this Financing
Agreement or the Note, or the performance by the Company or any Indemnitee of
any of their respective obligations thereunder;
provided that such indemnity shall be effective only to the extent of any loss
that may be sustained by the Indemnitees in excess of the proceeds net of any
expenses of collection, received by them or from any insurance carried with
respect to such loss and provided further that the benefits of this section
shall not inure to any person other than the Indemnitees.
(b) If any action, suit or proceeding is brought against the
Indemnitees for any loss or damage for which the Company is required to provide
indemnification under this section, the Company, upon request, shall at its
expense resist and defend such action, suit or proceeding, or cause the same to
be resisted and defended by counsel designated by the Company and approved by
the Indemnitees, which approval shall not be unreasonably withheld, provided
that such approval shall not be required in the case of defense by counsel
designated by any insurance company undertaking such defense pursuant to any
applicable policy of insurance. If an Indemnitee shall have reasonably concluded
that there may be defenses available to it that are in conflict with those
available to the Company or to other Indemnitees (in which case the Company
shall not have the right to direct the defense of such action on behalf of such
Indemnitee), such Indemnitee may engage separate counsel and the reasonable
legal and other expenses incurred by such Indemnitee shall be borne by the
Company. The obligations of the Company under this section shall survive any
termination of this Agreement, including prepayment of the Note.
(c) Nothing contained herein shall require the Company to indemnify the
Issuer for any claim or liability resulting from its willful, wrongful acts or
the Trustee or the Remarketing Agent for any claim or liability resulting from
its negligence (under the standard of care set forth in Article IX of the
Indenture) or its willful, wrongful acts.
(d) All references in this section to the Issuer, the Trustee and the
Remarketing Agent, including references to Indemnitees, shall include their
members, commissioners, directors, officers, employees, representatives and
agents.
Section 5.7. Maintenance and Insurance of Facility. (a) The Company
shall, at its own expense, keep the Facility in as reasonably safe condition as
its operations shall permit and shall keep the Facility in good repair and
operating condition, ordinary wear and tear excepted, making from time to time
all necessary repairs, renewals and replacements. The Company shall comply, in
all material respects, with all laws applicable to the Facility.
(b) The Company shall, at its own expense, continuously maintain
insurance in connection with the Facility and the Company's operations against
such risks as are customarily insured against by organizations of the same
general type, including without limitation insurance for property damage,
liability for bodily injury, liability for property damage and workers'
compensation.
Section 5.8. Corporate Existence. The Company shall maintain its
existence as an Ohio corporation and shall not, without the prior consent of the
Trustee, dissolve or otherwise dispose of all or substantially all of its
assets, consolidate with or merge into another domestic partnership or
corporation (i.e. a partnership or corporation created under the laws of the
United States of America, one of the states thereof or the District of Columbia)
or permit one or more other domestic partnerships or corporations to consolidate
with or merge into it; provided, however, that with the prior written consent of
the Bank, the Company may consolidate with or merge into another domestic
partnership or corporation, or permit one or more domestic partnerships or
corporations to consolidate with or merge into it, or sell or otherwise transfer
to another domestic partnership or corporation all or substantially all of its
assets and thereafter dissolve, or sell or assign all or substantially all of
its assets to a governmental unit, if after giving effect to such consolidation,
merger, transfer, sale or assignment the surviving, resulting or transferee
partnership, corporation or governmental unit:
(1) will not be in default under any covenant under this Financing
Agreement;
(2) if it is not the Company, has the power to assume and assumes
in writing all of the obligations of the Company herein and in the Note; and
(3) if it is not an Ohio partnership or corporation or a political
subdivision of the State of Ohio, either qualifies to do business in Ohio or
files with the Trustee a consent to service of process reasonably acceptable to
the Trustee.
Section 5.9. Obligations Under the Indenture. The Company shall
undertake all actions and carry out all responsibilities prescribed for it under
the Indenture.
<PAGE>
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
Section 6.1. Event of Default Defined. Each of the following events
shall be an Event of Default:
(a) Failure of the Company to make any payment on the Note when
due and payable;
(b) Failure of the Company to observe and perform any of its other
covenants, conditions or agreements hereunder for a period of 30 days after
notice specifying such failure and requesting that it be remedied, given by the
Issuer or the Trustee to the Company;
(c) (1) Failure of the Company to pay generally its debts as they
become due, (2) commencement by the Company of a voluntary case under the
federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or similar law, (3) consent
by the Company to the appointment of a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official for the Company or any
substantial part of its property, or to the taking possession by any such
official of any substantial part of the property of the Company, (4) making by
the Company of any assignment for the benefit of creditors generally, or (5)
taking of corporate action by the Company in furtherance of any of the
foregoing;
(d) The (1) entry of any decree or order for relief by a court having
jurisdiction over the Company or its property in an involuntary case under the
federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or similar law, (2)
appointment of a receiver, liquidator, assignee, trustee, custodian,
sequestrator or similar official for the Company or any substantial part of its
property, or (3) entry of any order for the termination or liquidation of the
Company or its affairs;
(e) Failure of the Company within 60 days after the commencement of any
proceedings against it under the federal bankruptcy laws or other applicable
federal or state bankruptcy, insolvency or similar law, to have such proceedings
dismissed or stayed;
(f) Abandonment of the Facility by the Company for a period in
excess of thirty (30) days; or
(g) An Event of Default under the Indenture.
The foregoing provisions of subsection (b) are subject to the
limitation that if by reason of force majeure the Company is unable in whole or
in part to observe and perform any of its covenants, conditions or agreements
hereunder, other than its obligations contained in Sections 4.1, 4.6, 4.7, 5.1,
5.5, 5.6 and 5.8, the Company shall not be deemed in default during the
continuance of such inability. The term "force majeure" as used herein shall
include without limitation acts of God; strikes, lockouts or other disturbances;
acts of public enemies; orders of any kind of the government of the United
States of America or the State of Ohio or any political subdivision thereof or
any of their departments, agencies or officials, or any civil or military
authority; insurrections; riots; epidemics; landslides; lightning; earthquakes;
fires; hurricanes; tornadoes; storms; floods; washouts; droughts; arrests;
restraint of government and people; civil disturbances; explosions; breakage or
accident to machinery, transmission pipes or canals; partial or entire failure
of utilities; or any other cause or event not reasonably within the control of
the Company. The Company shall remedy with all reasonable dispatch the cause or
causes preventing the Company from carrying out its covenants, conditions and
agreements, provided that the settlement of strikes, lockouts and other
industrial disturbances shall be entirely within the discretion of the Company,
and the Company shall not be required to make settlement of strikes, lockouts
and other industrial disturbances by acceding to the demands of any opposing
party when such course is in the judgment of the Company not in its best
interests.
Section 6.2. Remedies on Default. Whenever any Event of Default
hereunder shall have occurred and is continuing, the Trustee as the
assignee of the Issuer:
(a) May, and at the written direction of the holders of not less than
25% in aggregate principal amount of Bonds then outstanding, shall declare all
amounts payable as principal and interest on the Note to be immediately due and
payable, whereupon the same shall become immediately due and payable, except
that the Trustee shall not make such a declaration unless the Bank has either
(1) consented to such declaration or (2) has failed to honor any proper drawing
under the Letter of Credit.
(b) Have access to and inspect, examine and copy the financial
books, records and accounts of the Company pertaining to the Facility.
(c) Take whatever action at law or in equity may appear necessary or
desirable to collect the amounts then due and thereafter to become due or to
enforce observance or performance of any covenant, condition or agreement of the
Company under the Note or this Financing Agreement.
Section 6.3. Application of Amounts Realized in Enforcement of
Remedies. Any amounts collected pursuant to action taken under Section 6.2
hereof shall be applied in accordance with the provisions of the Indenture, or,
if payment of the Bonds shall have been made, shall be applied according to the
provisions of Section 8.06 of the Indenture.
Section 6.4. No Remedy Exclusive. No remedy herein conferred upon or
reserved to the Trustee is intended to be exclusive of any other remedy, and
every remedy shall be cumulative and in addition to every other remedy herein or
now or hereafter existing at law, in equity or by statute. No delay or omission
to exercise any right or power accruing upon an Event of Default shall impair
any such right or power or shall be construed to be a waiver thereof, but any
such right or power may be exercised from time to time and as often as may be
deemed expedient.
Section 6.5. Attorney Fees and Other Expenses. Upon an Event of
Default, the Company on demand shall pay to the Issuer and the Trustee the
reasonable fees and expenses of their attorneys and other reasonable fees and
expenses incurred by any of them in the collection of payments under the Note or
the enforcement of any other obligations of the Company.
Section 6.6. No Additional Waiver Implied by One Waiver. If either
party or its assignee waives a default by the other party under any covenant,
condition or agreement herein, such waiver shall be limited to the particular
breach so waived and shall not be deemed to waive any other default hereunder.
ARTICLE VII
PREPAYMENT OF THE NOTE
Section 7.1. Option To Prepay in Full. Subject to requirements under
the Indenture for Available Moneys in certain instances, the Company may prepay
in full the Note, without penalty or premium, and terminate this Financing
Agreement prior to payment of the Bonds by (a) paying to the Trustee an amount
of cash or U.S. Government Obligations that, together with existing investments
in the Bond Fund, will comply with the requirements for the defeasance of the
Bonds set forth in Article VII of the Indenture, and (b) by making arrangements
satisfactory to the Trustee for giving any required notice of redemption.
Section 7.2. Mandatory Payment. The Company shall prepay the Note in
full or in part (a) upon the occurrence of a Determination of Taxability as
defined in the Indenture, or (b) as otherwise provided in Section 3.01 of the
Indenture.
Section 7.3. Option To Prepay in Part. The Company may prepay the Note
in part, and the Issuer agrees that the Trustee may accept such payments to be
paid to the Trustee for deposit in the Bond Fund and used for redemption or, at
the election of the Company, purchase of outstanding Bonds, in the manner and to
the extent provided in the Indenture. The principal amount of each Bond so
purchased, delivered or credited shall be appropriately credited by the Trustee
against the obligation of the Company to make future payments on the Note.
Section 7.4. Relation of Options to Indenture. The options granted to
the Company in this Article may be exercised whether or not the Company is in
default under this Financing Agreement, provided that any such default will not
result in the nonfulfillment of any condition to the exercise of any such
option.
Section 7.5. Obligations After Payment of Note and Termination of
Financing Agreement. Anything contained in this Article VII to the contrary
notwithstanding, the obligations of the Company contained in Section 5.6 and the
obligation of the Company to pay the costs and expenses of the Issuer, the
Trustee and the Remarketing Agent shall continue after payment of the Note and
termination of this Financing Agreement.
ARTICLE X
MISCELLANEOUS
Section 8.1. Term of Financing Agreement; Amounts Remaining After
Payment of the Bonds. This Financing Agreement shall be effective upon execution
and delivery hereof, and subject to earlier termination upon prepayment in full
of the Note and all other amounts required to be paid hereunder, including all
amounts payable under the Indenture, shall expire at midnight on September 1,
2010, or if such payment of the Note has not been made on such date, when
payment in full of the Note and all other amounts required to be paid hereunder
shall have been made, except that, notwithstanding the foregoing, the obligation
of the Company to indemnify and pay the costs and expenses of the Issuer, the
Remarketing Agent and the Trustee shall survive the expiration of this Financing
Agreement. Any amounts remaining after payment of the Bonds and payment of the
fees and expenses of the Trustee, the Remarketing Agent and the Issuer in
accordance with the Indenture shall be distributed as set forth in Section 4.07
of the Indenture.
Section 8.2. Notices, etc. Unless otherwise provided herein, all
demands, notices, approvals, consents, requests and other communications
hereunder shall be in writing and shall be deemed to have been given when
delivered in person or mailed by first class registered or certified mail,
postage prepaid, addressed:
(a) if to the Issuer, to Perry County, Ohio, County Administration
Building, 121 West Brown Street, New Lexington, Ohio 43764, Attention:
President of the Board of County Commissioners of Perry County, Ohio;
(b) if to the Trustee, to SunTrust Bank, Central Florida, National
Association, Orlando, Florida, Attention: Corporate Trust Department;
(c) if to the Company, to New Lexington Health Care Corp., 980
South Main Street, New Lexington, Ohio 26426;
(d) if to the Underwriter or Remarketing Agent, to Crews and
Associates, Inc. 2000 Union National Plaza, 124 West Capitol, Little Rock,
Arkansas 72201;
(e) if to the Bank, to NationsBank of Texas, N.A, 901 Main Street,
13th Floor, Dallas, Texas 75202, Attention: Marie Lancanster; and
A duplicate copy of each demand, notice, approval, consent, request or
other communication given hereunder by either the Issuer or the Company to the
other shall also be given to the Trustee, the Bank and the Remarketing Agent.
The Company, the Issuer, the Trustee, the Bank and the Remarketing Agent may, by
notice given hereunder, designate any further or different addresses to which
subsequent demands, notices, approvals, consents, requests or other
communications shall be sent or persons to whose attention the same shall be
directed.
Section 8.3. Amendments to financing Agreement and Note. Neither this
Financing Agreement nor the Note shall be amended or supplemented and no
substitution shall be made for the Note subsequent to the issuance of the Bonds
and before payment of the Bonds, without the consent of the Trustee, given in
accordance with Article XI of the Indenture.
Section 8.4. Successors and Assigns. This Financing Agreement shall be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns. Without the prior written consent of
the Issuer, the Trustee and the Bank, no assignment by the Company shall relieve
the Company of its obligations hereunder.
Section 8.5. Severability. If any provision of this Financing
Agreement shall be held invalid by any court of competent jurisdiction, such
holding shall not invalidate any other provision hereof.
Section 8.6. Applicable Law. This Financing Agreement shall be governed
by the applicable laws of the State of Ohio.
Section 8.7. Counterparts. This Financing Agreement may be executed in
counterparts, each of which shall be an original and all of which, taken
together, shall constitute but one and the same instrument; except that to the
extent, that this Financing Agreement shall constitute personal property under
the Uniform Commercial Code of Ohio, no security interest in this Financing
Agreement may be created or perfected through the transfer or possession of any
counterpart of this Financing Agreement other than the original counterpart,
which shall be the counterpart containing the receipt therefor executed by the
Trustee following the signatures to this Financing Agreement.
Section 8.8. Bank May Perform Company's Obligations. The Bank may
perform or observe any covenant, condition or agreement of the Company hereunder
and such performance or observance shall be treated in all respects as the act
of the Company.
Section 8.9. Entire Agreement. This Financing Agreement together with
the Indenture and the Note constitute the entire agreement between the Issuer
and the Company and supersede all prior agreements and understandings, both oral
and written, between the Issuer and the Company with respect to the subject
matter hereof.
IN WITNESS WHEREOF, the Issuer has caused this Financing Agreement to
be executed on its behalf and its seal to be affixed hereto and attested by the
duly authorized officers of The Board of Commissioners of the County of Perry,
Ohio, and the Company has caused this Financing Agreement to be executed in its
name by the duly authorized officer of its general partner, all as of the date
first above written.
THE BOARD OF COMMISSIONERS OF THE COUNTY OF
PERRY, OHIO BY AND ON BEHALF OF PERRY COUNTY,
(SEAL) OHIO
By
-----------------------------------------
President
ATTEST:
By
Its
NEW LEXINGTON HEALTH CARE CORP., an Ohio
corporation
By
Its
ATTEST:
By
Its
<PAGE>
RECEIPT
Receipt of the foregoing original counterpart of the Financing
Agreement dated as of September 1, 1996, between The Board of Commissioners of
the County of Perry, Ohio by and on behalf of County of Perry, Ohio and New
Lexington Health Care Corp., is hereby acknowledged as of the 30th day of
September, 1996.
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION, as Trustee
By
Vice President
<PAGE>
The material exhibits to this document are as follows, and are available upon
request:
CONTINUING DISCLOSURE AGREEMENT executed and delivered by NEW LEXINGTON HEALTH
CARE CORP., an Ohio limited partnership, as the borrower and SUNTRUST BANK,
CENTRAL FLORIDA, NATIONAL ASSOCIATION, in connection with the issuance of
$2,545,000 County of Perry, Ohio First Mortgage Refunding Revenue Bonds, Series
1996 being issued pursuant to a Trust Indenture dated as of September 1, 1996,
by and between the County of Perry, Ohio and SunTrust Bank, Central Florida,
National Association.
Official Statement regarding exemption from taxation.
TAX REGULATORY AGREEMENT AND NO ARBITRAGE CERTIFICATE by and among County of
Perry, Ohio, New Lexington Health Care Corp. and SunTrust Bank, Central Florida,
National Association, Charleston, West Virginia as Trustee.
Exhibit 10.46
INDENTURE OF TRUST
relating to
$2,545,000
Nursing Facility Refunding Revenue Bonds
(New Lexington Health Care Corp. Project),
Series 1996
between
COUNTY OF PERRY, OHIO
and
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION,
as Trustee
Dated as of September 1, 1996
<PAGE>
INDENTURE OF TRUST
INDENTURE OF TRUST dated as of September 1, 1996 (the "Indenture")
between COUNTY OF PERRY, OHIO, a political subdivision of the State of Ohio (the
"Issuer"), and SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION, a national
banking association organized, existing and authorized to accept and execute
trusts of the character herein set out (in such capacity, together with any
successor in such capacity, the "Trustee"), as trustee.
WHEREAS, Section 13 of Article VIII of the Ohio Constitution provides,
among other things, for the passage of laws authorizing the State of Ohio (the
"State"), its political subdivisions and their agencies or instrumentalities,
and others, to acquire, construct, enlarge, improve or equip, and to sell or
lease property, structures, equipment and facilities for industry, commerce,
distribution and research and to make loans for such purposes and to issue bonds
to provide monies therefor in order to create or preserve jobs and employment
opportunities and improve the economic welfare of the people of the State; and
WHEREAS, pursuant thereto, Chapter 165 of the Ohio Revised Code (the
"Act") provides, among other things, for the issuance of revenue bonds of a city
or county to provide funds to make loans to others to acquire, construct,
reconstruct, enlarge, improve, furnish and equip real or personal property or
both, or interests therein, to create or preserve jobs and employment
opportunities and to improve the economic welfare of the people of the State,
for the use of such property for industry, commerce, distribution or research;
and
WHEREAS, pursuant to such authorization, the County of Perry, Ohio,
(the "Issuer") issued its First Mortgage Refunding Revenue Bonds (New Lexington
Health Care Corp. Project), Series 1986 (the "Prior Bonds") in the original
amount of $2,545,000 and used the proceeds to refund those certain County of
Perry, Ohio Industrial Development Revenue Bonds (New Lexington Health Care
Corp.), Series 1980, the proceeds of which were used to pay the cost of the
acquisition, construction and equipping of a 100-bed skilled and intermediate
care commercial nursing home facility operated by New Lexington Health Care
Corp. (the "Company") and situate at 980 South Main Street, New Lexington, Perry
County, Ohio (the "Project"); and
WHEREAS, the Company has advised the Issuer that significant debt
service savings would result in connection with the refinancing of the Prior
Bonds; and
WHEREAS, the Company has requested that the Issuer issue and sell its
refunding revenue bonds in the principal amount of not to exceed $2,750,000 for
the purpose of refunding the Prior Bonds; and
WHEREAS, in order to more economically finance the Project, the Issuer
has determined that the refunding of the Prior Bonds is desirable and will
thereby implement the stated purposes of the Act.
WHEREAS, the Issuer has undertaken to provide for the refunding of the
Prior Bonds and the refinancing of the acquisition, construction and equipping
of the Facility by making available the proceeds from the sale of its Nursing
Facility Refunding Revenue Bonds (New Lexington Health Care Corp.), Series 1996,
in the original principal amount of $2,545,000 (the" Bonds") pursuant to the
provisions of a Financing Agreement (the "Agreement") between the Issuer and the
Company, dated as of even date herewith; and
WHEREAS, the Agreement provides that the Issuer shall issue and sell
the Bonds; and that the Company shall pay, or cause to be paid, pursuant to the
Agreement, in addition to other moneys available for such purpose, an amount
sufficient to pay the Bonds in full and related expenses; and
WHEREAS, the Issuer wishes to provide in this Indenture for the
issuance of its Bonds, and the Trustee is willing to accept the trusts provided
for in this Indenture; and
WHEREAS, the execution and delivery of the Bonds and of this Indenture
and the issuance and sale of the Bonds have been duly authorized by a resolution
duly adopted by the governing body of the Issuer and all things necessary to
make the Bonds, when executed by the Issuer and authenticated by the Trustee (as
hereinafter defined), valid and binding legal obligations of the Issuer and to
make this Indenture a valid and binding agreement have been done;
ACCORDINGLY, THE ISSUER AND THE TRUSTEE AGREE AS FOLLOWS FOR THE
BENEFIT OF THE OTHER AND FOR THE BENEFIT OF THE HOLDERS OF THE BONDS ISSUED
PURSUANT TO THIS INDENTURE (SUBJECT TO THE PROVISIONS OF SECTIONS 6.01 and
12.08):
GRANTING CLAUSE
To secure first, the payment of the Bonds, the Issuer assigns and
pledges to the Trustee, and grants to the Trustee, a security interest in, all
right, title and interest of the Issuer in and to (a) the Agreement, including
any right to delivery of the Letter of Credit, the Receipts and Revenues of the
Issuer from the Agreement (as hereinafter defined), any right to bring actions
and proceedings under the Agreement or for the enforcement of the Agreement and
any right to do all things that the Issuer is entitled to do under the
Agreement, but excluding the Unassigned Rights (as hereinafter defined) and the
right to enforce the Unassigned Rights, and (b) all moneys and securities held
from time to time by the Trustee under this Indenture, first, for the equal and
proportionate benefit of all holders of the Bonds without priority or
distinction as to lien or otherwise of any Bonds over any other Bonds.
<PAGE>
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.01. Definitions. For all purposes of this Indenture,
unless the context requires otherwise, the following terms shall have the
following meanings:
"Act" means Article VIII, Section 13 of the Ohio Constitution and
Chapter 165 of the Ohio Revised Code, as amended.
"Additional Bonds" shall mean any Bonds authorized and issued pursuant
to Section 2.09 of this Indenture.
"Agreement" or "Financing Agreement" means the Financing Agreement,
dated as of the date of this Indenture, between the Issuer and the Company, as
such Agreement may be amended or supplemented from time to time in accordance
with its terms.
"Authorized Denominations" means with respect to all Bonds $5,000 and
any multiple thereof.
"Available Moneys" means moneys that (a) are continuously on deposit
with the Trustee in trust for the benefit of the Bondholders in a separate and
segregated account in which only Available Moneys are held and (b) are proceeds
of either (i) the Bonds received contemporaneously with and directly from the
issuance and sale of the Bonds, (ii) payments made by the Company (and, if the
bonds are then rated by any national securities rating agency, at the time of
the deposit of such payments and for a period of at least 366 days thereafter,
no Bankruptcy Filing shall have occurred), (iii) a draw by the Trustee on the
Letter of Credit, (iv) refunding bonds for which the Trustee has received a
written opinion of Bankruptcy Counsel to the effect that payment of such moneys
to the Bondholders would not constitute an avoidable preference under Section
547 of the United States Bankruptcy Code in the event the Company or the Issuer
were to become a debtor under the United States Bankruptcy Code, provided that
such opinion shall only be required if the Bonds are then rated by any national
rating agency, or (v) income derived from the investment of the foregoing.
"Bank" means the issuer of the Letter of Credit, initially NationsBank
of Texas, N.A., and, upon the issuance and delivery of a Substitute Letter of
Credit, shall mean the issuer of such Substitute Letter of Credit.
"Bankruptcy Counsel" means any counsel nationally recognized in
bankruptcy matters that is independent of the Company and the Issuer and is
reasonably acceptable to the Trustee.
"Bankruptcy Filing" means the filing of a petition by or against the
Company or the Issuer in respect of the Company, any of its partners or the
Issuer, as the case may be, as debtor under the United States Bankruptcy Code or
similar bankruptcy or insolvency act. If the petition has been dismissed and the
dismissal is final and not subject to appeal at the relevant time, the filing
will not be considered to have occurred.
"Beneficial Owner" shall have the meaning set forth in Section 2.05(c).
"Bonds" means the bonds issued pursuant to this Indenture.
"Bond Fund" means the fund by that name created by Section 4. 02.
"Bond Purchase Agreement" means the Bond Purchase Agreement dated
September ____, 1996, among the Company, the Issuer and the Underwriter, with
respect to the sale of the Bonds.
"Bond Year" means the one-year period beginning on the day after the
expiration of the preceding Bond Year. The first Bond Year begins on the date of
the delivery of the Bonds and ends on August 31, 1997. The first and the last
Bond Year may be for periods of less than one year.
"Business Day" means any day other than (a) a Saturday or Sunday, (b) a
day on which commercial banks in New York, New York, or the city or cities in
which the corporate trust office of the Trustee, the primary office of the
Remarketing Agent or the paying office of the Bank are authorized by law or
executive order to close or (c) a day on which the New York Stock Exchange is
closed. For purposes of this definition, "paying office of the Bank" means the
Bank office responsible for making payments under any Letter of Credit, which
initially shall be the office in Los Angeles, California.
"Cede & Co." means Cede & Co., the nominee of DTC or any successor
nominee of DTC with respect to the Bonds.
"Code" means the Internal Revenue Code of 1986, as amended, the
regulations (whether proposed, temporary or final) under that Code or the
statutory predecessor of that Code, and any amendments of, or successor
provisions to, the foregoing and any official rulings, announcements, notices,
procedures and judicial determinations regarding any of the foregoing, all as
and to the extent applicable. Unless otherwise indicated, reference to a Section
of the Code means that Section of the Code, including such applicable
regulations, rulings, announcements, notices, procedures and determinations
pertinent to that Section of the Code.
"Company" means New Lexington Health Care Corp., a for-profit
corporation duly organized under and validly existing by virtue of the laws of
the State of Ohio, or any successor or successors to the Company's obligations
under the Agreement as permitted under Section 5.8 of the Agreement.
"Company Representative" means a person at the time designated to act
on behalf of the Company by a written instrument furnished to the Trustee
containing the specimen signature of such person and signed on behalf of the
Company by its President, its Vice President or the Chairman of its Board of
Directors. The certificate may designate an alternate or alternates.
"Conversion Date" shall mean that Interest Payment Date, if any, upon
which the interest rate on the Bonds converts from any given rate to a Weekly
Rate, a One-year Rate, a Three-year Rate or a Fixed Rate, all as established in
Section 3.09 of this Indenture.
"Credit Modification" means, and shall be deemed to occur upon, the
acceptance of a Substitute Letter of Credit by the Trustee if (a) as a result of
such acceptance, the rating then assigned to the Bonds by any Rating Agency then
rating the Bonds would be lowered or eliminated or (b) in the event the Bonds
are not then rated, the issuer of such Substitute Letter of Credit has (i)
senior debt or long-term bank deposits that are rated by a Rating Agency at a
lower rating than the rating then assigned to the senior debt or long-term bank
deposits of the Bank, or (ii) outstanding letters of credit or other similar
instruments supporting debt obligations that are rated by a Rating Agency at a
lower rating than the rating assigned to debt obligations supported with letters
of credit or similar instruments issued by the Bank.
"DTC" means The Depository Trust Company, a limited purpose company
organized under the laws of the State of New York, and its successors and
assigns.
"DTC Participant" or "DTC Participants" means securities brokers and
dealers, banks, trust companies and clearing corporations that have access to
the DTC system.
"Determination of Taxability" shall have the meaning set forth in
Section 3.01(c).
"Escrow Agreement" means the Escrow Deposit Agreement, dated as of the
date of this Indenture, among the Issuer, the Company and the Prior Bonds
Trustee, as Escrow Agent.
"Event of Default" is defined in Section 8.01.
"Event of Taxability" shall mean delivery to the Trustee of (a) an
opinion of Bond Counsel or (b) a letter or notice from the Internal Revenue
Service to a Bondholder, in either event to the effect that interest on any Bond
is includable in gross income of the recipient thereof (other than a Bondholder
that is a "substantial user" of the Facility or a "related person" within the
meaning of Section 147(a) of the Code) for Federal income tax purposes. "Date"
of an Event of Taxability shall mean the date of receipt by the Trustee of the
material described in (a) or (b).
"Facility" or "Project" means the 100-bed intermediate and skilled
nursing and rehabilitation facility located at 980 South Main Street in Salem,
New Lexington, Ohio.
"Fixed Rate" means with respect to the Bonds the Fixed Rate established
in accordance with Section 2.02.
"Fixed Rate Period" means that period during which the Fixed Rate is in
effect.
"Indenture" means this Indenture of Trust, as it may be amended or
supplemented from time to time in accordance with its terms.
"Interest Payment Date" means the first day of each March and
September, commencing March 1, 1997, provided, however, that while the Bonds
bear interest at the Weekly Rate, the Interest Payment Date shall be the first
Business Day of each calendar month commencing the first Business Day of the
month subsequent to the Conversion Date.
"Issuer" means County of Perry Ohio, a political subdivision of the
State of West Virginia, acting by and through the Board of County Commissioners
of the County of Perry, Ohio, and its successors and assigns.
"Issuer Representative" means the President of the Board of County
Commissions or the County of Perry, Ohio, or other person designated at the time
to act on behalf of the Issuer by a written instrument furnished to the Trustee
containing the specimen signature of such person and signed on behalf of the
Issuer by the President of the Board of County Commissioners of the County of
Perry, Ohio.
"Letter of Credit" means an irrevocable letter of credit having the
characteristics of a "credit" or "letter of credit" set forth in Section 5-103
of the Uniform Commercial Code of the State except that a letter of credit (a)
may not be revocable and (b) may only be issued by (i) a national bank, (ii) any
banking institution organized under the laws of any state, territory or the
District of Columbia, the business of which is substantially confined to banking
and is supervised by the state or territorial banking commission or similar
officials or (iii) a branch or agency of a foreign bank, provided that the
nature and extent of federal and/or state regulation and the supervision of the
particular branch or agency is substantially equivalent to that applicable to
federal or state chartered domestic banks doing business in the same
jurisdiction. Initially, the term "Letter of Credit" shall mean the irrevocable
letter of credit issued by the Bank to the Trustee, including any permitted
supplements or amendments thereto and any renewals or extensions thereof, and,
upon the expiration or termination of the Letter of Credit and the issuance and
delivery of a Substitute Letter of Credit meeting the requirements set forth in
this paragraph and in Section 5.03 hereof, "Letter of Credit" shall mean such
Substitute Letter of Credit.
"Mandatory Repurchase Date" means, with respect to any Bonds, the date
on which such Bonds are required to be purchased pursuant to Section 3.07(a).
"Maximum Rate" means the lesser of (a) the highest interest rate that
may be borne by the Bonds under State law and (b) 12% per year.
"Note" shall mean the promissory note of the Company in the principal
amount of $2,545,000, dated as of the date of the Bonds, in the form attached to
the Agreement as Exhibit A, issued pursuant to the Agreement and delivered to
the Issuer as consideration for the use of the proceeds of the Bonds to refund
the Prior Bonds, and any amendment or supplement thereto or substitution
therefor.
"Notice of Mandatory Repurchase" means that notice required to be
prepared by the Trustee and given by the Trustee pursuant to Section 3.07.
"One-year Rate" means with respect to the Bonds the variable rate
established annually in accordance with Section 2.02. The Bonds shall initially
bear a One-year Rate of _____%.
"One-year Rate Period" means each period during which the One-year Rate
is in effect.
"Opinion of Bond Counsel" means an Opinion of Counsel by nationally
recognized bond counsel.
"Opinion of Counsel" means a written opinion of counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Issuer, the Trustee, the Remarketing Agent or the Company.
"Optional Tender Date" shall have the meaning set forth in Section
3.07(b)(i).
"Outstanding" when used with reference to Bonds, or "Bonds outstanding"
means all Bonds that have been authenticated and delivered by the under this
Indenture, except the following:
(a) Bonds canceled or purchased by or delivered to the Trustee for
cancellation pursuant to the provisions of this Indenture. Except as otherwise
provided in Section 3.08, Bonds purchased by the Company pursuant to optional
tender or mandatory repurchase under Section 3.07 will continue to be
outstanding until the Company directs the Trustee to cancel them;
(b) Bonds that have become due (at maturity or on redemption,
acceleration or otherwise) and for the payment, including interest accrued to
the due date, of which sufficient moneys are held by the Trustee;
(c) Bonds deemed paid by Section 7.01; and
(d) Bonds in lieu of which others have been authenticated under Section
2.05 (relating to registration and exchange of Bonds) or Section 2.06 (relating
to mutilated, lost, stolen, destroyed or undelivered Bonds).
"Owner," "owners," "Bondholder," "bondholder," "Holder," "holder" or
words of similar import mean: (a) in the event that the book-entry system of
evidence and transfer of ownership in the Bonds is employed pursuant to Section
2.05(c), Cede & Co., as nominee for DTC, or its nominee, and (b) in all other
cases, the registered owner or owners of any Bond fully registered as shown on
the register maintained by the Trustee.
"Person" means (a) any individual, (b) any corporation, partnership,
joint venture, association, joint-stock company, business trust or
unincorporated organization, or grouping of any such entities, in each case
formed or organized under the laws of the United States of America, any state
thereof or the District of Columbia or (c) the United States of America or any
state thereof, or any political subdivision of either thereof, or any agency,
authority or other instrumentality of any of the foregoing.
"Parent" means Regency Health Services, Inc., a Delaware Corporation,
and owner of 100% of the stock of the Company.
"Prior Bonds" means County of Perry, Ohio First Mortgage Refunding
Revenue Bonds (New Lexington Health Care Corp. Project), Series 1986, in the
original principal amount of $2,545,000.
"Prior Bonds Trustee" means SunTrust Bank, Central Florida, National
Association (successor-in-interest to Mid-American National Bank & Trust
Company), as indenture trustee for the Prior Bonds.
"Rating Agency" means Moody's Investors Service, Inc., if such agency's
ratings are in effect with respect to the Bonds, and Standard & Poor's Ratings
Group, if such agency's ratings are in effect with respect to the Bonds, and
their respective successors and assigns. If either such corporation ceases to
act as a securities rating agency, the Company may, with the approval of the
Remarketing Agent and the Bank, appoint any nationally recognized securities
rating agency as a replacement.
"Receipts and Revenues of the Issuer from the Agreement" means all
moneys paid to the Issuer pursuant to Section 4.1 of the Agreement, and receipts
of the Trustee credited under the provisions of this Indenture against such
payments, including all moneys (other than moneys drawn to purchase Bonds
pursuant to the terms hereof) received by the Trustee from a draw under the
Letter of Credit.
"Record Date" means (i) while the Bonds bear interest at the Weekly
Rate, the Trustee's close of business on the Business Day next preceding each
Interest Payment Date; and (ii) while the Bonds bear interest at any other
interest rate, the 15th day of the calendar month next preceding an Interest
Payment Date.
"Reimbursement Agreement" means the Credit Agreement among the Parent,
the Lenders Identified therein, NationsBank Capital Markets, Inc. and the Bank
pursuant to which the Letter of Credit is issued by the Bank and delivered to
the Trustee, and any and all modifications, alterations, amendments and
supplements thereto.
"Remarketing Agent" means initially Crew and Associates, Inc., and any
successor agent or agents appointed from time to time pursuant to Section 9.12.
"Remarketing Agreement" means (a) initially the Remarketing and
Interest Services Agreement among the Issuer, the Company and the Remarketing
Agent dated as of September 1, 1996, and any and all modifications, alterations,
amendments and supplements thereto and (b) any agreement between the Company,
the Issuer and any successor remarketing agent appointed pursuant to Section
9.12.
"Remarketing Proceeds" shall have the meaning set forth in Section
3.08(c).
"Responsible Officer" means, when used with respect to the Trustee, any
officer within the Corporate Trust Division (or any successor group of the
Trustee), including any vice president, assistant vice president, assistant
secretary or any other officer or assistant officer of the Trustee customarily
performing functions similar to those performed by the persons who at the time
shall be such officers, respectively, or to whom any corporate trust matter is
referred at the Trustee's address set forth in Section 12.01 because of his
knowledge of and familiarity with the particular subject.
"State" means the State of Ohio.
"Substitute Letter of Credit" shall have the meaning set forth in
Section 5.03.
"Tax Regulatory Agreement" means the Tax Regulatory Agreement dated as
of the date of the delivery of the Bonds among the Company, the Issuer and the
Trustee, as the same may be amended or supplemented from time to time in
accordance with its terms or with an opinion of Bond Counsel to the effect that
such amendment will not have an adverse effect on the tax-exempt status of the
Bonds under the Code.
"Three-year Rate" means with respect to the Bonds the variable rate
established every three-years in accordance with Section 2.02.
"Three-year Rate Period" means each period during which a Three-year
Rate is in effect.
"Trustee" means the entity identified as such in the heading of this
Indenture and such entity's successors under this Indenture, and any separate or
co-trustee at the time serving as such under this Indenture.
"Unassigned Rights" means the rights of the Issuer under Section
4.1(b)(2) (relating to fees and expenses) and Section 5.6 (relating to
indemnification) of the Agreement and the rights of the Issuer to receive
documentation and notices, to give or withhold consents in connection with the
provisions of this Indenture or the Agreement and the right to enforce any of
the foregoing.
"Underwriter" means Crews and Associates, Inc.
"U.S. Government Obligations" means (a) direct obligations of the
United States for which its full faith and credit are pledged for the timely
payment thereof, (b) obligations of a person controlled or supervised by and
acting as an agency or instrumentality of the United States, the payment of
which is unconditionally guaranteed as a full faith and credit obligation of the
United States for the timely payment thereof or (c) securities or receipts
evidencing ownership interests in obligations or specified portions (such as
principal or interest) of obligations described in (a) or (b).
"Weekly Rate" means with respect to the Bonds the variable interest
rate on the Bonds established weekly in accordance with Section 2.02.
"Weekly Rate Period" means each period during which a Weekly Rate is in
effect.
All other terms used in this Indenture that are defined in Article I of
the Agreement have the same meanings assigned them in the Agreement unless the
context clearly requires otherwise.
Section 1.02. Rules of Construction. Unless the context otherwise
requires,
(a) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles
applied on a consistent basis;
(b) references to Articles and Sections are to the Articles and
Sections of this Indenture;
(c) terms defined elsewhere in this Indenture shall have the
meanings therein prescribed for them;
(d) words of the masculine gender shall be deemed and construed to
include correlative words of the feminine and neuter
genders;
(e) headings used in this Indenture are for convenience of
reference only and shall not define or limit the provisions
hereof;
(f) each reference herein or in the Bonds to a percentage of Bonds
required for notices, consents or for any other reason shall be deemed to refer
to Bonds then outstanding; and
(g) all references herein to time shall be Charleston, West
Virginia time unless otherwise expressly stated.
<PAGE>
ARTICLE II
THE BONDS
Section 2.01. Issuance of Bonds; Form; Dating.
(a) Authorization. The Issuer hereby authorizes and creates under this
Indenture an issue of Bonds, entitled to the benefit, security and protection of
this Indenture, to be designated "Nursing Facility Refunding Revenue Bonds (New
Lexington Health Care Corp. Project), Series 1996." The total principal amount
of Bonds that may be issued and outstanding hereunder shall be $2,545,000,
except as provided in Section 2.06 with respect to replacement of mutilated,
lost, stolen, destroyed or undelivered Bonds and Section 2.09 with respect to
Additional Bonds. The Bonds shall be issuable only as fully registered bonds
without coupons in Authorized Denominations only, and in substantially the form
of Exhibit A to this Indenture, with appropriate variations, omissions,
insertions, notations, legends or endorsements required by law or usage or
permitted or required by this Indenture. The Bonds may be in printed or
typewritten form. No Bonds may be issued under the provisions of this Indenture
except in accordance with this Article.
The Bonds shall be payable in lawful money of the United States but
only from the sources pledged to such purpose. The Bonds are limited obligations
of the Issuer payable solely from the revenues and receipts derived from
payments made by the Company on the Note or by the Bank under the Letter of
Credit, which revenues and receipts and security have been pledged and assigned
to the Trustee to secure payment of the Bonds in the manner and to the extent
provided herein. NEITHER THE STATE OF OHIO, THE COUNTY OF PERRY, OHIO, THE BOARD
OF COUNTY COMMISSIONERS OF THE COUNTY OF PERRY, OHIO, NOR ANY OTHER POLITICAL
SUBDIVISION THEREOF SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF OR INTEREST ON
THE BONDS OR OTHER COSTS INCIDENT THERETO EXCEPT FROM THE REVENUES, MONIES AND
PROPERTY PLEDGED THEREFOR, AND NEITHER THE TAXING POWER NOR THE FULL FAITH AND
CREDIT OF THE STATE OF OHIO, THE COUNTY OF PERRY, OHIO, THE BOARD OF COUNTY
COMMISSIONERS OF THE COUNTY OF PERRY, OHIO, OR ANY OTHER POLITICAL SUBDIVISION
THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE BONDS
OR OTHER COSTS INCIDENT THERETO. THE BONDS SHALL NEVER CONSTITUTE AN
INDEBTEDNESS OF THE ISSUER WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY
PROVISION AND SHALL NEVER CONSTITUTE OR GIVE RISE TO A PECUNIARY LIABILITY OF
THE ISSUER. NEITHER SHALL THE BONDS NOR THE INTEREST THEREON BE A CHARGE AGAINST
THE GENERAL CREDIT OR TAXING POWERS OF THE ISSUER. NO PRESENT OR FUTURE OFFICER,
MEMBER, COMMISSIONER, EMPLOYEE OR AGENT OF THE ISSUER SHALL BE PERSONALLY LIABLE
ON THE BONDS; AND NO COVENANT, AGREEMENT OR OBLIGATION CONTAINED HEREIN SHALL BE
DEEMED TO BE A COVENANT, AGREEMENT OR OBLIGATION OF ANY PRESENT OR FUTURE
MEMBER, COMMISSIONER, OFFICER, EMPLOYEE OR AGENT OF THE ISSUER IN HIS INDIVIDUAL
CAPACITY.
(b) Details of Bonds. All Bonds shall be dated September 1, 1996 and
delivery of the Bonds and shall mature, subject to prior redemption, on
September 1, 2010. Interest on the Bonds shall be computed from the Interest
Payment Date next preceding the date of authentication thereof, unless such
authentication date (a) is prior to the first Interest Payment Date following
the initial delivery of the Bonds, in which case interest shall be computed from
such initial delivery date, (b) is after a Record Date and before the subsequent
Interest Payment Date, in which case interest shall be computed from the
subsequent Interest Payment Date, or (c) is an Interest Payment Date, in which
case interest shall be computed from such authentication date; provided, that if
interest on the Bonds is in default, Bonds shall bear interest from the last
date to which interest has been paid. The principal of, redemption or purchase
price and premium, if any, and interest on the Bonds shall be payable in lawful
currency of the United States. The principal of and redemption or purchase price
and premium, if any, on the Bonds shall be payable at the principal corporate
trust office of the Trustee upon presentation and surrender of the Bonds.
Payments of interest on the Bonds shall be mailed to the persons in whose names
the Bonds are registered on the register of the Trustee at the close of business
on the Record Date next preceding each Interest Payment Date; provided that, any
Holder of a Bond or Bonds in an aggregate principal amount of not less than
$500,000 may, by prior written instructions filed with the Trustee (which
instructions shall remain in effect until revoked by subsequent written
instructions), instruct that interest payments for any period be made by wire
transfer to an account in the continental United States or other means
acceptable to the Trustee. Bonds shall be numbered from 1 upward as determined
by the Trustee and shall contain the designation "R."
(c) Delivery. Upon the execution and delivery of this Indenture, the
Issuer shall execute and deliver the Bonds to the Trustee and, upon receipt by
the Trustee of the following, the Trustee shall authenticate the principal
amount of Bonds specified in the Issuer's authorization and request, and the
Trustee shall deliver the Bonds to the purchaser or purchasers as directed by
the Issuer:
(i) a copy of the resolution or resolutions of the Issuer
authorizing the issuance of the Bonds, certified by the County Auditor;
(ii) original executed counterparts of the Agreement, this Indenture,
the Escrow Agreement, the Remarketing Agreement and the Tax Regulatory Agreement
and a copy of the Reimbursement Agreement;
(iii) confirmation that the Trustee has received the original,
executed Letter of Credit from the Bank;
(iv) an authorization and request from the Issuer to the Trustee to
authenticate and deliver the Bonds in specified Authorized Denominations to the
initial purchaser or purchasers upon payment to the Trustee, for the account of
the Issuer, of the purchase price for such principal amount of Bonds;
(v) an Opinion of Bond Counsel for the Bonds, addressed to the Trustee,
or upon which the Trustee may rely, to the effect that the Bonds so specified
have been validly authorized, executed and issued under the law of the State and
this Indenture has been duly authorized, executed and delivered by the Issuer;
(vi) an opinion of Counsel to the Bank addressed to the Trustee, or
upon which the Trustee may rely, to the effect that the Letter of Credit is a
binding and valid obligation of the Bank and is not subject to registration
under the Securities Act of 1933, as amended;
(vii) Internal Revenue Service Form 8038 completed by the Issuer
with respect to the Bonds;
(viii) An Opinion of Counsel that (1) the Company is a corporation duly
organized and validly existing under the laws of the State, and (2) the
Agreement and the Note have been duly authorized, executed and delivered by the
Company and are enforceable against the Company, subject to usual exceptions for
matters relating to bankruptcy and equitable principles; and
(ix) Appropriate evidence that the Remarketing Agent has accepted
its obligations and duties described in this Indenture.
(d) Disbursement. On the date of issuance of the Bonds, the Trustee
shall disburse all of the proceeds derived from the issuance of the Bonds,
together with sufficient equity money provided by the Company, to the Prior
Bonds Trustee as Escrow Agent under the Escrow Agreement in order to provide for
the defeasance in full of the Prior Bonds. All additional moneys should be
deposited in the Bond Fund and shall be applied as set forth in Section 4.04.
Section 2.02. Interest on the Bonds. The Bonds shall bear interest as
herein provided from the date thereof until paid in full. The Bonds will
initially bear interest at a One-year Rate of 4.00%. Interest accrued on the
Bonds shall be paid on each Interest Payment Date (or, if such day is not a
Business Day, on the next succeeding Business Day), commencing on March 1, 1997.
Subsequent to a Conversion Date, the Bonds shall bear interest at the lowest
rate determined by the Remarketing Agent on their date of issuance as necessary
to sell all of the Bonds at par; provided that no interest rate on the Bonds
shall exceed the Maximum Rate. The amount of interest payable on any Interest
Payment Date shall be computed on the basis of the actual number of days elapsed
over a year of 365 or 366 days, whichever may be applicable.
If, subsequent to any Conversion Date, the Bonds bear interest at the
Weekly Rate, during each Weekly Rate Period the Bonds shall bear interest at the
Weekly Rate, determined by the Remarketing Agent initially no later than the
first day of each Weekly Rate Period and thereafter no later than Wednesday (or
the next succeeding Business Day, if such Wednesday is not a Business Day) of
each week during such Weekly Rate Period. The Weekly Rate shall be the minimum
rate of interest that would cause the Bonds on the date such rate is determined
to have a market value equal to the then outstanding principal amount, plus, if
such sale would not be on an Interest Payment Date, accrued interest. Such rate
shall be determined by the Remarketing Agent in its sole discretion based on
prevailing market conditions. The determination of the Weekly Rates as provided
in this Indenture shall be conclusive and binding on the Issuer, the Company,
the Bank, the Trustee, the Remarketing Agent and the Bondholders. The
calculation and verification of interest payable on the Bonds as provided in
this Indenture shall be conclusive and binding on the Issuer, the Company, the
Bank, the Trustee, the Remarketing Agent, and the Bondholders, absent manifest
error.
If the Remarketing Agent shall not have determined a Weekly Rate for
any week, the Weekly Rate shall be the same as the Weekly Rate for the
immediately preceding week. If for any reason, the Weekly Rate cannot be
determined for any week as hereinbefore provided, the Weekly Rate for such week
shall be a rate per annum equal to 100% of the rate published in the then most
recent edition of The Bond Buyer for 30-day prime tax-exempt commercial paper
or, if The Bond Buyer no longer publishes such information, such other
publication or provider of such information as the Remarketing Agent may select.
The first Weekly Rate determined for each Weekly Rate Period shall
apply to the period commencing on the first day of such Weekly Rate Period and
ending on the next succeeding Wednesday (or the next succeeding Business Day, if
such Wednesday is not a Business Day). Thereafter, each Weekly Rate shall apply
to the period commencing on Thursday (or if the date of determination is not a
Wednesday, on the next following Business Day) and ending on the next succeeding
date of determination, or if earlier, on the last day of the Weekly Rate Period.
Promptly following the determination of each Weekly Rate, the
Remarketing Agent shall give notice thereof to the Trustee. Upon the request of
any Bondholder, the Remarketing Agent shall notify any such Bondholder of each
change in the Weekly Rate by first class mail. The failure to give any such
notice shall not affect,the change in the Weekly Rate.
The Remarketing Agent shall notify the Trustee and the Company in
writing (which may be in telecopy form) or by telephone promptly confirmed in
writing by 4:00 p.m. on the last Wednesday of each month (or if such Wednesday
is not a Business Day, on the next succeeding Business Day) of the Weekly Rate
set for each week in such month, and the principal amount of Bonds bearing
interest at the Weekly Rate during each week.
Using the Weekly Rates supplied by the Remarketing Agent, the Trustee
shall calculate the amount of interest payable on the Bonds.
Section 2.03. Execution and Authentication. The Bonds shall be signed
on behalf of the Issuer with the manual or facsimile signature of the members of
the Board of Conuty Commissioners of the Issuer, and the seal of the Issuer
shall be impressed or imprinted on the Bonds by facsimile or otherwise, and
attested by the manual or facsimile signature of the County Auditor. If any
officer whose signature is on a Bond no longer holds that office at the time the
Trustee authenticates the Bond, the Bond shall nevertheless be valid. Also, if a
person signing a Bond is the proper officer on the actual date of execution, the
Bond shall be valid even if that person is not the proper officer on the nominal
date of action.
A Bond shall not be valid for any purpose under this Indenture unless
and until the Trustee manually signs the certificate of authentication on the
Bond, and such signature shall be conclusive evidence that the Bond has been
authenticated under this Indenture.
Section 2.04. Bond Register. The Trustee shall keep a register of Bonds
and of their transfer and exchange. Bonds not held under a book-entry system
must be presented at the principal corporate trust operations office of the
Trustee for registration, transfer and exchange, and Bonds may be presented at
that office for payment. Bonds not held under a book-entry system and optionally
tendered by their holders must be delivered as specified in Section 3.07(b).
Section 2.05. Registration and Exchange of Bonds; Persons Treated as
Owners; Book-Entry System.
(a) Bonds may be transferred only on the register maintained by the
Trustee. Upon surrender for transfer of any Bond to the Trustee, duly endorsed
for transfer or accompanied by an assignment duly executed by the holder or the
holder's attorney duly authorized in writing and in either case, with an
appropriate guarantee of signature conforming to the requirements of Exhibit A
hereto, the Trustee shall authenticate a new Bond or Bonds in an equal total
principal amount and registered in the name of the transferee.
Bonds may be exchanged for an equal total principal amount of Bonds of
different Authorized Denominations. The Trustee shall authenticate and deliver
Bonds that the Bondholder making the exchange is entitled to receive, bearing
numbers not then outstanding.
Except in connection with the optional tender of Bonds pursuant to
Section 3.07(b) and the delivery thereof pursuant to Section 3.08, the Trustee
shall not be required to transfer or exchange any Bond during the period
beginning 15 days before the mailing of notice calling the Bond or any portion
of the Bond for redemption and ending on the redemption date. Bonds subject to
redemption or mandatory repurchase may be transferred or exchanged only if the
Trustee provides the new holder thereof with a copy of the notice of redemption
or mandatory repurchase, as the case may be.
The holder of a Bond as shown on the register of the Trustee shall be
the absolute owner of the Bond for all purposes, and payment of principal,
interest or purchase price shall be made only to or upon the written order of
such holder or the holder's legal representative; provided that interest shall
be paid to the Person shown on the register as a holder of a Bond on the
applicable Record Date.
(b) The Trustee may require the payment by a Bondholder requesting
exchange or registration of transfer of any tax or other governmental charge
required to be paid in respect of the exchange or registration of transfer but
shall not impose any other charge.
(c) The Trustee or the Remarketing Agent may make appropriate
arrangements for the Bonds (or any portion thereof) to be issued or held by
means of a book-entry system administered by DTC with no physical distribution
of Bonds made to the public (other than those Bonds, if any, not held under such
book-entry system). References in this Section 2.05(c) to a Bond or the Bonds
shall be construed to mean the Bond or the Bonds that are held under the
book-entry system. In such event, one Bond of each maturity shall be issued to
DTC and immobilized in its custody. A book-entry system shall be employed,
evidencing ownership of the Bonds in Authorized Denominations, with transfers of
beneficial ownership effected on the records of DTC and the DTC Participants
pursuant to rules and procedures established by DTC.
Each DTC Participant shall be credited in the records of DTC with the
amount of such DTC Participant's interest in the Bonds. Beneficial ownership
interests in the Bonds may be purchased by or through DTC Participants. The
holders of these beneficial ownership interests are hereinafter referred to as
the "Beneficial owners." The Beneficial Owners shall not receive Bonds
representing their beneficial ownership interests. The ownership interests of
each Beneficial Owner shall be recorded through the records of the DTC
Participant from which such Beneficial Owner purchased its Bonds. Transfers of
ownership interests in the Bonds shall be accomplished by book entries made by
DTC and, in turn, by DTC Participants acting on behalf of Beneficial Owners. SO
LONG AS CEDE & CO., AS NOMINEE FOR DTC, IS THE REGISTERED OWNER OF THE BONDS,
THE TRUSTEE SHALL TREAT CEDE & CO. AS THE ONLY HOLDER OF THE BONDS FOR ALL
PURPOSES UNDER THIS INDENTURE, INCLUDING RECEIPT OF ALL PRINCIPAL OF AND
INTEREST ON THE BONDS, RECEIPT OF NOTICES, VOTING AND REQUESTING OR DIRECTING
THE TRUSTEE TO TAKE OR NOT TO TAKE, OR CONSENTING TO, CERTAIN ACTIONS UNDER THIS
INDENTURE.
Payments of principal, interest and purchase price with respect to the
Bonds, so long as DTC is the only owner of the Bonds, shall be paid by the
Trustee directly to DTC or its nominee, Cede & Co. as provided in the Letter of
Representation dated as of September 1, 1996 from the Issuer, the Company, the
Remarketing Agent, the Trustee to DTC (the "Letter of Representation"). DTC
shall remit such payments to DTC Participants, and such payments thereafter
shall be paid by DTC Participants to the Beneficial owners. The Issuer, the
Company, and the Trustee shall not be responsible or liable for payment by DTC
or DTC Participants, for sending transaction statements or for maintaining,
supervising or reviewing records maintained by DTC or DTC Participants.
In the event that (1) DTC determines not to continue to act as
securities depository for the Bonds or (2) the Company or the Remarketing Agent
determines that the continuation of the book-entry system of evidence and
transfer of ownership of the Bonds would adversely affect its interests or the
interests of the Beneficial Owners of the Bonds, the Issuer shall, at the
request of the Company or the Remarketing Agent, discontinue the book-entry
system with DTC. If the Remarketing Agent fails to identify another qualified
securities depository to replace DTC, the Trustee shall authenticate and deliver
replacement Bonds in the form of fully registered Bonds to each Beneficial
Owner.
THE ISSUER, THE COMPANY, THE REMARKETING AGENT, AND THE TRUSTEE SHALL
NOT HAVE ANY RESPONSIBILITY OR OBLIGATIONS TO ANY DTC PARTICIPANT OR ANY
BENEFICIAL OWNER WITH RESPECT TO (i) THE BONDS; (ii) THE ACCURACY OF ANY RECORDS
MAINTAINED BY DTC OR ANY DTC PARTICIPANT; (iii) THE PAYMENT BY DTC OR ANY DTC
PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE
PRINCIPAL OF AND INTEREST ON THE BONDS; (iv) THE DELIVERY OR TIMELINESS OF
DELIVERY BY DTC OR ANY DTC PARTICIPANT OF ANY NOTICE DUE TO ANY BENEFICIAL OWNER
THAT IS REQUIRED OR PERMITTED UNDER THE TERMS OF THIS INDENTURE TO BE GIVEN TO
BENEFICIAL OWNERS; (v) THE SELECTION OF BENEFICIAL OWNERS TO RECEIVE PAYMENTS IN
THE EVENT OF ANY PARTIAL REDEMPTION OF THE BONDS; OR (vi) ANY CONSENT GIVEN OR
OTHER ACTION TAKEN BY DTC, OR ITS NOMINEE, CEDE & CO., AS OWNER.
In the event that a book-entry system of evidence and transfer of
ownership of the Bonds is discontinued pursuant to the provisions of this
Section, the Bonds shall be delivered solely as fully registered Bonds without
coupons in the Authorized Denominations, shall be lettered "IR" and numbered
separately from 1 upward, and shall be payable, executed, authenticated,
registered, exchanged and canceled pursuant to the provisions hereof.
(d) The Remarketing Agent shall not be limited to utilizing a
book-entry system maintained by DTC but may enter into a custody agreement with
any bank or trust company serving as custodian (which may be the Trustee serving
in the capacity of custodian) to provide for a book-entry or similar method for
the registration and registration of transfer of all or a portion of the Bonds.
SO LONG AS A BOOK-ENTRY SYSTEM OF EVIDENCE OF TRANSFER OF OWNERSHIP OF
ALL THE BONDS IS MAINTAINED IN ACCORDANCE HEREWITH, THE PROVISIONS OF THIS
INDENTURE RELATING TO THE DELIVERY OF PHYSICAL BOND CERTIFICATES SHALL BE DEEMED
INAPPLICABLE OR BE OTHERWISE SO CONSTRUED AS TO GIVE FULL EFFECT TO SUCH
BOOK-ENTRY SYSTEM.
Section 2.06. Mutilated, Lost, Stolen, Destroyed or Undelivered Bonds.
(a) If any Bond is mutilated, lost, stolen or destroyed, the Trustee
shall authenticate a new Bond of the same denomination for any mutilated, lost,
stolen or destroyed Bond if there is delivered to the Trustee at its principal
corporate trust operations office, (1) in the case of a mutilated Bond, such
mutilated Bond and (2) in the case of any lost, stolen or destroyed Bond,
evidence of such loss, theft or destruction reasonably satisfactory to the
Issuer, Bank, Trustee and Company, together with an indemnity from the
Bondholder, reasonably satisfactory to them. If the Bond has matured and if the
evidence and indemnity described above have been provided by the Bondholder,
instead of issuing a duplicate Bond, the Trustee, with the consent of the
Company, shall pay the Bond without requiring surrender of the Bond and make
such requirements as the Trustee deems fit for its protection, including a lost
instrument bond. The Issuer, the Company and the Trustee may charge the
Bondholder their reasonable fees and expenses in this connection.
(b) In the event that any Bond purchased pursuant to an optional tender
or mandatory repurchase is not delivered by the holder thereof on the date such
Bond is purchased, the Issuer shall execute (if necessary) and the Trustee shall
authenticate and deliver a new Bond of like aggregate principal amount as the
Bond purchased, which Bond shall, for all purposes of this Indenture, be deemed
to evidence the same debt as the Bond purchased and shall be remarketed,
delivered and registered in accordance with Section 3.08(d) hereof.
If any Bond is purchased by the Trustee with Available Moneys provided
by the Company and sufficient for such purchase, the Trustee, upon request of
the Company, shall authenticate a new Bond in any Authorized Denomination
specified by the Company, registered as the Company may direct and deliver it to
the Company, or to its order, whether or not such Bond is ever delivered. If any
Bond is purchased with funds obtained by a drawing on the Letter of Credit, the
Trustee shall comply with the provisions of Section 3.08(d)(ii).
(c) Every new Bond issued pursuant to this Section 2.06 shall (i)
constitute an additional contractual obligation of the Issuer regardless of
whether, in the case of (a) above, the mutilated, lost, stolen or destroyed Bond
and, in the case of (b) above, the Bond purchased shall be enforceable at any
time by anyone, and (ii) be entitled to all of the benefits of this Indenture
equally and proportionately with any and all other Bonds issued and outstanding
hereunder.
(d) All Bonds shall be held and owned on the express condition that the
foregoing provisions of this Section 2.06 are exclusive with respect to the
replacement or payment of mutilated, lost, stolen or destroyed Bonds and the
replacement of any Bond purchased pursuant to an optional tender or mandatory
repurchase and, to the extent permitted by law, and shall preclude any and all
other rights and remedies with respect to the replacement or payment of
negotiable instruments or other investment securities without their surrender,
notwithstanding any law or statute to the contrary now existing or enacted
hereafter.
Section 2.07. Cancellation of Bonds. All Bonds paid, redeemed or
purchased, either at or before maturity, shall be delivered to the Trustee when
such payment, redemption or purchase is made, and except as otherwise provided
herein shall be canceled. Whenever a Bond is delivered to the Trustee for
cancellation (upon payment, redemption, defeasance or otherwise), or for
transfer, exchange or replacement pursuant to Section 2.05 or 2.06, the Trustee
shall safeguard such Bond for such period of time as may be required by
governmental regulations and thereafter promptly cancel the Bond and prepare a
certificate of destruction therefor.
Section 2.08. Temporary Bonds. Until definitive Bonds are ready for
delivery, the Issuer may execute and the Trustee shall authenticate temporary
Bonds substantially in the form of the definitive Bonds, with appropriate
variations. The Issuer shall, without unreasonable delay, prepare and the
Trustee shall authenticate definitive Bonds in exchange for the temporary Bonds.
Such exchange shall be made by the Trustee without charge to the Bondholders.
Temporary Bonds shall not otherwise be eligible for transfer or exchange under
Section 2.05.
Section 2.09. Additional Bonds.
(a) At any time while the Issuer is not in default under this Indenture
and subject to the approval and execution of a supplemental Indenture making
appropriate provisions therefor in accordance with Section 10.01 hereof and
subject to receipt by the Trustee of the documents listed below, the Issuer may
issue one or more series of Additional Bonds for the purpose of providing funds
to be used, with any other available funds, for the purpose of (i) paying the
cost of all improvements, restoration, repairing, rebuilding, rearranging and
replacements of the Project or any part thereof by the Company pursuant to, or
(ii) refunding all or part of any prior series of Bonds, or any combination of
the above. Each series of Additional Bonds shall be issued pursuant to a
supplement to this Indenture. Unless otherwise provided in a supplemental
Indenture, all such Additional Bonds shall be in substantially the same form as
the Bonds, but shall be of such denominations, bear such dates, bear interest at
such rates, have such maturity dates, redemption dates and redemption premiums,
contain an appropriate series designation, and be issued at such prices all as
approved by Company.
The Trustee shall authenticate and deliver such Additional Bonds, but
only upon receipt of the following:
(1) A certificate of the Issuer, signed by its President, that it
is not in default under this Indenture.
(2) A certificate of the Company, signed by a Company
Representative approving the issuance and terms of such
Additional Bonds and that it is not in default under the
Agreement.
(3) A certified copy of a resolution or resolutions of the Issuer
authorizing a)the execution and delivery of the amendment to
the Agreement referred to in subparagraph 4 of this Section
2.09, (b) the execution and delivery of the supplemental
Indenture referred to in subparagraph 5 hereof, and (c) the
issuance, award, execution and delivery of such Additional
Bonds.
(4) An original executed counterpart of an amendment to the
Agreement providing, among other things, for increasing the
amounts payable by the Company thereunder to include payment
of principal of, premium, if any, and interest on such
Additional Bonds.
(5) An original executed counterpart of a supplemental Indenture
providing for the issuance of such Additional Bonds.
(6) Evidence of the consent of the Bank to the issuance of such
Additional Bonds.
(7) An opinion of Counsel that the amendment to the Agreement and
a new promissory note each has been properly authorized,
executed, and delivered by Company, that the supplemental
Indenture has been properly authorized, executed, and
delivered by the Issuer, and that such amendment to the
Agreement, new promissory note, and supplemental Indenture
(assuming in the case of the supplemental Indenture, proper
authorization and execution and delivery thereof by the
Trustee), are valid and binding and enforceable in accordance
with their respective terms, except as same is affected by
laws affecting creditors' rights and the enforcement thereof
generally and except to the extent that the remedy of specific
performance and other equitable remedies are always within the
discretion of the Court, and that the amendment to the
Agreement and the supplemental Indenture have been duly
recorded in every necessary recording office and appropriate
financing statements have been filed in all filing offices
where such filing shall be necessary;
(8) A written opinion of Nationally Recognized Bond Counsel that
the issuance of such Additional Bonds has been duly authorized
by the Issuer and will have no adverse effect upon the
exemption from Federal income taxes of interest on the Bonds
or any other then outstanding series of Additional Bonds.
(9) A request and authorization by the Issuer, signed by its
President, to the Trustee to authenticate and deliver such
Additional Bonds upon payment to the Trustee for the account
of the Issuer of a specified sum.
(b) When the requirements of subsection A of this Section have been met
to the reasonable satisfaction of the Trustee and when the Additional Bonds
shall have been executed and authenticated in the manner required by this
Indenture, the Trustee shall deliver such Additional Bonds but only upon payment
to the Trustee of the purchase price of such Additional Bonds.
(c) The proceeds of all Bonds issued under the provisions of this
Section (other than refunding Bonds) shall be deposited with the Trustee in a
special fund appropriately designated and held in trust for the purpose of
paying the costs for which such Additional Bonds were issued to finance except
that any accrued interest received on the sale of such Additional Bonds and any
amount authorized for the payment of interest during any period of acquisition
and construction and for a reasonable period thereafter shall be deposited to
the credit of the Bond Fund (i.e., in the designated subaccount therein). The
proceeds of all refunding Bonds issued under the provisions of this Section
shall be deposited with the Trustee in a special escrow account pledged solely
to the payment of the principal of, premium, if any, and interest on the
refunded Bonds, except that the accrued interest received on the sale of such
Additional Bonds may be deposited instead in the Bond Fund.
<PAGE>
ARTICLE III
REDEMPTION, PURCHASE AND REMARKETING
Section 3.01. Redemption of Bonds.
(a) Optional Redemption-Bonds in Weekly Rate Mode. While the Bonds bear
interest at the Weekly Rate, the Bonds may be redeemed by the Issuer at the
direction of the Company, in whole on any Business Day, or in part on any
Interest Payment Date, or, if such Interest Payment Date is not a Business Day
on the next succeeding Business Day, without premium, at the principal amount
thereof with interest accrued to, but excluding, the redemption date; provided
that any such redemption in part shall be in a minimum redemption amount of
$100,000.
(b) Optional Redemption-Bonds in One-year Rate Mode or Three-year Rate
Mode. While the Bonds bear interest at either the One-year Rate or the
Three-year Rate, the Bonds may be redeemed by the Issuer at the direction of the
Company, in whole or in part on the final Interest Payment Date occurring during
such One-year Rate Period or Three-year Rate Period, at a redemption price of
par plus interest accrued to the date fixed for redemption.
(c) Optional Redemption-Bonds in Fixed Rate Mode. While the Bonds bear
interest at a Fixed Rate, the Bonds may be redeemed by the Issuer at the
direction of the Company, in whole or in part at any time on and after the tenth
anniversary date subsequent to the Conversion Date upon which the interest rate
on the Bonds was converted to a Fixed Rate, at a redemption price of par plus
interest accrued to the date fixed for redemption.
NOTWITHSTANDING ANYTHING IN THIS INDENTURE TO THE CONTRARY, IN NO EVENT
SHALL PROCEEDS OF THE LETTER OF CREDIT BE USED TO PAY THE REDEMPTION PRICE OF
BONDS CALLED FOR REDEMPTION PURSUANT TO SECTIONS 3.01(a), 3.01(b) or 3.01(c).
(d) Mandatory Sinking Fund Redemption. (i) The Bonds are subject to
mandatory sinking fund redemption prior to their scheduled maturity, on
September 1, 1997, and on each succeeding September 1 to and including September
1, 2010, or if any such date is not a Business Day, on the next succeeding
Business Day, without premium, at a redemption price of the principal amount
thereof with interest accrued to, but excluding, the redemption date, in the
following principal amounts:
Principal
Year Amount
1997 $ 25,000
1998 25,000
1999 25,000
2000 50,000
2001 185,000
2002 205,000
2003 205,000
2004 225,000
2005 235,000
2006 245,000
2007 265,000
2008 275,000
2009 285,000
2010 (Maturity) 315,000
(ii) At its option, to be exercised on or before the 45th day next
preceding any such sinking fund redemption date, the Issuer, or the Company on
behalf of the Issuer, may:
(x) deliver to the Trustee for cancellation Bonds in
ny aggregate principal amount desired to be credited
against the Issuer's sinking fund redemption obligations; or
(y) instruct the Trustee, to credit against the Issuer's
sinking fund redemption obligations any Bonds that prior to
such date have been redeemed (otherwise than through the
operation of the sinking fund) and canceled by the Trustee and
not theretofore applied as a credit against any sinking fund
redemption obligation.
Each Bond so delivered or previously redeemed shall be credited by the
Trustee at 100% of the principal amount thereof against the obligation of the
Issuer on such sinking fund redemption dates. Any excess over such obligation
shall be credited against future sinking fund redemption obligations in
chronological order, and the principal amount of the Bonds to be redeemed by
operation of the sinking fund shall be accordingly reduced.
(e) Mandatory Redemption on Determination of Taxability. The Bonds are
also subject to mandatory redemption at a redemption price equal to the
principal amount thereof with interest to, but excluding, the redemption date in
whole (or in part as provided below), without premium, on the first day of a
month within 180 days after the Company receives written notice from a
Bondholder or former Bondholder or the Trustee of a final determination by the
Internal Revenue Service or a court of competent jurisdiction that the interest
paid or to be paid on any Bond is or was includable in the gross income of the
Bond's owner (other than an owner that is a "substantial user" of the Facility
or a "related person" within the meaning of Section 147(a) of the Code) for
federal income tax purposes (a "Determination of Taxability"), or if such date
is not a Business Day, on the next succeeding Business Day. No such
determination will be considered final unless the Bondholder or former
Bondholder involved in the determination gives the Company, the Trustee, the
Remarketing Agent and the Bank prompt written notice of the commencement of the
proceedings resulting in the determination and offers the Company, subject to
the Company's agreeing to pay all expenses of the proceeding and to indemnify
the holder against all liabilities that might result from it, the opportunity to
control the defense of the proceeding and either the Company does not agree
within 30 days to pay the expenses, indemnify the holder and control the defense
or the Company exhausts or chooses not to exhaust available procedures to
contest or obtain review of the result of the proceedings. Fewer than all the
Bonds may be redeemed if redemption of fewer than all would result in the
interest payable on the Bonds remaining outstanding being not includable in the
gross income for federal income tax purposes of any holder. If fewer than all
Bonds are redeemed, the Remarketing Agent shall select the Bonds to be redeemed
by lot as provided in Section 3.03 or by such other method acceptable to the
Remarketing Agent as may be approved in an opinion of Bond Counsel.
(f) Mandatory Redemption on Expiration or Termination of Letter of
Credit Without Extension or Providing a Substitute Letter of Credit. The Bonds
are subject to mandatory redemption, in whole without premium at a redemption
price equal to 100% of the principal amount thereof plus accrued and unpaid
interest thereon to, but not including, the redemption date, on the Interest
Payment Date that next precedes by at least 14 days the stated expiration or
termination date of the Letter of Credit or, if such Interest Payment Date is
not a Business Day, on the next succeeding Business Day, unless by the 15th day
prior to such Interest Payment Date the Company provides to the Trustee, and the
Trustee has accepted, (1) evidence that such Letter of Credit has been extended
or (2) a Substitute Letter of Credit to be effective on or prior to such
Interest Payment Date.
(g) Mandatory Redemption upon Failure of Remarketing Agent to Remarket
Bonds. Bonds unable to be remarketed by the Remarketing Agent pursuant to
Section 3.08 of this Indenture shall be subject to mandatory redemption at a
redemption price equal to the principal amount thereof plus accrued and unpaid
interest thereof to, but not including, the redemption date in the manner set
forth in Section 3.08.
Section 3.02. Redemption Date. The redemption date of Bonds to be
redeemed pursuant to the optional redemption provisions in Section 3.01(a)
through (c) shall be a date permitted by such clauses and specified by the
Company in the notice delivered pursuant to the preceding Section. The
redemption date for mandatory redemptions shall be as specified in Section
3.01(d) through (g), as the case may be, or determined by the Trustee
consistently with the provisions thereof.
Section 3.03. Selection of Bonds To Be Redeemed. Except as otherwise
provided in this Section 3.03, if fewer than all the Bonds are to be redeemed,
the Remarketing Agent shall select the Bonds to be redeemed by lot or such other
method as it deems in its sole discretion to be fair and appropriate and shall
notify the Trustee (which notice may be provided by telephone, immediately
confirmed in writing by legible facsimile transmission, registered or certified
mail, overnight express delivery, or other secure means), of the holders and
denominations of Bonds to be redeemed. The Remarketing Agent shall make the
selection from Bonds not previously called for redemption. In the event the
Remarketing Agent fails to notify the Trustee of the Bonds to be redeemed on or
before the 35th day prior to the redemption. day, the Trustee shall select Bonds
for redemption from among the Outstanding Bonds as set forth below. The Trustee
shall treat each holder of Bonds as the owner of one Bond for purposes of
selection for redemption and shall select Bonds for redemption by lot (1) from
among the holders of less than $1,000,000 in aggregate principal amount,
provided that if there are no such holders, or if, after selection from among
such holders such selection has not resulted in redemption of a sufficient
amount of Bonds, then (2) from among the holders of $1,000,000 or more in
aggregate principal amount of Bonds. In the event the Trustee selects Bonds for
redemption, the Trustee shall, on or before the day on which notice of
redemption is mailed to the holders, give telephonic notice to the Remarketing
Agent of the Bonds selected for redemption and the name of the holder or holders
thereof. No portion of a Bond may be redeemed that would result in a Bond that
is smaller than the then permitted minimum Authorized Denomination. For this
purpose, the Remarketing Agent or the Trustee shall consider each Bond in a
denomination larger than the minimum denomination permitted by the Bonds at the
time to be separate Bonds each in the minimum denomination. Provisions of this
Indenture that apply to Bonds called for redemption also apply to portions of
Bonds called for redemption.
Notwithstanding anything to the contrary in this Indenture, there shall
be no redemption of less than all of the Bonds if there shall have occurred and
be continuing an Event of Default.
Section 3.04. Notice to Trustee; Notice of Redemption.
(a) If the Company wishes that any Bonds be redeemed pursuant to the
optional redemption provisions in Section 3.01(a) through (c) hereof, the
Company shall notify the Trustee, the Trustee, the Bank and the Remarketing
Agent in writing of the applicable provision, the redemption date, the principal
amount of Bonds to be redeemed and other necessary particulars. The Company
shall give such notices at least 40 days before the redemption date.
(b) For Bonds being redeemed pursuant to Subsections (a) through (e) of
Section 3.01, the Trustee shall prepare and send notice of each redemption to
each Bondholder whose Bonds are being redeemed, the Company, the Remarketing
Agent and the Bank by first-class mail at least 30 days but not more than 60
days before each redemption. If the Bonds are being held under a book-entry
system administered by DTC and less than all of the Bonds are called for
redemption, the Remarketing Agent shall notify the Trustee of the names and
addresses of the Beneficial Owners of the Bonds selected for redemption pursuant
to Section 3.03, and the Trustee shall prepare and send notice of such
redemption to each such Beneficial owner at the time and in the manner provided
in this Section 3.04(b). The notice shall identify the Bonds or portions thereof
to be redeemed and shall state (i) the type of redemption and the redemption
date, (ii) the redemption price, (iii) that the Bonds called for redemption must
be surrendered to collect the redemption price, (iv) the address at which the
Bonds must be surrendered, (v) that interest on the Bonds called for redemption
ceases to accrue on the redemption date, (vi) the CUSIP number of the Bonds and
(vii) any condition to the redemption.
The procedure for redemption of Bonds pursuant to 3.01(f) shall be
identical except that notice shall be sent at least 7 days before each
redemption.
The procedure for redemption of Bonds pursuant to 3.01(g) shall be as
set forth in Section 3.08 of this Indenture.
With respect to any Bonds to be redeemed that have not been presented
for redemption within 60 days after the redemption date, the Trustee, at the
expense of the Company, shall prepare and the Trustee shall give a second notice
of redemption to the holder of any such Bonds that have not been presented for
redemption, by first-class mail, within 30 days of the end of such 60-day
period.
Failure by the Trustee to give any notice of redemption as to any
particular Bonds will not affect the validity of the call for redemption of any
Bonds in respect of which no such failure has occurred. Any notice mailed as
provided in the Bonds will be conclusively presumed to have been given whether
or not actually received by any holder.
Section 3.05. Payment of Bonds Called for Redemption. Upon surrender to
the Trustee, Bonds called for redemption shall be paid as provided in this
Article at the redemption price provided for in this Article. On the date fixed
for redemption, notice having been given in the manner and under the conditions
hereinabove provided, the Bonds or portions thereof called for redemption shall
be due and payable at the redemption price provided therefor, plus accrued
interest to such date. On such redemption date, if moneys sufficient to pay the
redemption price of the Bonds to be redeemed, plus accrued interest thereon to
the date fixed for redemption, are held by the Trustee, interest on the Bonds
called for redemption shall cease to accrue; such Bonds shall cease to be
entitled to any benefits or security under this Indenture or to be deemed
outstanding; and the holders of such Bonds shall have no rights in respect
thereof except to receive payment of the redemption price thereof, plus accrued
interest to the date of redemption.
Section 3.06. Bonds Redeemed in Part. Upon surrender of a Bond redeemed
in part, the Trustee shall authenticate for the holder a new Bond or Bonds equal
in principal amount to the unredeemed portion of the Bond surrendered.
Section 3.07. Other Redemption; Purchase of Bonds.
(a) Mandatory Repurchase of Bonds; Notice. Except as provided
in Section 3.07(e), Bonds are subject to mandatory repurchase as follows:
(i) on the effective date of any Substitute Letter of Credit delivered
pursuant to Section 5.03, if, but only if, such Substitute Letter of Credit will
result in a Credit Modification, at a purchase price equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon to but not
including the date of purchase; and
(ii) on any Interest Payment Date selected by the Company, or if such
Interest Payment Date is not a Business Day, on the next succeeding Business
Day, at a purchase price equal to 100% of the principal amount thereof plus
accrued and unpaid interest thereon to but not including the date of purchase;
provided that any such mandatory repurchase, except as provided in Section 9.12
hereof, shall be subject to the prior written consent of the Bank; and
The Trustee shall prepare and send to the holders of Bonds subject to
mandatory repurchase, and to the Remarketing Agent, the Bank and the Company, a
Notice of Mandatory Repurchase at least 15 days but not more than 60 days before
the Mandatory Repurchase Date. Any Notice of Mandatory Repurchase shall be given
by first-class mail and shall be substantially in the form attached hereto as
Exhibit B.
With respect to any Bonds to be purchased that have not been presented
for purchase within 60 days after the Mandatory Repurchase Date, the Trustee, at
the expense of the Company, prepare and send a second notice of purchase to the
holder of any such Bonds, by first-class mail, within 30 days of the end of such
60-day period.
(b) Optional Tender of Bonds. (i) Except as provided in Section
3.07(e), while the Bonds bear interest at the Weekly Rate, the holder (or while
the Bonds are held pursuant to a book-entry system, the Beneficial Owner) of any
Bond may elect to tender such Bond (or portion thereof, provided that each of
the portion to be purchased and the portion to be retained is in an Authorized
Denomination) for purchase at a purchase price equal to 100% of the principal
amount of such Bond (or portion thereof), plus accrued and unpaid interest
thereon to but not including the date of purchase, on any Business Day (the
"Optional Tender Date"), but only upon (A) receipt by the Remarketing Agent by
not later than 11:00 a.m. at least seven calendar days or five Business Days,
whichever may be earlier, but not more than 30 days, prior to such Optional
Tender Date of telephonic (followed, if requested by the Remarketing Agent, by
written or facsimile confirmation delivered to the Remarketing Agent no later
than the close of business on the next succeeding Business Day) or other notice
stating (x) the principal amount of the Bond (or portion thereof) to be
tendered, (y) the Bond number or other identification satisfactory to the
Remarketing Agent, and (z) the Optional Tender Date on which such Bond will be
tendered; and (B) if the Bonds are not being held under a book-entry system,
delivery of such Bond (with an appropriate instrument of transfer duly executed
in blank) to the Trustee by 10:00 a.m. on such Optional Tender Date.
(ii) Any notice of optional tender for purchase delivered pursuant to
subpart (i) above shall be irrevocable and shall be binding on the holder giving
or delivering such notice and on any transferee of such holder.
(iii) Upon receipt by the Remarketing Agent of a notice of optional
tender for purchase pursuant to subparagraph (i) above, the Remarketing Agent
shall give prompt telephonic notice thereof to the Trustee.
(c) Payment for Purchased Bonds. To the extent that sufficient moneys
have been made available therefor to the Trustee by 3:30 p.m. on the purchase
date pursuant to Sections 3.08 and 5.02, upon surrender to the Trustee of Bonds
optionally tendered or called for mandatory repurchase as provided herein, the
purchase price therefor (as provided in this Section) shall be paid in
immediately available funds by the Trustee not later than the close of business
on the purchase date. From and after the Mandatory Repurchase Date or Optional
Tender Date, as applicable, or, if later, the date on which such moneys are made
available to the Trustee, interest accruing on such Bonds shall cease to be
payable to the prior holder thereof, such Bonds shall cease to be entitled to
the benefits or security of this Indenture and to such extent the prior holder
shall have recourse solely to the funds held by the Trustee for the purchase of
such Bonds as provided in Section 4.06.
(d) Bonds Purchased in Part. Upon surrender of a Bond purchased in part
and receipt by the Trustee thereof, the Trustee shall authenticate and deliver
to the surrendering holder a new Bond equal in principal amount to the
unpurchased portion of the Bond surrendered.
(e) Limitations on Tenders.
(i) The holders shall not have the right or be required, as the case
may be, to tender any Bond for purchase on an Optional Tender Date or a
Mandatory Repurchase Date if on such date, following the occurrence of an Event
of Default, the Trustee shall have declared the principal of and interest on the
Bonds to be immediately due and payable pursuant to Section 8.02.
(ii) Notwithstanding the provisions of Section 3.07(b), holders of
Bonds called for redemption or mandatory repurchase shall not have the right
(without the prior consent of the Remarketing Agent) to tender such Bonds for
purchase on an Optional Tender Date if such Optional Tender Date will occur on
or after the 10th day prior to the date fixed for redemption or mandatory
repurchase. Notwithstanding the foregoing, holders of Bonds called for
redemption shall not have the right in any event to tender such Bonds for
purchase on an Optional Tender Date if such Optional Tender Date will occur on
or after the second day prior to the date fixed for redemption.
Section 3.08. Remarketing of Purchased Bonds.
(a) Bonds To Be Remarketed. Bonds purchased pursuant to optional
tender or mandatory repurchase shall be remarketed by the Remarketing Agent as
provided in this Section except an follows:
(i) Bonds purchased pursuant to an optional tender or a mandatory
repurchase and as to which the Remarketing Agent has received a notice of
redemption may be remarketed before the date fixed for redemption only if the
purchaser receives prior to purchasing such Bond a notice that such Bond is
subject to redemption on the date fixed for redemption, notwithstanding the fact
that such notice of redemption may be sent to such purchaser after the time
period mentioned in Section 3.04(b).
(ii) The Remarketing Agent shall not be required to offer Bonds for
sale under this Section (1) during the continuance of an Event of Default, (2)
following receipt of notice from the Internal Revenue Service, a Bondholder or
former Bondholder, the Company, the Trustee of an Event of Taxability or a
Determination of Taxability or (3) as otherwise provided in the Remarketing
Agreement.
(iii) Bonds purchased pursuant to an optional tender and as to which
the Remarketing Agent has received a Notice of Mandatory Repurchase may be
remarketed before the Mandatory Repurchase Date only if the purchaser receives a
copy of the Notice of Mandatory Repurchase prior to purchasing such Bond.
(iv) When a Letter of Credit is in effect, the Remarketing Agent shall
not knowingly remarket any Bonds to the Issuer or the Company or any partner or
affiliate of either thereof pursuant to this Section 3.08 unless either (i) the
entire purchase price is paid from Available Moneys or (ii) prior to such sale,
the Trustee shall have received a written opinion of Bankruptcy Counsel to the
effect that such purchase would not result in a preferential payment pursuant to
the provisions of Section 547 of the Bankruptcy Code.
(b) Remarketing Effort. Except as provided in (a) above or except to
the extent the Company directs the Remarketing Agent not to do so, the
Remarketing Agent shall use reasonable efforts to remarket on the purchase date
all Bonds purchased pursuant to Section 3.07 and to the extent such purchased
Bonds are not remarketed on the purchase date, shall notify the Trustee in the
manner provided below. Bonds not remarketed shall be subject to mandatory
redemption as provided in Section 3.01(g).
As early as practicable but not later than 10:00 a.m. on each Business
Day on which the Remarketing Agent is required to remarket Bonds pursuant to
this Section 3.08, the Remarketing Agent shall (A) notify the Trustee by
telephone, with such notice promptly confirmed in writing, of (i) the amount of
Bonds that have been remarketed and which have not been remarketed, (ii) the
amount of proceeds from such remarketing and the amount needed to redeem the
Bonds which have not been remarketed, and (iii) the information to enable the
Trustee to prepare new Bond certificates with respect to Bonds that were
remarketed and (B) transfer to the Trustee the proceeds from such remarketing as
provided in (c) below. The Trustee shall immediately notify the Company by
telephone, with such notice promptly confirmed in writing, of the amount of such
proceeds and the Trustee shall take action as set forth in Section 5.02(a). If
the Trustee fails to receive such notice from the Remarketing Agent by 10:00
a.m., the Trustee shall immediately the Company of the principal amount of all
Bonds to be remarketed and/or redeemed on such date and the Trustee shall take
action as set forth in Section 5.02(a).
(c) Remarketing Proceeds. To the extent the Remarketing Agent has
remarketed Bonds and has received funds representing a payment for such Bonds
(the "Remarketing Proceeds") from the purchasers thereof, the Remarketing Agent
shall promptly, but in no event later than 10:30 a.m. forward the Remarketing
Proceeds by wire transfer (or in such other manner as is acceptable to the
Remarketing Agent and the Trustee) to the Trustee with notice. All such
Remarketing Proceeds shall be deposited in a separate, segregated account of the
Bond Fund for application in accordance with the provisions of Section 3.08 and
Article IV hereof and, until so applied, shall be held in trust for the benefit
of the holders tendering such Bonds for purchase.
(d) Delivery of Purchased Bonds. Bonds purchased pursuant to
Section 3.07 shall be delivered to the purchasers thereof upon receipt of
payment therefor. Prior to such delivery the Trustee shall provide for
registration of transfer to the Holders, as provided in a written notice from
the Remarketing Agent; and
Section 3.09. Authority for and Conditions to Conversion of Interest
Rate. The interest rate borne on the Bonds shall be converted to an interest
rate of in a different interest rate mode upon receipt by the Trustee, the
Remarketing Agent, the Bank of a direction from the Issuer, given at the
direction of the Company, specifying the date new interest rate mode shall be
determined (which date shall not be less than five Business Days prior to the
effective date thereof), the resulting interest rate mode (i.e., Weekly Rate,
One-year Rate, Three-year Rate or Fixed Rate) and the effective date thereof
(which shall be a Business Day not less than 45 days from the date the Company
gives such direction). Such request and direction shall be accompanied by an
opinion of counsel, which counsel shall be acceptable to the Trustee, addressed
to the Trustee, the Company, the Bank and the Remarketing Agent, stating that
such conversion is authorized or permitted by the Indenture, and that conversion
to the new interest rate mode is in accordance with the provisions of the
Indenture and will not adversely affect the exclusion from gross income for
federal income tax purposes of interest on the Bonds. Conversion to a new
interest rate mode shall not occur without such opinion. Upon the date stated in
such directions as the date the new interest rate mode shall be determined, the
Remarketing Agent shall determine the Weekly Rate, One-year Rate, Three-year
Rate or Fixed Rate, which shall be the rate or rates which, if borne by the
Bonds, would, based on prevailing financial market conditions, be the interest
rate or rates necessary, but would not exceed the interest rate or rates
necessary, to enable each maturity of the Bonds to be remarketed at 100% of the
principal amount thereof.
NOTWITHSTANDING ANYTHING IN THIS INDENTURE OR IN THE BONDS CONTRARY, IN
THE EVENT THE INTEREST RATE ON THE BONDS IS CONVERTED TO A FIXED RATE, NO
FURTHER CONVERSIONS WILL BE PERMITTED OR AUTHORIZED UNDER THIS INDENTURE.
Section 3.10. Notice to Owners of Conversion to New Interest Rate Mode.
The Trustee shall give notice to the Remarketing Agent and by first class mail,
postage prepaid, to the Owners of Bonds not less than 30 days prior to the
effective date of conversion to the new interest rate mode. Such notice shall
state (i) that the interest rate on the Bonds will be converted to a new
interest rate mode, (ii) whether the new interest rate mode is the Weekly Rate,
One-year Rate, Three-year Rate or the Fixed Rate, (iii) the effective date of
conversion to the new interest rate mode, (iv) the date the new interest rate
mode is to be determined and the procedure for notifying Owners of the new
interest rate mode, (v) the dates upon which interest on the Bonds will be
payable after the effective date of the new interest rate mode, (vi) that after
conversion to a Fixed Rate, if applicable the Owners of the Bonds will no longer
have the right to deliver the Bonds to the Remarketing Agent for purchase, and
(vii) that all Outstanding Bonds not purchased prior to the effective date will
be purchased on the effective date of the new interest rate mode, except Bonds
with respect to which the Owner has directed the Company not to purchase in
accordance with Section _____ hereof.
Section 3.11. Notification of Interest Rate; Replacement Bonds. Upon
determining the interest rate to be borne under the new interest rate mode, the
Remarketing Agent shall provide notice of such rate to the Trustee by telephone,
with written confirmation in writing and the Trustee shall give notice by first
class mail, postage prepaid to the owners of the Bonds which shall set forth
such interest rate. In connection with the conversion of the interest rate to a
Fixed Rate, the Trustee, at the direction of the Company shall deliver
replacement Bonds bearing the Fixed Rate with deletion of such terms as are no
longer applicable. Any such replacement Bonds shall be executed and
authenticated as provided herein. In the event that definitive Bonds are not
available for delivery, temporary replacement Bonds may be delivered as provided
herein.
Section 3.12. Certain Provisions of Bonds and Indenture Inapplicable
After Conversion to Fixed Rate.
The day after the effective date of conversion to the Fixed Rate, the
Bonds shall no longer be subject to those provisions of the Indenture or the
Bonds relating to computation of interest rate, remarketing of Bonds, optional
tender of the Bonds, mandatory repurchase of the Bonds, or any provisions
relating to the conversion of the interest rate on the Bonds.
Additionally, following conversion to the Fixed Rate, all references
herein to the Remarketing Agent shall be of no further effect.
Section 3.13. Interest on Bonds After Conversion to Fixed Rate.
Following conversion to a One-year Rate, a Three-year Rate, or a Fixed Rate, the
Bonds shall bear interest at such interest rate, payable each March 1 and
September 1, commencing on the first March 1 or September 1 following such
conversion. The amount of interest payable on any Interest Payment Date shall be
computed on the basis of the actual number of days elapsed over a year of 365 or
366 days, whichever may be applicable.
<PAGE>
ARTICLE IV
PAYMENT OF BONDS AND
CREATION OF FUNDS
Section 4.01. Payment of Bonds. The Trustee shall make payments when
due of principal of and interest on Bonds (including upon the redemption of the
Bonds as described in Article III hereof) and the purchase price of Bonds
purchased pursuant to an optional tender or a mandatory repurchase:
(a) first, (but only with respect to payments of purchase price) from
the available proceeds of the remarketing of Bonds under Section 3.08, excluding
any remarketing to the Issuer, the Company or affiliate of either thereof unless
the proceeds thereof constitute Available Moneys;
(b) second, from any other Available Moneys held by the Trustee in
the Bond Fund; and
(c) third, from moneys drawn by the Trustee under the Letter of
Credit and deposited in the Bond Fund;
(d) last, from any other moneys available to the Trustee.
The proceeds of investments of any moneys in any of these categories may be used
to the same extent as the moneys invested could be used.
Section 4.02. Creation of Bond Fund. There is hereby created by the
Issuer and ordered established with the Trustee a trust fund to be designated
"County of Perry/New Lexington Health Care Corp.: Bond Fund." The money and
securities in such fund shall be held in trust by the Trustee and applied as
herein provided and, until such application, the money and securities in such
Fund shall be subject to a lien and charge in favor of the Bondholders.
Section 4.03. Payments into Bond Fund. There shall be deposited into
the Bond Fund, as and when received:
(a) all moneys received from a drawing under the Letter of Credit;
(b) all payments specified in section 4.1 of the Agreement; and
(c) all other moneys received by the Trustee under and pursuant to any
of the provisions of the Agreement (other than Sections 4.1(b) and 5.6 thereof)
that are required or that are accompanied by directions that such moneys are to
be paid into the Bond Fund. To the extent that moneys described in (a), (b) or
(c) above would not constitute Available Moneys at the time of such deposit, the
Trustee shall create separate subaccounts in the Bond Fund in which moneys
described in each of such (a), (b) and (c) above shall be held until such moneys
constitute Available Moneys. The Trustee shall create a separate subaccount in
the Bond Fund for, and shall not commingle moneys described in Section 4.01(a)
with, any other moneys hereunder. So long as any of the Bonds issued hereunder
are Outstanding the Issuer shall deposit, or cause to be paid to the Trustee for
deposit in the Bond Fund for its account, sufficient sums from the amounts
derived from the Agreement promptly to pay when due the principal of all Bonds
(whether at maturity, upon redemption or acceleration or otherwise), interest on
the Bonds and the purchase price of the Bonds as the same become due and
payable, except that all payments shall be limited as provided in Section 2.01
and the Issuer makes no representation or warranty that the amount deposited
will be adequate to make all payments when due.
Section 4.04. Use of Moneys in Bond Fund. Except as provided in Section
4.06, moneys in the Bond Fund shall be used solely for the payment of the
principal of and interest on the Bonds as the same shall become due and payable
whether at maturity, upon redemption or otherwise and for the purchase price of
the Bonds as the same shall become due, and the Trustee shall make such payment
in accordance with the provisions of the Bonds and this Indenture; provided,
however, that to the extent such principal, interest or purchase price is paid
with proceeds of a drawing under the Letter of Credit and the Parent does not
reimburse the Bank directly, the Trustee shall promptly reimburse the Bank from
funds on deposit in the Bond Fund (other than Remarketing Proceeds or proceeds
from a drawing on the Letter of Credit).
Section 4.05. Custody of Bond Fund. The Bond Fund shall be held in the
custody of the Trustee but in the name of the Issuer. The Issuer hereby
authorizes and directs (a) the Trustee to withdraw sufficient funds from the
Bond Fund to pay the principal of, interest on and the purchase price of the
Bonds as the same become due and payable, and to withdraw from the Bond Fund
funds sufficient to pay any other amounts payable therefrom as the same become
due and payable; provided however, that to the extent such principal, interest
or purchase price is paid with proceeds of a drawing under the Letter of Credit
and the Parent does not reimburse the Bank directly, the Trustee shall promptly
reimburse the Bank from funds on deposit in the Bond Fund other than Remarketing
Proceeds to be paid to former holders or proceeds from a drawing on the Letter
of Credit.
Section 4.06. Moneys To Be Held in Trust. All money that the Trustee
shall have withdrawn from the Bond Fund or shall have received from any other
source and set aside for the purpose of paying any of the Bonds hereby secured,
either at the maturity thereof or by purchase (other than as provided in Section
3.08 hereof) or call for redemption or for the purpose of paying any interest on
the Bonds hereby secured, shall be held in trust by the Trustee for the
respective Holders. Moneys received by the Remarketing Agent or Trustee from the
sale of a Bond under Section 3.08 or from the purchase of any Bond shall be held
segregated from other funds held by the Remarketing Agent or Trustee in trust
for the benefit of the person from whom such Bond was purchased and shall not be
invested while so held. Any money that is so set aside or transferred and that
remains unclaimed by the Holders for the escheat period provided by State law
shall be treated as abandoned property, and the Trustee shall report and remit
this property according to the requirements of State law and thereafter the
Holders shall look only to the appropriate State agency or official for payment
and then only to the extent of the amounts so received, without any interest
thereon, and the Trustee and the Issuer shall have no responsibility with
respect to such money.
Section 4.07. Payment to Company From Bond Fund. After payment in full
of the principal of and interest on the outstanding Bonds, the fees, charges and
expenses of the Issuer, the Trustee, the Remarketing Agent and the Bank
(including without limitation the fees and expenses of their respective counsel)
and all other amounts required to be paid hereunder, including payments of
rebatable arbitrage, any amounts remaining in the Bond Fund shall be paid
immediately to the Company.
Section 4.08. Investment of Moneys. To the extent permitted by law, the
Trustee shall invest and reinvest moneys held by it representing proceeds of
drawings under the Letter of Credit and Available Moneys on deposit in the Bond
Fund only in U.S. Government obligations (or in a mutual fund composed solely of
U.S. Government Obligations) maturing at such times as such amounts will be
needed for the purposes thereof. Unclaimed moneys held by the Trustee under
Section 4.06 shall be held uninvested by the Trustee.
The Trustee may make investments permitted by this Article through or
from their own bond departments or the bond departments of any bank or trust
company under common control with the Trustee. Investments shall be registered
in the name of the Trustee, or its nominee and held by or under the control of
the Trustee. The Trustee shall sell and reduce to cash a sufficient amount of
investments whenever the cash held by them is insufficient. The Issuer
represents that it will take no action that would cause moneys held by the
Trustee in connection with the Bonds to be used in a manner that would cause the
Bonds to be classified as "arbitrage bonds" within the meaning of Section 148 of
the Code.
<PAGE>
ARTICLE V
LETTER OF CREDIT
Section 5.01. Requirements for Letter of Credit. In order to secure its
obligations under the Agreement, pursuant to Section 4.7 of the Financing
Agreement, the Company has agreed (a) upon the initial authentication and
delivery of the Bonds, to deliver to the Trustee the Letter of Credit, issued by
the Bank in favor of the Trustee and for the benefit of the holders of the
Bonds; and (b) to ensure that so long as any Bonds remain outstanding, a Letter
of Credit shall be in effect with respect to such Bonds with terms substantially
conforming to those of the original Letter of Credit.
Section 5.02. Draws on Letter of Credit; Extensions.
(a) The Trustee shall make timely draws in accordance with the Letter
of Credit such that timely payment under Section 4.01 is made without resort to
the sources of payment described in Subsections (c) and (d) of Section 4.01.
Such draws shall be in amounts equal to the total principal and interest due on
redemption price, or purchase price payable with respect to, the Bonds, less the
amounts (if any) available under Subsection (a) of Section 4.01. If any such
draws are made on a Mandatory Repurchase Date in connection with the delivery of
a Substitute Letter of Credit, such draws shall be made under the existing
Letter of Credit and not on the Substitute Letter of Credit. The Trustee shall
make such draws in such a fashion as to be able to obtain by 3:15 p.m. and to
make such payment when due in accordance with this Indenture and the Bonds.
(b) In drawing on the Letter of Credit, the Trustee will be acting on
behalf of the Bondholders by facilitating payment of the Bonds and not on behalf
of the Issuer or Company and shall not be subject to the control of either.
Proceeds of draws on the Letter of Credit shall be held in the Bond Fund.
(c) The Trustee shall advise the Company and the Parent by telecopy or
telex on the date of each draw on the Letter of Credit of the amount and date of
such draw and of the reason for such draw.
(d) For extensions of the term of the Letter of Credit, the Trustee
shall, at the direction of a Company Representative, but only if required to
evidence an extension of the term of the Letter of Credit, surrender the Letter
of Credit to the Bank in exchange for a new Letter of Credit of the Bank or the
Letter of Credit with notations thereon, as the Bank may so elect, conforming in
all material respects to the Letter of Credit except that the expiration date
shall be extended. Any such extension shall be for a period of at least one year
or, if less, until the 15th day following the maturity date of the Bonds.
Section 5.03. Substitute Letter of Credit.
(a) At any time while a Letter of Credit is in effect with respect to
the Bonds, upon at least 60 days' prior written notice to the Trustee and the
Remarketing Agent, the Company may, subject to the approval of the Remarketing
Agent, provide for the delivery to the Trustee of a substitute Letter of Credit
complying with the provisions of this Indenture (the "Substitute Letter of
Credit"), which shall be effective upon acceptance by the Trustee. Any
Substitute Letter of Credit shall have a stated expiration date of at least one
year following the effective date thereof.
(b) On or before the date of delivery of any Substitute Letter of
Credit to the Trustee, as a condition to the acceptance by the Trustee of such
Substitute Letter of Credit, the Company shall furnish to the Trustee:
An opinion of Counsel addressed to the Trustee to the effect that (A)
the Substitute Letter of Credit is the valid and binding obligation of the
issuer thereof enforceable against such issuer in accordance with its terms
except insofar as its enforceability may be limited by any insolvency or similar
proceedings applicable to the issuer or by proceedings affecting generally the
rights of the issuer's creditors or by general equitable principles; (B)
payments of principal, interest or purchase price on the Bonds from the proceeds
of a draw on the Substitute Letter of Credit will not constitute avoidable
preferences under any applicable bankruptcy, reorganization, insolvency or other
similar laws; and (C) the Substitute Letter of Credit does not constitute a
separate security requiring registration under any applicable federal or state
securities laws. In the case of a Substitute Letter of Credit issued by a branch
or agency of a foreign commercial bank, there shall also be delivered an opinion
of Counsel from a firm licensed to practice law in the jurisdiction in which the
head office of such bank is located, addressed to the Trustee, to the effect
that the Substitute Letter of Credit is the valid and binding obligation of such
bank, enforceable against such bank in accordance with its terms, subject to the
limitations referred to in Section 5.03(b)(i)(A) above;
(ii) written evidence that the issuer of the Substitute Letter of
Credit meets the requirements for an issuer of a Letter of Credit as set forth
in the definition of Letter of Credit;
(iii) an opinion of Bond Counsel addressed to the Trustee to the effect
that the delivery and acceptance of such Substitute Letter of Credit is
authorized under this Indenture and its delivery and acceptance will not
adversely affect the exclusion from gross income of the interest on the Bonds
for federal income tax purposes;
(iv) written approval by the Remarketing Agent of the delivery of
the Substitute Letter of Credit; and
(v) a letter from each Rating Agency or, in the event the Bonds are not
then rated, other written evidence satisfactory to the Trustee and the
Remarketing Agent, stating whether or not the acceptance of the Substitute
Letter of Credit will result in a Credit Modification.
The Trustee shall accept any such Substitute Letter of Credit only in
accordance with the terms, and upon satisfaction of the conditions, contained in
this Section and any other applicable provisions of this Indenture. If
acceptance of the Substitute Letter of Credit results in the occurrence of a
Mandatory Repurchase Date, the Trustee shall not terminate or surrender the
Letter of Credit until the Trustee shall have made such drawings thereunder, if
any, as shall be required under the Indenture to provide for payment of the
purchase price of the Bonds, and shall have received the proceeds of such
drawing from the Bank.
(c) Not more than 60 days and not less than 15 days prior to the
effective date of the Substitute Letter of Credit, the Trustee shall, in
addition to the notice required by Section 12.01(b), send by registered or
certified mail, to each holder of the Bonds, notice of the issuance of the
Substitute Letter of Credit, which notice shall include (i) the identity of the
issuer thereof, (ii) the date the Substitute Letter of Credit will be effective,
(iii) whether the Substitute Letter of Credit will result in a Credit
Modification and (iv) if applicable, notice pursuant to Section 3.07 that the
Bonds are subject to mandatory repurchase pursuant to Section 3.07.
Section 5.04. Enforcement of the Letter of Credit. The Trustee shall
hold and maintain the Letter of Credit for the benefit of the Owners of the
Bonds until the Letter of Credit terminates or expires in accordance with its
terms.
When the Letter of Credit terminates or expires in accordance with its
terms, the Trustee shall immediately surrender it to the Bank. Except in the
case of a redemption in part pursuant to Article III hereof or any other
reduction in the principal amount of Bonds outstanding, the Trustee shall not
request that the Bank reduce the amount of the Letter of Credit. If at any time,
all Bonds shall cease to be outstanding, the Trustee shall surrender the Letter
of Credit to the Bank in accordance with the terms thereof.
If at any time the Bank fails to honor a draft presented under the
Letter of Credit in conformity with the terms thereof, the Trustee shall give
immediate telephonic notice thereof to the Remarketing Agent and the Company.
<PAGE>
ARTICLE VI
COVENANTS
Section 6.01. Payment of Bonds. The Issuer shall promptly pay, or cause
to be paid, the principal of, whether at maturity, by acceleration, call for
redemption, or otherwise, and purchase price and interest on the Bonds, to the
Trustee for payment to the registered owners of the Bonds on the dates and in
the manner provided herein authorizing the issuance thereof and in the Bonds,
according to the true intent and meaning thereof, but subject to the limitations
set forth in Section 2.01(a) hereof.
Section 6.02. Covenants and Representations of Issuer. The Issuer shall
observe and perform all covenants, conditions and agreements on its part
contained in this Indenture, in every Bond executed, authenticated and delivered
hereunder and in all of its proceedings pertaining thereto; provided, however,
that the liability of the Issuer under any such covenant, condition or agreement
for any breach or default by the Issuer thereof or thereunder shall be limited
solely to the Receipts and Revenues of the Issuer from the Agreement. The Issuer
represents that it is duly authorized under the Constitution and laws of the
State, including particularly and without limitation the Act, to issue the Bonds
authorized by this Indenture and to execute this Indenture, to assign the
Financing Agreement and the Note and to pledge the Receipts and Revenues of the
Issuer from the Agreement in the manner and to the extent herein set forth; that
all action on its part with respect to the issuance of the Bonds and the
execution and delivery of this Indenture duly and effectively has been taken;
and that the Bonds in the hands of the owners thereof are and will be valid and
enforceable limited obligations of the Issuer according to the terms thereof
except as limited by bankruptcy and usual equity principles.
Section 6.03. Further Assurances. The Issuer shall execute and deliver
such supplemental indentures and such further instruments, and do such further
acts, as the Trustee may reasonably require for the better assuring, assigning
and confirming to the Trustee the amounts assigned under this Indenture for the
payment of the Bonds.
<PAGE>
ARTICLE VII
DISCHARGE OF INDENTURE
Section 7.01. Bonds Deemed Paid; Discharge of Indenture. All Bonds
shall be deemed paid for all purposes of this Indenture when
(a) payment of the greater of the principal of and the maximum amount
of interest that may become due on the Bonds to the due date of such principal
and interest (whether at maturity, upon redemption, acceleration or otherwise)
and the payment of the purchase price of any Bond that may be optionally
tendered by the owner either (i) has been made in accordance with the terms of
Section 3.07(c) or (ii) has been provided for by depositing with the Trustee (A)
moneys sufficient to make such payment, which moneys must comply with the
provisions of Section 4.01(b) or (c) and/or (B) noncallable U.S. Government
Obligations maturing as to principal and interest in such amounts and at such
times as will insure the availability of sufficient moneys to make such payment
without regard to the reinvestment thereof, provided that (i) such U.S.
Government Obligations must be purchased from Available Moneys and (ii) the
Trustee shall have received written evidence from each Rating Agency, if any,
rating the Bonds that as a result of such action, their rating on the Bonds will
not be lowered or eliminated; and
(b) all compensation and expenses of the Issuer and the Trustee (as
well as the fees and expenses of their Counsel) pertaining to each Bond in
respect of which such payment or deposit is made have been paid or provided for
to the respective satisfaction of the Trustee.
When a Bond is deemed paid, it shall no longer be secured by or
entitled to the benefits of this Indenture, except for payment from moneys or
U.S. Government Obligations under (a)(ii) above and except that it may be
optionally tendered if and as provided in Section 3.07(b) and it may be
transferred, exchanged, registered, discharged from registration or replaced as
provided in Article II.
Notwithstanding the foregoing, no deposit under (a)(ii) above made for
the purpose of paying the redemption price of a Bond (as opposed to the final
payment thereof upon maturity) will be deemed a payment of a Bond as aforesaid
until (x) notice of redemption of the Bond is given in accordance with Article
III or, if the Bond is not to be redeemed within the next 60 days, until the
Company has given the Trustee, in form satisfactory to the Trustee, irrevocable
instructions to notify, as soon as practicable, the holder of the Bond, in
accordance with Article III, that the deposit required by (a)(ii) above has been
made with the Trustee and that the Bond is deemed to be paid under this Article
and stating the redemption date upon which moneys are to be available for the
payment of the principal of the Bond or (y) the maturity of the Bond.
Additionally, and while the deposit under clause (a)(ii) above made for the
purpose of paying the final payment of a Bond upon its maturity will be deemed a
payment of such Bond as aforesaid, the Trustee shall mail notice to the Owner of
such Bond, as soon as practicable, stating that the deposit required by (a)(ii)
above has been made with the Trustee and that the Bond is deemed to be paid
under this. Article.
When all Outstanding Bonds are deemed paid under the foregoing
provisions of this Section and other sums due hereunder, under the Agreement and
the Remarketing Agreement are paid, the Trustee shall upon request acknowledge
the discharge of the Issuer's obligations under this Indenture except for
obligations relating to optional tender as provided in Section 3.07(b),
obligations under Article II in respect of the transfer, exchange, registration,
discharge from registration and replacement of Bonds, and obligations under
Section 9.06 hereof with respect to the Trustee's compensation and
indemnification, and the Trustee without further direction shall surrender the
Letter of Credit to the Bank, in accordance with the terms of the Letter of
Credit. Bonds delivered to the Trustee for payment shall be canceled by the
Trustee pursuant to Section 2.07.
A Company Representative shall direct the deposit, investment and use
of the moneys and securities described in this Section such that no deposit will
be made and no use made of any such deposit which would cause any Bonds to be
treated as "arbitrage bonds" within the meaning of Section 148 of the Code.
Before accepting or using any such deposit, the Trustee may request an opinion
of Bond Counsel as to whether such use or acceptance would cause the Bonds to be
so treated and that all conditions hereunder have been satisfied, and the
Trustee may conclusively rely on such opinion with regard thereto.
The Trustee may request a certificate of an independent certified
public accountant to the effect that a deposit will be sufficient to defease the
Bonds as provided in this Section 7.01.
Upon receipt of any amount pursuant to this Article VII, the Trustee
shall give written notice thereof, which notice shall include, without
limitation, the amount of such deposit and any instructions given to the Trustee
pursuant thereto, to the Remarketing Agent by first-class mail, postage prepaid.
Section 7.02. Application of Trust Money. The Trustee shall hold in
trust money or U.S. Government Obligations deposited with it pursuant to the
preceding Section and shall apply the deposited money and the money from the
U.S. Government Obligations in accordance with this Indenture only to the
payment of principal of, interest on, or purchase prince of, the Bonds.
<PAGE>
ARTICLE VIII
DEFAULTS AND REMEDIES
Section 8.01. Events of Default. Each of the following events shall be
an Event of Default:
(a) Default in the due and punctual payment of any interest on any
Bond;
(b) Default in the due and punctual payment of the principal of
any Bond (whether at maturity, by acceleration or redemption, upon purchase
or otherwise);
(c) Subject to the provisions of Section 8.11, default in the
observance or performance of any other of the covenants, conditions or
agreements on the part of the Issuer under the Indenture or in the Bonds;
(d) Receipt by the Trustee of notice from the Bank that an Event of
Default has occurred under the Reimbursement Agreement accompanied by a demand
by the Bank that the Trustee declare the Bonds to be immediately due and
payable; or
(e) The occurrence of an Event of Default under the Financing
Agreement.
Section 8.02. Acceleration and Duty to Draw on Letter of Credit.
(a) Upon the occurrence of an Event of Default under Section 8.01(a),
(b) or (d) hereof, the Trustee shall, by notice to the Issuer, the Holders, the
Bank, the Remarketing Agent and the Company, declare the entire unpaid principal
of and interest on the Bonds immediately due and payable and, thereupon, the
entire unpaid principal of and interest on the Bonds shall forthwith become
immediately due and payable. Upon the occurrence of any other Event of Default,
the Trustee may and, if requested by the holders of 25% in aggregate principal
amount of Bonds then Outstanding, shall, by notice to the Issuer, the Holders,
the Bank, the Remarketing Agent and the Company, declare the entire unpaid
principal of and interest on the Bonds immediately due and payable and,
thereupon, the entire unpaid principal of and interest on the Bonds shall
forthwith become due and payable; provided, however, that anything in this
Article VIII to the contrary, so long as the Bank has honored all proper
drawings under the Letter of Credit, without the prior written consent of the
Bank, the Trustee shall not have the right to declare the principal of all Bonds
and the interest accrued thereon to become immediately due and payable as a
result of the occurrence.of an Event of Default under Section 8.01(c) or (e).
Upon any such declaration the Issuer shall forthwith pay to the holders of the
Bonds the entire unpaid principal of and accrued interest on the Bonds, but only
from the revenues and receipts herein specifically pledged for such purpose.
Upon the occurrence of an Event of Default specified in Section 8.01 and a
declaration of acceleration hereunder, the Trustee as assignee of the Issuer
shall immediately exercise its right under the Note and the Agreement to declare
all installments on the Note to be immediately due and payable. In the event the
Trustee fails to accelerate as required by this Section 8.02(a), the owners of a
majority in aggregate principal amount of Bonds outstanding shall have the right
to take such actions.
(b) Upon the acceleration of the maturity of the Bonds, by declaration
or otherwise, the Trustee shall immediately draw upon the Letter of Credit for
the aggregate unpaid principal amount of the Bonds and all interest accrued
thereon, which shall be applied immediately as set forth in Section 8.03. Upon
such acceleration, interest on the Bonds shall cease to accrue as of the date of
declaration of such acceleration.
Section 8.03. Disposition of Amounts Drawn on Letter of Credit;
Assignment of Rights to Contest.
(a) All amounts drawn on the Letter of Credit by the Trustee in
accordance with Section 8.02(b) shall be held by the Trustee in the Bond Fund
(and invested in accordance with Section 4.08), shall be applied immediately to
the payment of principal and interest accrued on the Bonds.
(b) The Trustee hereby assigns to the Bank all its rights to contest or
otherwise dispute in the Trustee's name, place and stead and at the Bank's sole
election and cost any claim of preferential transfer made by a bankruptcy
trustee, debtor-in-possession or other similar official with respect to any
amount paid to the Trustee by or on behalf of the Company or the Issuer to be
applied to principal of or interest on the Bonds, to the extent of payments made
to the Trustee pursuant to a drawing under the Letter of Credit. The Trustee
shall cooperate with and assist the Bank in any such contest or dispute as the
Bank may reasonably request; provided, however, that the Bank shall reimburse
the Trustee for its reasonable costs incurred in connection with providing such
cooperation and assistance. The Trustee shall give the Bank prompt notice of any
claim of preferential transfer of which the Trustee has knowledge. The foregoing
assignment shall not be deemed to confer upon the Bank any right to contest or
otherwise dispute any claim of preferential transfer with respect to any amount
as to which there has been no drawing under the Letter of Credit. The assignment
set forth above shall in no event be effective until the Bank shall have first
furnished to the Trustee an agreement to indemnify the Trustee and the holders
of the Bonds against any claim, liability or damage that they might suffer by
reason of any such contest or dispute.
Section 8.04. Other Remedies; Rights of Bondholders. Upon the
occurrence of an Event of Default the Trustee, subject to the terms of this
Indenture, may proceed to protect and enforce its rights and the rights of the
Bondholders by mandamus or other suit, action or proceeding at law or in equity,
including but not limited to an action for specific performance of any agreement
herein contained or making a demand for payment from the Company and taking
action pursuant to any other document to which the Trustee is a party.
Upon the occurrence of an Event of Default, if requested to do so by
the holders of 25% in aggregate principal amount of Bonds then outstanding and
if indemnified as provided in Section 9.01(d), the Trustee, subject to the terms
of this Indenture, shall exercise such one or more of the rights and powers
conferred by this Article as the Trustee, upon being advised by counsel, shall
deem most expedient in the interests of the Bondholders.
No remedy conferred by this Indenture upon or reserved to the Trustee
or to the Bondholders is intended to be exclusive of any other remedy, but each
such remedy shall be cumulative and shall be in addition to any other remedy
given to the Trustee or to the Bondholders hereunder or now or hereafter
existing at law or in equity or by statute.
No delay or omission to exercise any right or power accruing upon any
default or Event of Default shall impair any such right or power or shall be
construed to be a waiver of any such default or Event of Default or acquiescence
therein, and every such right and power may be exercised from time to time and
as often as may be deemed expedient.
No waiver of any default or Event of Default hereunder, whether by the
Trustee pursuant to Section 8.10 or by the Bondholders, shall extend to or shall
affect any subsequent default or Event of Default or shall impair any rights or
remedies consequent thereon.
Section 8.05. Right of Bondholders To Direct Proceedings. Anything in
this Indenture to the contrary notwithstanding, the holders of a majority in
aggregate principal amount of Bonds then outstanding shall have the right, at
any time, by an instrument or instruments in writing executed and delivered to
the Trustee, to direct the method and place of conducting all proceedings to be
taken in connection with the enforcement of the terms and conditions of this
Indenture or for the appointment of a receiver or any other proceedings
hereunder; provided, however, that such direction shall not be otherwise than in
accordance with the provisions of law and of this Indenture.
Section 8.06. Application of Moneys. All moneys received by the Trustee
pursuant to any right given or action taken under the provisions of this Article
shall, after payment of the cost and expenses of the proceedings resulting in
the collection of such moneys and of the expenses, liabilities and advances
incurred or made by the Trustee and the fees and expenses, if any, of the Issuer
in carrying out this Indenture or the Agreement, be deposited in the Bond Fund;
provided, however, that no proceeds from any draw on the Letter of Credit shall
be used for any purpose other than payment of principal of and interest on the
Bonds or purchase thereof.
All moneys in the Bond Fund shall be applied as follows:
(a) Unless the principal of all the Bonds shall have become of shall
have been declared due and payable:
First - To the payment to the persons entitled thereto of all
installments of interest then due on the Bonds, in the order of the maturity of
the installments of such interest and, if the amount available shall not be
sufficient to pay in full any particular installment, then to the payment
ratably, according to the amounts due on such installment, to the persons
entitled thereto, without any discrimination or preference except as provided in
Section 8.13 and as to any difference in the respective rates of interest
specified in the Bonds;
Second - To the payment to the persons entitled thereto of the unpaid
principal of any of the Bonds which shall have become due (other than Bonds
called for redemption for the payment of which moneys are held pursuant to the
provisions of this Indenture), in the order of their due dates, with interest on
such Bonds at the respective rates specified therein from the respective dates
upon which they become due and, if the amount available shall not be sufficient
to pay in full Bonds due on any particular date, together with such interest,
then first to the payment of such interest ratably, according to the amount of
such interest due on such date, and then to the amount of such principal,
ratably, according to the amount of such principal due on such date, to the
persons entitled thereto, without any discrimination or preference except as
provided in Section 8.13 and as to any difference in the respective rates of
interest specified in the Bonds; and
Third - To the extent permitted by law, to the payment to the persons
entitled thereto of the unpaid interest on overdue installments of interest
ratably, according to the amounts of such interest due on such date, without any
discrimination or preference except as provided in Section 8.13 and as to any
difference in the respective rates of interest specified in the Bonds.
(b) If the principal of all the Bonds shall have become due or shall
have been declared due and payable, all such moneys shall be applied to the
payment of the principal and interest then due and unpaid upon the Bonds,
including to the extent permitted by law interest on overdue installments of
interest, without preference or priority of principal over interest or of
interest over principal, or of any installment of interest over any other
installment of interest, or of any Bond over any other Bond, ratably, according
to the amounts due respectively for principal and interest, to the persons
entitled thereto, without any discrimination or privilege except as provided in
Section 8.13.
(c) If the principal of all the Bonds shall have been declared due and
payable, and if such declaration shall thereafter have been rescinded and
annulled under the provisions of this Article, then, subject to the provisions
of subsection (b) of this Section in the event that the principal of all the
Bonds shall later become due or be declared due and payable, the moneys shall be
applied in accordance with the provisions of subsection (a) of this Section.
(d) All amounts received by the Trustee from a draw upon the Letter of
Credit shall be applied exclusively to the payment of principal of and interest
on the Bonds.
Whenever moneys are to be applied pursuant to the provisions of this
section, such moneys shall be applied at such times and from time to time as the
Trustee shall determine, having due regard to the amount of such moneys
available for application and the likelihood of additional moneys becoming
available for such application in the future. Whenever the Trustee shall apply
such moneys, it shall fix the date (which shall be an Interest Payment Date
unless it shall deem another date more suitable) upon which such application is
to be made. The Trustee shall give such notice as it may deem appropriate of the
deposit with it of any such moneys and of the fixing of any such date, and shall
not be required to make payment to the holder of any Bond until such Bond is
presented to the Trustee for appropriate endorsement or for cancellation if
fully paid.
Whenever all principal of and interest on all Bonds have been paid
under the provisions of this Section and all expenses and charges of the Trustee
and the Issuer have been paid, and all obligations of the Company to the Bank
pursuant to the Reimbursement Agreement have been paid in full the balance
remaining in the Bond Fund shall be paid to the Company as provided in Section
4.07.
Section 8.07. Remedies Vested in Trustee. All rights of action
(including the right to file proof of claims) under this Indenture or under any
of the Bonds may be enforced by the Trustee without the possession of any of the
Bonds or the production thereof in any trial or other proceeding relating
thereto and any such suit or proceeding instituted by the Trustee may be brought
in its name as Trustee without the necessity of joining as plaintiffs or
defendants any holders of the Bonds, and any recovery of judgment shall be for
the equal benefit of the holders of the outstanding Bonds.
Section 8.08. Limitations on Suits. Except to enforce the rights given
under Sections 8.02(a), 8.05 and 8.12, no holder of any Bond shall have any
right to institute any suit, action or proceeding in equity or at law for the
enforcement of this Indenture or for the execution of any trust thereof or any
other remedy hereunder, unless (a) a default has occurred of which the Trustee
has been notified as provided in Section 9.05, or of which by such Section it is
deemed to have notice, (b) such default shall have become an Event of Default
and the holders of at least 25% in aggregate principal amount of Bonds then
outstanding shall have made written request to the Trustee and shall have
offered it reasonable opportunity either to proceed to exercise the powers
hereinbefore granted or to institute such action, suit or proceeding in its own
name, (c) such holders have offered to the Trustee indemnity as provided in
Section 9.01(d), (d) the Trustee for 60 days after such notice shall fail or
refuse to exercise the powers hereinbefore granted, or to institute such action,
suit or proceeding in its own name or in the name of such holders, (e) no
direction inconsistent with such request has been given to the Trustee during
such 60 day period by the holders of a majority in aggregate principal amount of
Bonds then outstanding, and (f) notice of such action, suit or proceeding is
given to the Trustee; it being understood and intended that no one or more
holders of the Bonds shall have any right in any manner whatsoever to affect,
disturb or prejudice this Indenture by its, his or their action or to enforce
any right hereunder except in the manner herein provided, and that all
proceedings at law or in equity shall be instituted and maintained in the manner
herein provided and for the equal benefit of the holders of all Bonds then
outstanding.
The notification, request and offer of indemnity set forth in the
preceding paragraph, at the option of the Trustee, shall be conditions precedent
to the execution of the powers and trusts in this Indenture and to any action or
cause of action for the enforcement of this Indenture or for any other remedy
hereunder.
Section 8.09. Termination of Proceedings. In case the Trustee shall
have proceeded to enforce any right under this Indenture by the appointment of a
receiver, by entry or otherwise, and such proceedings shall have been
discontinued or abandoned for any reason, or shall have been determined
adversely, then.and in every such case the Issuer, the Company, the Bondholders
and the Trustee shall be restored to their former positions and rights
hereunder, and all rights, remedies and powers of the Trustee shall continue as
if no such proceedings had been taken.
Section 8.10. Waivers of Events of Default. The Trustee, with the
written consent of the Bank, may waive any Event of Default hereunder and its
consequences and rescind any declaration of maturity of principal of and
interest on the Bonds and the Note, and shall do so with the consent of the
Bank, upon the written request of the holders of (a) a majority in aggregate
principal amount of Bonds then outstanding in respect of which default in the
payment of principal and/or interest exists, or (b) a majority in aggregate
principal amount of Bonds then outstanding in the case of any other default;
provided, however, that:
(1) there shall not be waived without the consent of the holders of all
Bonds then outstanding:
(A) any default in the payment of the principal of any outstanding
Bonds when due (whether at maturity or by mandatory or optional redemption), or
(B) any default in the payment when due of the interest on any such
Bonds unless, prior to such waiver or rescission:
(i) there shall have been paid or provided for all arrears of interest
at the rate borne by the Bonds on overdue installments of principal, all arrears
of payments of principal when due and all expenses of the Trustee in connection
with such default, and
(ii) in case of any such waiver or rescission, or in case of the
discontinuance, abandonment or adverse determination of any proceeding taken by
the Trustee on account of any such default, the Trustee and the Bondholders
shall be restored to their respective former positions and rights hereunder;
(2) no declaration of maturity under Section 8.02 made at the request
of the holders of 25% in aggregate principal amount of Bonds then outstanding
shall be rescinded unless requested by the holders of a majority in aggregate
principal amount of Bonds then outstanding; and
(3) unless the Trustee has received written evidence that the Letter of
Credit is reinstated in full as to principal and interest, there shall be no
waiver or rescission if the Letter of Credit shall have been drawn upon due to
the occurrence of an Event of Default.
No such waiver or rescission shall extend to any subsequent or other
default, or impair any right consequent thereon.
Section 8.11. Notice of Defaults; Opportunity of Company to Cure
Defaults. Anything contained in this Indenture to the contrary notwithstanding,
no default specified in Section 8.01(c) on the part of the Issuer shall
constitute an Event of Default until (a) notice of such default shall be given
(1) by the Trustee to the Issuer, the Bank and the Company or (2) by the holders
of 25% in aggregate principal amount of Bonds then outstanding to the Trustee,
the Issuer, the Bank and the Company, and (b) the Issuer and the Company shall
have had 30 days after such notice to correct such default or cause such default
to be corrected, and shall not have corrected such default or caused such
default to be corrected within such period; provided, however, if any default
specified in Section 8.01(c) shall be such that it cannot be corrected within
such period, it shall not constitute an event of default if corrective action is
instituted by the Issuer or the Company within such period and diligently
pursued until such default is corrected; provided, further, that the period for
corrective action shall not in any event extend more than 180 days after such
notice to correct such default.
With regard to any alleged default concerning which notice is given to
the Company, the Company may, but is under no obligation to, perform any
covenant, condition or agreement the nonperformance of which is alleged in such
notice to constitute a default, in the name and stead of the Issuer with full
power to do any and all things and acts to the same extent that the Issuer could
do and perform any such things and acts with power of substitution.
Section 8.12. Unconditional Right To Receive Principal and Interest.
Nothing in this Indenture shall, however, affect or impair the right of any
Bondholder to enforce, by action at law, payment of the principal or purchase
price of or interest on any Bond at and after the maturity thereof, or on the
date fixed for redemption or purchase or (subject to the provisions of Section
8.02) on the same being declared due prior to maturity as herein provided, or
the obligation of the Issuer to pay the principal or purchase price of and
interest on each of the Bonds issued hereunder to the respective holders thereof
at the time, place, from the source and in the manner herein and in the Bonds
expressed.
Section 8.13. Bonds Outstanding. In the event the Bonds are held under
a book entry system, the securities depositary shall provide the Trustee, upon
request of the Trustee, the names, addresses and principal amount of the
Beneficial Owners of the Bonds. Subject to the provisions of Section 8.14, such
Beneficial Owners shall be treated in all respects as the holders of the Bonds
for purposes of this Article, and the Trustee shall send notices to such
Beneficial owners as required by this Article. Notwithstanding anything else in
this Article to the contrary, Company Bonds shall not be deemed to be
outstanding for purposes of this Article and the Company as holder thereof shall
not be entitled to any rights or payments therefor pursuant to Sections 8.05,
8.06, 8.08 and 8.10.
Section 8.14. Bank Deemed Holder. For all purposes of this Article VIII
(other than receipt of payments), the Bank shall, so long as the Letter of
Credit shall not have been dishonored (other than for a reason permitted by the
Letter of Credit), be deemed the holder and registered owner of all Bonds. As
such, the Bank may take all actions permitted by this Article VIII to be taken
by the holders or Beneficial Owners of the Bonds, to the exclusion of the actual
holders and Beneficial Owners of the Bonds; the purpose of this Section 8.14
being to permit the Bank to direct the taking of actions and enforcement of
remedies permitted by this Article VIII so long as the Letter of Credit shall
not have been dishonored (other than for a reason permitted by the Letter of
Credit).
<PAGE>
ARTICLE IX
TRUSTEE AND REMARKETING AGENT
Section 9.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise its rights and powers and use the same degree of care and skill
in its exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) 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
(ii) in the absence of bad faith, gross negligence or willful
misconduct on its part, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed, upon certificates
or opinions furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates and opinions to
determine whether they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own grossly
negligent action, its own grossly negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of (b) above;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee was
grossly 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 8.05.
(d) The Trustee may refuse to perform any duty or exercise any right or
power unless it receives indemnity reasonably satisfactory to it against any
loss, liability or expense, but the Trustee may not require indemnity as a
condition to declaring the principal of and interest on the Bonds to be due
immediately under Section 8.02 or to drawing on the Letter of Credit or to
taking action under the Letter of Credit. The Trustee shall not be required to
give any bond or surety in respect of the execution of the trust created hereby
or the powers granted hereunder.
(e) The Trustee shall not be liable for interest on any cash held by it
except as the Trustee may agree with the Company or with the Issuer with the
consent of the Company.
(f) The Trustee may conclusively rely on a Company Representative's
certificate as to whether a Bankruptcy Filing has occurred.
(g) The Trustee shall strictly comply with the terms of the Letter
of Credit.
(h) The Trustee shall maintain adequate records pertaining to the funds
held by the Trustee, the investment thereof and the disbursement therefrom;
notwithstanding anything to the contrary in this Indenture or the Agreement, the
Trustee shall not be required to advance its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder.
(i) Every provision of this Indenture that in any way relates to
the Trustee is subject to all the foregoing paragraphs of this Section.
(j) The Trustee shall in no event be responsible for ensuring that the
rate of interest due and payable on the Bonds under this Indenture does not
exceed the highest legal rate of interest permissible under federal or state law
applicable thereto.
Section 9.02. Rights of Trustee.
(a) Subject to the foregoing Section, including, but not limited to,
Sections 9.01(b)(ii) and 9.01(c), the Trustee may rely on any document believed
by it to be genuine and to have been signed or presented by the proper person.
The Trustee need not investigate any fact or matter stated in the document. Any
action taken by the Trustee pursuant to this Indenture upon the request or
authority or consent of any person, who at the time of making such request or
authority or consent is the owner of any Bond, shall be conclusive and binding
upon all future owners of any Bond issued in replacement thereof.
(b) Before the Trustee acts or refrains from acting, it may require a
certificate of an appropriate officer or officers of the Issuer or the Company
or an opinion of Counsel stating that (i) the person making such certificate or
opinion has read such covenant or condition; (ii) the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based; (iii) 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 (iv) a statement as to whether or not, in the opinion of
such person, such condition or covenant has been complied with. The Trustee
shall not be liable for any loss or damage or action it takes or omits to take
in good faith in reliance on the certificate or opinion of Counsel.
(c) The Trustee may execute any of the trusts or powers hereunder and
perform any of its duties through agents, attorneys or employees or co-trustees
and shall not be responsible for the misconduct or negligence of any agent,
attorney, employee or co-trustee appointed with due care.
Section 9.03. Individual Rights of Trustee, Etc. The Trustee in its
individual or any other capacity may become the owner, custodian or pledgee of
Bonds and may otherwise deal with the Issuer, the Bank or with the Company or
its affiliates with the same rights it would have if it were not Trustee.
Section 9.04. Trustee's Disclaimer. Subject to Sections 9.01(b) and
9.01(c):
(a) the Trustee makes no representation as to the validity or adequacy
of this Indenture or the Bonds, and it shall not be responsible for any
statement in the Bonds or for the perfection of any lien created by this
Indenture or otherwise as security for the Bonds;
(b) the Trustee may construe any of the provisions of this Indenture
insofar as same may appear to be ambiguous or inconsistent with any other
provision hereof, and any construction of any such provisions hereof by Trustee
in good faith shall be binding upon the Bondholders, the Issuer, the Company and
the Remarketing Agent;
(c) the Trustee shall not be responsible for the application of any of
the proceeds of the Bonds or any other moneys deposited with it and paid out,
withdrawn or transferred hereunder if such application, payment, withdrawal or
transfer shall be made in accordance with the provisions of this Indenture;
(d) the Trustee shall not be under any obligation to see to the
recording or filing of this Indenture, the Agreement, any financing statements
or any other instrument or otherwise to the giving to any person of notice of
the provisions hereof or thereof; and
(e) the Trustee shall not be under any obligation to effect or maintain
insurance or to renew any policies of insurance or to inquire as to the
sufficiency of any policies of insurance carried by the Company, or to report,
or make or file claims or proof of loss for, any loss or damage insured against
or that may occur, or, to keep itself informed or advised as to the payment of
any taxes or assessments, or to require any such payment to be made.
Section 9.05. Notice of Defaults. The Trustee shall not be required to
take notice, or be deemed to have notice, of any default or Event of Default
under this Indenture, other than an Event of Default under Section 8.01(a), (b)
or (d), unless specifically notified in writing at such address as set forth in
Section 12.01 hereof of such default or Event of Default by the holders of at
least 25% in principal amount of the Bonds then Outstanding, by the Bank, by the
Remarketing Agent or by the Company.
If an event occurs that with the giving of notice or lapse of time or
both would be an Event of Default, and if the event is continuing and if the
Trustee has actual notice or is deemed to have notice thereof as herein
provided, the Trustee shall mail to each Bondholder, the Remarketing Agent and
the Bank notice of the event upon such occurrence. Except in the case of a
default in payment or purchase of any Bonds, the Trustee may withhold the notice
if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of Bondholders;
provided that, in any event such notice shall not be withheld from the Bank or
the Remarketing Agent.
Section 9.06. Compensation and Indemnification of Trustee. For acting
under this Indenture, the Trustee shall be entitled to compensation by the
Company (which shall not be limited by any statute regulating the compensation
of a trustee of an express trust) of reasonable fees for the Trustee's services
and reimbursement of advances, counsel fees and other expenses reasonably and
necessarily made or incurred by the Trustee in connection with its services
under this indenture.
The Trustee shall be indemnified by the Company for, and shall be held
harmless against, any loss, liability or expense incurred without gross
negligence, willful misconduct or bad faith on the Trustee's part, arising out
of or in connection with the acceptance or administration of the trust created
by this Indenture, including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder.
To secure the payment or reimbursement to the Trustee provided for in
this Section, the Trustee shall have a senior claim, to which the Bonds are made
subordinate, on all money or property held or collected by the Trustee, except
moneys held under Article VII or otherwise held in trust to pay principal of,
interest on and purchase price of the Bonds, and except amounts drawn under the
Letter of Credit and Available Moneys on deposit in the Bond Fund.
Section 9.07. Eligibility of Trustee. Each of the initial Trustee and
any successor Trustee at the time of its appointment shall: (i) be a corporation
or national banking association duly organized under the laws of the United
States of America or any state or territory thereof, doing business and having
an office in such location as shall be approved by the Issuer and the
Remarketing Agent, (ii) have a combined capital and surplus of at least
$25,000,000 as set forth in its most recent published annual report of
condition, and (iii) be authorized by law to perform all the duties imposed upon
it by this Indenture.
Section 9.08. Replacement of Trustee. The Trustee may resign and be
discharged of the trust created by this Indenture by notifying the Issuer, the
Bank and the Company; provided, however, that no such resignation shall become
effective until the appointment of a successor trustee, as hereinafter provided.
The holders of not less than a majority in principal amount of the Bonds may
remove the Trustee by notifying the removed Trustee and may appoint a successor
Trustee with the Issuer's, the Bank's and the Company's prior written consent;
provided, however, that no such removal-shall become effective until the
appointment of a successor trustee, as hereinafter provided. The Issuer may, in
its sole discretion, and at the request of the Company shall, remove the
Trustee, but in the case where such removal is requested by the Company, only
after obtaining the prior written consent of the Bank. Upon the removal or
replacement of the Trustee for any reason, the Issuer and the Company shall give
written notice thereof to the Remarketing Agent and the Bank by first-class
mail, postage prepaid.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Issuer, with the prior written consent of
the Bank and the Company, shall, at the expense of the Company, use its best
efforts to appoint promptly a successor Trustee. Notice of such appointment
shall be given by the Issuer to the Remarketing Agent in writing by first-class
mail.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuer, the Bank, the Company and
the Remarketing Agent. Immediately thereafter, the retiring Trustee shall
transfer all property held by it as Trustee to the successor Trustee, the
resignation or removal of the retiring Trustee shall then (but only then) become
effective, and the successor Trustee shall have all the rights, powers and
duties of the Trustee under this Indenture. The successor Trustee shall notify
the holders of the Bonds of its acceptance of the trusts hereunder by
first-class mail promptly following such acceptance.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuer, the
Bank, the Company or the holders of a majority in principal amount of the Bonds
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 9.07, any Bondholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Section 9.09. Duties of Remarketing Agent.
(a) The Remarketing Agent shall, in accordance with the Remarketing
Agreement, determine the Weekly Rate on the Bonds and perform the other duties
provided for to be done by it in Section 2.02, Section 3.08, Section 4.01 and
Section 4.06. The Remarketing Agent may for its own account or as broker or
agent for others deal in Bonds and may do anything any other Bondholder may do
to the same extent as if the Remarketing Agent were not serving as such. The
Remarketing Agent shall have no duty to act hereunder to the extent the
Remarketing Agent is not required to perform its obligations under the
Remarketing Agreement.
(b) The Remarketing Agent may execute and perform any of its duties
hereunder through agents, attorneys, employees or co-remarketing agents and
shall not be responsible for the misconduct or negligence of any agent,
attorney, employee or co-remarketing agent appointed with due care.
Section 9.12. Eligibility of Remarketing Agent; Replacement. The
Remarketing Agent shall be a member of the National Association of Securities
Dealers, Inc. having excess net capital of at least $5,000,000 or, in the
alternative, a national banking association having a combined capital stock,
surplus and undivided profits of at least $50,000,000, and, if the Bonds are
rated by a Rating Agency, the Remarketing Agent must be rated at least Baa3/P-3
or otherwise be acceptable to the Rating Agency.
Crews and Associates, Inc. is hereby appointed as the initial
Remarketing Agent and is herein referred to as the "Remarketing Agent." Any
Remarketing Agent shall accept its appointment hereunder in writing. The
Remarketing Agent may resign by notifying the Issuer, the Company, the Trustee
and the Bank at least 45 days before the effective date of the resignation. The
Issuer, at the direction of the Company but only with the Bank's prior written
consent, which consent shall not be unreasonably withheld, shall, at any time
remove the Remarketing Agent as the Issuer's designee for determining interest
rates and appoint a successor by notifying the Remarketing Agent, the Bank and
the Trustee at least 60 days prior to the effective date of such removal. Upon
the resignation or removal of the Remarketing Agent, the Issuer, at the
direction of the Company, but only with the prior written consent of the Bank,
which consent shall not be unreasonably withheld, shall appoint a successor by
notifying the Remarketing Agent, the Bank and the Trustee, if the Remarketing
Agent resigns or is removed pursuant to the terms of this Indenture and, after
45 days in the case of resignation or 60 days in the case of removal, the Issuer
at the direction of the Company, has failed to appoint a successor Remarketing
Agent in accordance with the terms of this Section 9.12, the Company shall
immediately give notice thereof to the Trustee and shall direct the Trustee to
give notice to the holders of all Bonds of a mandatory repurchase of such bonds
pursuant to Section 3.07(a)(ii) hereof. Such mandatory repurchase shall take
place on the first Interest Payment Date to occur following such Notice of
Mandatory Repurchase by the Trustee (of if such date is not a Business Day, on
the next succeeding Business Day), unless such Mandatory Repurchase Date is a
date less than 15 days after such Notice of Mandatory Repurchase is given, in
which case such mandatory repurchase shall occur on the next succeeding Interest
Payment Date (or, if such date is not a Business Day, on the next succeeding
Business Day). Notwithstanding the foregoing, no such resignation or removal
shall be effective until either (i) the successor Remarketing Agent has
delivered an acceptance of its appointment to the Trustee or (ii) the Mandatory
Repurchase Date described above.
Section 9.10. [Reserved]
Section 9.11. Successor Trustee or Agent by Merger. If the Trustee or
the, Remarketing Agent consolidates with, merges or converts into, or transfers
all or substantially all its assets (or, in the case of a bank or trust company,
its corporate trust assets) to, another corporation or national banking
association, the resulting, surviving or transferee corporation or national
banking association without any further act shall be the successor Trustee, the
Remarketing Agent, provided that such corporation or national banking
association shall otherwise be eligible to serve in such capacity under this
Indenture.
Section 9.12. Appointment of Co-Trustee. It is the purpose of this
Indenture that there shall be no violation of any law of any jurisdiction
(including particularly the law of the State) denying or restricting the right
of banking corporations or associations to transact business as trustee in such
jurisdiction. It is recognized that in case of litigation under this Indenture
or the Agreement, and in particular in case of the enforcement thereof upon a
default or an Event of Default, or in case the Trustee deems that by reason of
any present or future law of any jurisdiction it may not exercise any of the
powers, rights or remedies herein granted to the Trustee or hold title to the
properties, in trust, as herein granted, or take any action which may be
desirable or necessary in connection therewith, it may be necessary that the
Trustee appoint an additional individual or institution as a separate or
co-trustee. The following provisions of this Section are adapted to these ends.
In the event that the Trustee appoints an additional individual or
institution as a separate or co-trustee, each and every remedy, power, right,
claim, demand, cause of action, immunity, estate, title, interest and lien
expressed or intended by this Indenture to be exercised by or vested in or
conveyed to the Trustee with respect thereto shall be exercisable by and vest in
such separate or co-trustee but only to the extent necessary to enable such
separate or co-trustee to exercise such powers, rights and remedies, and every
covenant and obligation necessary to the exercise thereof by such separate or
co-trustee shall run to and be enforceable by either of them; provided, however,
that no co-trustee shall be liable by reason of any act or omission of any other
such co-trustee.
Should any instrument in writing from the Issuer be required by the
separate or co-trustee so appointed by the Trustee for more fully and certainly
vesting in and confirming to him or it such properties, rights, powers, trusts,
duties and obligations, any and all such instruments in writing shall, on
request, be executed, acknowledged and delivered by the Issuer. In case any
separate or co-trustee or a successor to either shall die, become incapable of
acting, resign or be removed, all the estates, properties, rights, powers,
trusts, duties and obligations of such separate or co-trustee, so far as
permitted by law, shall vest in and be exercised by the Trustee until the
appointment of a new co-trustee or successor to such separate or co-trustee.
<PAGE>
ARTICLE X
AMENDMENTS OF AND
SUPPLEMENTS TO INDENTURE
Section 10.01. Without Consent of Bondholders. The Issuer and the
Trustee may amend or supplement this Indenture or the
Bonds without prior notice to or consent of any Bondholder:
(a) to cure any ambiguity, inconsistency or formal defect or
omission;
(b) to grant to the Trustee for the benefit of the Bondholders
additional rights, remedies, powers or authority;
(c) to subject to this Indenture additional collateral or to add
other agreements of the Issuer;
(d) to modify this Indenture or the Bonds to permit qualification under
the Trust Indenture Act of 1939, as amended, or any similar federal statute at
the time in effect; to permit the qualification of the Bonds for sale under the
securities laws of any state of the United States; or to prevent the application
of the Investment Company Act of 1940, as amended, to any of the transactions
contemplated by, or any of the parties to this Indenture, the Agreement or the
Bonds;
(e) to provide for uncertificated Bonds or to make any change
necessary to give effect to a custody agreement pursuant to Section 2.05(d);
(f) to evidence the succession of a new Trustee or the appointment
by the Trustee of a co-trustee;
(g) to make any change to reflect any provision in the Code or the
interpretations thereof by the Internal Revenue Service provided that such
change does not materially adversely affect the rights of any Bondholder;
(h) to make any change not materially adversely affecting any
Bondholder's rights requested by the Rating Agency in order (i) to obtain a
rating from the Rating Agency after the initial issuance of the Bonds if the
Bonds are initially issued without a rating equivalent to the rating assigned to
other securities supported by a Letter of Credit of the Bank or (ii) to maintain
any rating on the Bonds;
(i) to make any change not materially adversely affecting any
Bondholder's rights to provide for or to implement the provisions of a Letter
of Credit;
(j) to make any change to provide for or to implement the provisions of
a Letter of Credit only if such Letter of Credit and the changes to this
Indenture become effective on a Mandatory Repurchase Date;
(k) to make any change to be effective on any Mandatory Repurchase Date
provided that such change has been disclosed to all owners of Bonds who purchase
on such date;
(l) to make any change that does not materially adversely affect
the rights of any Bondholder;
(m) to add to this Indenture the obligation of the Trustee, the Issuer
or the Company to disclose such information regarding the Bonds, the Facility,
the Issuer, the Company or the Bank as shall be required or recommended to be
disclosed in accordance with applicable regulations or guidelines established
by, among others, the American Bankers Association Corporate Trust Committee; or
(n) to provide for the issuance of Additional Bonds under Section
2.09.
Section 10.02. With Consent of Bondholders. If an amendment of or
supplement to this Indenture or the Bonds without any consent of Bondholders is
not permitted by the preceding Section, the Issuer and the Trustee may enter
into such amendment or supplement without prior notice to any Bondholders but
with the consent of the holders of at least a majority in principal amount of
the Bonds then outstanding. However, without the consent of all Bondholders
affected, no amendment or supplement may (a) extend the maturity of the
principal of, or interest on, any Bond, (b) reduce the principal amount of, or
rate of interest on, any Bond or change the terms of any redemption, (c) effect
a privilege or priority of any Bond or Bonds over any other Bond or Bonds
(except as provided herein), (d) reduce the percentage of the principal amount
of the Bonds required for consent to such amendment or supplement, (e) impair
the exclusion from gross income for purposes of federal income taxation of
interest on any Bond, (f) eliminate the holders' rights to optionally tender the
Bonds, extend the due date for the purchase of Bonds optionally tendered by the
holders thereof or reduce the purchase price of such Bonds, (g) create a lien
ranking prior to or on a parity with the lien of this Indenture on the property
described in the Granting Clause of this Indenture or (h) deprive any Bondholder
of the lien created by this Indenture on such property. In addition, if moneys
or U.S. Government Obligations have been deposited or set aside with the Trustee
pursuant to Article VII for the payment of Bonds and those Bonds shall not have
in fact been actually paid in full, no amendment to the provisions of that
Article shall be made without the consent of the holder of each of those Bonds
affected.
Section 10.03. Effect of Consents. After an amendment or supplement
becomes effective, it shall bind every Bondholder unless it makes a change
described in any of the lettered clauses of the preceding Section. In such case,
the amendment or supplement shall bind each Bondholder who consented to it and
each subsequent holder of a Bond or portion of a Bond evidencing the same debt
as the consenting holder's Bond.
Section 10.04. Notation on or Exchange of Bonds. If an amendment or
supplement changes the terms of a Bond, the Trustee may request that the holder
deliver the Bond to it. The Trustee may place an appropriate notation on the
Bond regarding the changed terms and return it to the holder. Alternatively, if
the Trustee, the Issuer and the Company determine, the Issuer in exchange for
the Bond shall issue and the Trustee shall authenticate a new Bond that reflects
the changed terms. In either event, the cost of placing such notation on the
Bond(s) shall be borne by the Company.
Section 10.05. Signing by Trustee of Amendments and Supplements. The
Trustee shall sign any amendment or supplement to this Indenture or the Bonds
authorized by this Article if the amendment or supplement 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 an amendment or supplement,
the Trustee shall be entitled to receive and (subject to Section 9.01) shall be
fully protected in relying on an Opinion of Counsel stating that such amendment
or supplement is authorized by this Indenture and is duly authorized, executed
and delivered and enforceable in accordance with its terms.
Section 10.06. Company, Bank and Remarketing Agent Consent Required. An
amendment or supplement to this Indenture or the Bonds shall not become
effective unless the Company, the Remarketing Agent (but only to the extent that
such amendment affects the rights, duties or obligations of the Remarketing
Agent hereunder) and the Bank deliver to the Trustee their written consents to
the amendment or supplement. In any event, no amendment or supplement hereto
shall become effective until the Remarketing Agent acknowledges receipt of a
copy of such supplement or amendment.
Section 10.07. Notice to Bondholders. The Trustee shall cause notice of
the execution of a supplemental indenture to be mailed promptly by first-class
mail to each Bondholder at the holder's registered address. The notice shall
state briefly the nature of the supplemental indenture and that copies thereof
are on file with the Trustee for inspection by all Bondholders.
Section 10.08. Opinion of Bond Counsel Required. An amendment or
supplement to this Indenture shall not become effective unless the Trustee has
received an opinion of Bond Counsel addressed to the Trustee, the Bank, the
Company and the Remarketing Agent to the effect that the amendment or supplement
will not impair the exclusion of interest on the Bonds from the gross income of
the recipients thereof for purposes of federal income taxation.
<PAGE>
ARTICLE XI
AMENDMENTS OF AND SUPPLEMENTS TO AGREEMENT
Section 11.01. Without Consent of Bondholders. The Issuer, with the
consent of the Company, may enter into, and the Trustee may consent to, any
amendment of or supplement to the Agreement or the Note, without prior notice to
or consent of any Bondholder, if the amendment or supplement is required (a) by
the provisions of the Agreement or this Indenture, (b) to cure any ambiguity,
inconsistency or formal defect or omission, (c) to identify more precisely the
Facility, (d) in connection with any authorized amendment of or supplement to
this Indenture, or (e) to make any change comparable to those described in
Section 10.01.
Section 11.02. With Consent of Bondholders. If an amendment of or
supplement to the Agreement or the Note without any consent of Bondholders is
not permitted by the foregoing Section, the Issuer may enter into, and the
Trustee may consent to, such amendment or supplement without prior notice to any
Bondholder but with the consent of the holders of at least a majority in
principal amount of the Bonds then outstanding. However, without the consent of
each Bondholder affected, no amendment or supplement may result in a change
comparable to those described in the lettered clauses of Section 10.02.
Section 11.03. Consent by Trustee to Amendments or Supplements. The
Trustee shall consent to any amendment or supplement to the Agreement or the
Note authorized by this Article if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may, but need not, consent to such an amendment or
supplement. In consenting to an amendment or supplement, the Trustee shall be
entitled to receive and (subject to Section 9.01) shall be fully protected in
relying on an opinion of Counsel stating that such amendment or supplement is
authorized by this Indenture and has been duly authorized, executed and
delivered and is enforceable in accordance with its terms.
Section 11.04. Notice to Bondholders. The Trustee shall cause notice of
the execution of an amendment or supplement to the Agreement or the Note to be
mailed promptly by first-class mail to each Bondholder at the holder's
registered address. The notice shall state briefly the nature of the amendment
or supplement and that copies thereof are on file with the Trustee for
inspection by all Bondholders.
Section 11.05. Bank and Remarketing Agent Consent Required. An
amendment or supplement to the Agreement or the Note shall not become effective
unless the Remarketing Agent (but only to the extent that such amendment or
supplement affects the rights, duties or obligations of the Remarketing Agent
hereunder or thereunder) and the Bank deliver to the Trustee their written
consents to the amendment or supplement. In any event, no such amendment or
supplement shall become effective until the Remarketing Agent acknowledges
receipt of a copy of such amendment or supplement.
ARTICLE XII
MISCELLANEOUS
Section 12.01. Notices.
(a) Any notice, request, direction, designation, consent,
acknowledgment, certification, appointment, waiver or other communication
required or permitted by this Indenture or the Bonds must be in writing except
as expressly provided otherwise in this Indenture or the Bonds.
(b) Except as otherwise provided herein, any notice or other
communication shall be sufficiently given and deemed given when delivered by
hand or mailed by first-class mail, postage prepaid, addressed as follows or, if
the communication may be given by telex or telecopy under the provisions of this
Indenture, when telexed or telecopied to the following numbers:
(1) if to the Issuer, to County of Perry, Ohio, 121 West Brown,
New Lexington, Ohio 43764, Attention: President of the Board of County
Commissioners;
(2) if to the Trustee, to SunTrust Bank, Central Florida, National
Association, 225 East Robinson, Suite 250, Orlando, Florida 32801, Attention:
Corporate Trust Department;
(3) if to the Company, to New Lexington Health Care Corp., 980
South Main Street, New Lexington, Ohio 43764;
(4) if to the Underwriter or Remarketing Agent, to Crews and
Associates, Inc. 2000 Union National Plaza, 124 West Capitol, Little Rock,
Arkansas 72201;
(5) if to the Bank, to NationsBank of Texas, N.A, 901 Main Street,
13th Floor, Dallas, Texas 75202, Attention: Marie Lancanster; and
(6) if to the Parent, Regency Health Services, Inc. 2742 Dow
Avenue, Tustin, California 96280, Attention: David Grant, Esquire.
Any addressee may designate additional or different addresses or telex
or telecopy numbers for purposes of this Section. Notwithstanding the provisions
of this Section 12.01, any notice to the Trustee shall only be sufficient and
deemed given when mailed to the Trustee at the address provided in this Section
12.01 by certified mail, return receipt requested, and received by the Trustee.
A copy of any notice to any party given hereunder (with the exception
of notices required for drawings under any Letter of Credit) shall be provided
to the Remarketing Agent in the manner such notice is otherwise given.
The Beneficial Owner of $1,000,000 or more or Bonds may, by written
notice to the Trustee, request that all notices given with respect to such Bonds
be given to the registered owner thereof and to a second address provided in
such written notice to the Trustee. Upon receipt of such notice described in the
preceding sentence, the Trustee shall send all notices relating to the relevant
Bonds to the registered owner and the second address so designated.
Section 12.02. Bondholders' Consents. Any consent or other instrument
required by this Indenture to be signed by Bondholders may be in any number of
concurrent documents and may be signed by a Bondholder or by the holder's agent
appointed in writing. Proof of the execution of such instrument or of the
instrument appointing an agent and of the ownership of Bonds, if made in the
following manner, shall be conclusive for any purposes of this Indenture with
regard to any action taken by the Trustee under the instrument:
(a) The fact and date of a person's signing an instrument may be proved
by the certificate of any officer in any jurisdiction who by law has power to
take acknowledgments within that jurisdiction that the person signing the
writing acknowledged before the officer the execution of the writing, or by an
affidavit of any witness to the signing.
(b) The fact of ownership of Bonds, the amount or amounts, numbers and
other identification of such Bonds and the date of holding shall be proved by
the registration books kept pursuant to this Indenture.
In determining whether the holders of the required principal amount of
Bonds Outstanding have taken any action under this Indenture, Bonds owned by the
Issuer, the Company or any partner or affiliate of either thereof shall be
disregarded and deemed not to be Outstanding; provided, however, that Bank Bonds
shall not be disregarded and shall be deemed to be outstanding for such purpose.
In determining whether the Trustee shall be protected in relying on any such
action, only Bonds that the Trustee knows to be so owned shall be disregarded.
Section 12.03. Notices to Rating Agency. If applicable, the Trustee
shall notify any Rating Agency rating the Bonds, in writing, of the occurrence
of any of the following events prior to the occurrence thereof: (a) any change
in the identity of the Trustee or the Remarketing Agent; (b) any amendment or
modification of or change to this Indenture, the Agreement, the Reimbursement
Agreement or the Letter of Credit; (c) the expiration or termination of the
Letter of Credit, or any extension thereof; (d) the payment in full of the
principal of and interest on the Bonds; and (e) the delivery of any written
opinion of Bankruptcy Counsel required to be delivered under the terms of this
Indenture.
Section 12.04. Limitation of Rights. Nothing expressed or implied in
this Indenture or the Bonds shall give any person other than the Trustee, the
Issuer, the Bank, the Company, the Remarketing Agent and the Bondholders any
right, remedy or claim under or with respect to this Indenture.
Section 12.05. Severability. If any provision of this Indenture shall
be determined to be unenforceable by a court of law, that shall not affect any
other provision of this Indenture; provided, no holding or invalidity shall
require the Trustee to make any payment from any source except those pledged
hereunder.
Section 12.06. Payments Due on Non-Business Days. If a payment date is
not a Business Day at the place of payment, then payment shall be made at that
place on the next succeeding Business Day, with the same force and effect as if
made on the payment date, and, in the case of any such payment, no interest
shall accrue for the intervening period.
Section 12.07. Governing Law. This Indenture and the authority of the
Issuer to issue the Bonds shall be governed by and construed in accordance with
the laws of the State, but it is the intention of the Issuer that the situs of
the trust created by this Indenture be in the state in which is located the
corporate trust office of the Trustee from time to time acting under this
Indenture. The word "Trustee" as used in the preceding sentence shall not be
deemed to include any additional individual or institution appointed as a
separate or co-trustee pursuant to Section 9.15 of this Indenture. It is the
further intention of the Issuer that the Trustee administer said trust in the
state in which it is located, from time to time, and that same be for all
purposes hereunder, the situs of said trust.
Section 12.08. No Liability. No provision, covenant or agreement
contained in this Indenture or in the Bonds, or any obligation herein or therein
imposed upon the Issuer, or the breach thereof, shall constitute or give rise to
or impose upon the Issuer a pecuniary liability or a charge upon its general
credit or taxing power. In making the agreements, provisions, and covenants set
forth in this Indenture, the Issuer has not obligated itself except with respect
to the Facility and the application of the revenues, income and all other
property therefrom and the security therefor including the Letter of Credit, as
hereinabove provided. No official or member of the Issuer shall be personally
liable on the Indenture or the Bonds, nor shall the issuance of the Bonds be
considered as misfeasance in office.
Section 12.09. Counterparts. This Indenture may be signed in several
counterparts, each of which shall be an original and all of which together
shall constitute the same instrument.
Section 12.10. References to the Bank. The Bank shall have no rights to
enforce any provision of this Indenture during any period in which it is in
default under the Letter of Credit.
IN WITNESS WHEREOF, the Issuer has caused this Indenture to be executed
in its name and on its behalf by the President of the Board of County
Commissioners of the County of Perry, Ohio and the Trustee, to evidence its
acceptance of the trust hereby created, has caused this Indenture to be executed
in its name and on its behalf by its duly authorized officers, all as of the day
and year first above written.
COUNTY OF PERRY, OHIO, acting by and
through the Board of County Commissioners
of the County of Perry, Ohio
By:
President
By:
Commissioner
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION
By:
Its:
[SEAL]
ATTEST:
By:
Its:
Exhibit 10.47
FINANCING AGREEMENT
between
THE COUNTY COMMISSION OF HARRISON COUNTY
BY AND ON BEHALF OF HARRISON COUNTY, WEST VIRGINIA
and
SALEM HEALTH CARE CORP.
Dated as of September 1, 1996
NOTE: THIS FINANCING AGREEMENT AND A PROMISSORY NOTE IN THE FORM AS
DESCRIBED HEREIN HAVE BEEN ASSIGNED TO, AND ARE SUBJECT TO A
SECURITY INTEREST IN FAVOR OF ONE VALLEY BANK, NATIONAL
ASSOCIATION, AS TRUSTEE UNDER AN INDENTURE OF TRUST DATED AS
OF SEPTEMBER 1, 1996, WITH THE COUNTY COMMISSION OF HARRISON
COUNTY BY AND ON BEHALF OF HARRISON COUNTY, WEST VIRGINIA, AS
AMENDED OR SUPPLEMENTED FROM TIME TO TIME. INFORMATION
CONCERNING SUCH SECURITY INTEREST MAY BE OBTAINED FROM THE
TRUSTEE AT ITS PRINCIPAL TRUST OFFICE IN CHARLESTON, WEST
VIRGINIA.
This FINANCING AGREEMENT, made as of the first day of October, 1996,
between THE COUNTY COMMISSION OF HARRISON COUNTY BY AND ON BEHALF OF HARRISON
COUNTY, WEST VIRGINIA, a political subdivision of the State of West Virginia,
(the "Issuer"), and SALEM HEALTH CARE CORP., a corporation duly organized under
and validly existing by virtue of the laws of the State of Went Virginia (the
"Company");
W I T N E S S E T H :
WHEREAS, the Issuer in a duly organized political subdivision of the
State of West Virginia and is authorized by Chapter 13, Article 2C, Code of West
Virginia of 1931, as amended (the "Act"), (a) to issue its revenue bonds for the
purpose of providing funds (i) to pay the cost of acquiring, constructing,
furnishing and equipping a commercial facility comprising a health care facility
and (ii) to refund one or more series of revenue bonds previously issued
pursuant to the Act to finance any such facility, in either case by lending the
proceeds of such revenue bonds or otherwise making such proceeds available for
such purposes to any person, firm or private corporation which will operate and
maintain such facility in such a manner as shall effectuate the purposes of the
Act and (b) to secure its revenue bonds by a trust agreement between the issuer
and a corporate trustee including therein the pledge and assignment of revenues
from any such loan to the payment of such revenue bonds; and
WHEREAS, pursuant to such authorization and in order to further the
purposes of the Act, the Issuer intends to issue and sell its Nursing Facility
Refunding Revenue Bonds (Salem Health Care Corp. Project), Series 1996 in the
original principal amount of $2,185,000 (the "Bonds") and refund in full the
outstanding principal amount of its $2,670,000 First Mortgage Refunding Revenue
Bonds (Salem Health Care Corp. Project) Series 1986 (the "Prior Bonds"), the
proceeds of which were used to refinance the costs of acquisition, construction
and equipping of a 120-bed intermediate and skilled nursing and rehabilitation
facility, owned and operated by the Company, located at 146 Water Street, in
Salem, Harrison County, West Virginia (the "Facility"); and
WHEREAS, by issuing the Bonds to refund the Prior Bonds, the Issuer and
the Company expect to finance the Facility more economically and thereby to
achieve interest cost savings; and
WHEREAS, in return for the use of the proceeds of the sale of the Bonds
by the Issuer to refund the Prior Bonds, the Company has agreed to repay the
amounts so used on the terms and conditions hereinafter set forth; and
WHEREAS, the Company has determined to issue its promissory note to the
Issuer in the principal amount of the Bonds (the "Note") to evidence the
Company's obligation to repay such amounts under the terms and conditions set
forth herein; and
WHEREAS, all things necessary to constitute the Note a valid and
binding obligation and to constitute this Financing Agreement a valid and
binding agreement securing the payments under the Note have been done and
performed and the execution and delivery of the Note and this Financing
Agreement, subject to the terms hereof, have in all respects been duly
authorized;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto covenant and agree as
follows:
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.1. Definitions. The following terms shall have the meaning
set forth hereinafter. All other defined terms used but not defined herein shall
have the same meaning as set forth elsewhere herein or in Article I of the
Indenture unless the context clearly indicates to the contrary.
"Agreement" or "Financing Agreement" shall mean this Financing
Agreement, including any amendments hereto.
"Financing Instruments" shall mean this Financing Agreement, the
Indenture, the Note, the Escrow Agreement, the Reimbursement Agreement, the Bond
Purchase Agreement and the Remarketing Agreement.
"Indenture" shall mean the Indenture of Trust dated as of the date
hereof between the Issuer and the Trustee, as amended from time to time.
"1954 Code" shall mean the Internal Revenue Code of 1954, as amended.
"1980 Bonds" shall mean the revenue bonds issued by the Issuer under
the Act in 1980 in order to finance or refinance the costs of the acquisition,
construction and equipping of the Facility and refunded in full with the
proceeds of the Prior Bonds.
"Prime Rate" shall mean the rate per year announced from time to time
by the Trustee, as its prime rate, with any change in the Prime Rate being
effective as of the date such announced prime rate is changed.
"Prior Bonds Trustee" shall mean United National Bank, Charleston, West
Virginia, as indenture trustee for the Prior Bonds.
"Prior Indenture" shall mean the Trust Indenture dated as of November
1, 1986 between the Issuer and the Prior Bonds Trustee pursuant to which the
Prior Bonds were issued and secured.
"Regulations" shall mean the income tax regulations promulgated
pursuant to the 1954 Code, as such applicable proposed, temporary or final
regulations may be amended or supplemented from time to time.
Section 1.2. Rules of Construction. Unless the context clearly
indicates to the contrary, the following rules shall apply to the construction
of this Financing Agreement:
(a) Words importing the singular number shall include the plural
number and vice versa.
(b) Words importing the redemption or calling for redemption of Bonds
shall not be deemed to refer to or connote the payment of Bonds at their stated
maturity.
(c) All references herein to particular articles or sections are
references to articles or sections of this Financing Agreement unless otherwise
indicated.
(d) The headings and Table of Contents herein are solely for
convenience of reference and shall not constitute a part of this Financing
Agreement nor shall they affect its meaning, construction or effect.
(e) Accounting terms not otherwise defined have the meaning assigned to
them in accordance with generally accepted accounting principles.
ARTICLE II
REPRESENTATIONS
Section 2.1. Representations by Issuer. The Issuer makes the following
representations:
(a) The Issuer is a political subdivision of the State of West Virginia
and has the power to enter into the Financing Instruments to which it is a party
and the transactions contemplated thereby and to perform its obligations
thereunder, to issue the Bonds to refund the Prior Bonds, and to assign the Note
to the Trustee.
(b) By proper action in the form of resolutions adopted by The County
Commission of Harrison County, West Virginia, the Issuer has duly authorized the
execution and delivery of the Financing Instruments to which it is a party, and
the Bonds, the performance of its obligations thereunder and the issuance of the
Bonds and, simultaneously with the execution and delivery of this Financing
Agreement, the Issuer has duly executed and delivered the Financing Instruments
to which it is a party and issued and sold the Bonds.
(c) To the best of its knowledge, the Issuer is not in default in the
payment of the principal of or interest on any of its indebtedness for borrowed
money and is not in default under any instrument under or subject to which any
indebtedness for borrowed money has been incurred, and no event has occurred and
is continuing under the provisions of any such instrument that with the lapse of
time or the giving of notice, or both, would constitute an event of default
thereunder; provided, however, that no representation is expressed concerning
previously issued revenue bonds for private parties under the Act, the status of
which have no adverse effect on the Issuer's power or authority to carry out the
transactions contemplated by this Financing Agreement.
(d) The Issuer is not (1) in violation of the Act or any existing law,
rule or regulation applicable to it or (2) in default under any indenture,
mortgage, deed of trust, lien, lease, contract, note, order, judgment, decree or
other agreement, instrument or restriction of any kind to which any of its
assets are subject; provided, however, that no representation is expressed
concerning previously issued revenue bonds for private parties under the Act,
the status of which have no adverse effect on the Issuer's power or authority to
carry out the transactions contemplated by this Financing Agreement. The
execution and delivery by the Issuer of the Financing Instruments to which it is
a party and the Bonds and the compliance with the terms and conditions thereof
will not conflict with or result in the breach of or constitute a default under
any of the above described documents or other restrictions.
(e) No further approval, consent or withholding of objection on the
part of any regulatory body, federal, state or local, is required in connection
with (1) the issuance and delivery of the Bonds by the Issuer, (2) the execution
or delivery of or compliance by the Issuer with the terms and conditions of the
Financing Instruments to which it is a party, or (3) the assignment and pledge
by the Issuer pursuant to the Indenture of its rights under this Financing
Agreement including the Note and the payments thereon by the Company, as
security for payment of the principal of and interest on the Bonds. The
consummation by the Issuer of the transactions set forth in the manner and under
the terms and conditions as provided herein will comply with all applicable
state, local or federal laws and any rules and regulations promulgated
thereunder by any regulatory authority or agency.
(f) No litigation, inquiry or investigation of any kind in or by any
judicial or administrative court or agency is pending or, to its knowledge,
threatened against the Issuer with respect to (1) the organization and existence
of the Issuer, (2) its authority to execute or deliver the Financing Instruments
to which it is a party, the Indenture or the Bonds or the assignment of the
Note, (3) the validity or enforceability of any of such instruments or the
transactions contemplated hereby or thereby, (4) the title of any officer of the
Issuer who executed such instruments, or (5) any authority or proceedings
related to the execution and delivery of such instruments on behalf of the
Issuer. No such authority or proceedings have been repealed, revoked, rescinded
or amended, and all are in full force and effect.
(g) The Issuer hereby finds that the refunding of the Prior Bonds is
advisable and will serve the purposes of the Act.
(h) The issuance of the Prior Bonds was approved by the Issuer at a
meeting duly called and held on November 19, 1986, notice of which meeting was
published in a newspaper having general circulation in Harrison County, West
Virginia on November 5 and November 12, 1986.
Section 2.2. Representations by Company. The Company makes the
following representations:
(a) The Company is a corporation duly organized and validly existing
under the laws of the State of West Virginia; has the power to enter into the
Financing Instruments to which it is a party and the transactions contemplated
thereunder; and by proper action has duly authorized the execution and delivery
of such Financing Instruments and the Note and the performance of its
obligations thereunder.
(b) The Company is licensed by the appropriate West Virginia state and
local authorities and is authorized to operate the Facility in the manner in
which it is currently operated.
(c) The Company is not in default in the payment of the principal of or
interest on any of its indebtedness for borrowed money and is not in default
under any instrument under and subject to which any indebtedness has been
incurred, and no event has occurred and is continuing under the provisions of
any such agreement that with the lapse of time or the giving of notice, or both,
would constitute an event of default thereunder.
(d) There is no litigation at law or in equity or any proceeding before
any governmental agency involving the Company pending or, to the knowledge of
the Company, threatened against the Company in which any liability of the
Company is not adequately covered by insurance or for which adequate reserves
are not provided or for which any judgment or order would have a material
adverse effect upon the business or assets of the Company or affect its
existence or authority to do business, the operation of the Facility, the
validity of the Financing Instruments to which it is a party or the performance
of its obligations thereunder.
(e) The execution and delivery of the Financing Instruments to which it
is a party, the performance by the Company of its obligations thereunder and the
consummation of the transactions contemplated therein do not and will not
conflict with, or constitute a breach or result in a violation of, the Company's
articles of incorporation or bylaws, any agreement or other instrument to which
the Company is a party or by which it is bound or any constitutional or
statutory provision or order, rule, regulation, decree or ordinance of any
court, government or governmental authority having jurisdiction over the Company
or its property.
(f) The Company has obtained all consents, approvals, authorizations
and orders of any governmental or regulatory authority that are required to be
obtained by the Company as a condition precedent to the issuance of the Bonds,
the execution and delivery of the Financing Instruments to which it is a party
and the performance by the Company of its obligations thereunder, or that are
required for the operation of the Facility.
(g) The Facility complies with all presently applicable ordinances and
licensure and environmental protection laws, the noncompliance with which would
have a material adverse effect on the business or operations of the Company
conducted at the Facility.
(h) To the best of its knowledge, interest paid or accrued on the 1980
Bonds was at all times exempt from federal income taxation under Section 103 of
the 1954 Code. To the best of its knowledge, interest paid or accrued on the
Prior Bonds was at all times excluded from the gross income of the owners
thereof for purposes of federal income taxation.
(i) The Company intends to continue to cause the Facility to be
operated as a nursing home facility meeting all of the requirements of the Act
for so long as the Bonds are outstanding.
(j) To the best of its knowledge, at least 98% of the proceeds of the
Prior Bonds, together with other available moneys, were applied to redeem the
1980 Bonds in full within 90 days of the date the Prior Bonds were issued. To
the best of its knowledge, no more than 2% of the proceeds of the Prior Bonds
were applied to pay their costs of issuance.
ARTICLE III
ISSUANCE OF THE BONDS AND USE OF PROCEEDS;
EXECUTION AND DELIVERY OF THE NOTE
Section 3.1. Agreement to Issue Bonds; Application of Bond Proceeds.
The Issuer, concurrently with the execution and delivery of this Financing
Agreement, will issue, sell and deliver the Bonds and will deposit the proceeds
thereof with the Trustee. In accordance with the Indenture, the Trustee will
deliver or will cause the Underwriter to deliver all of such proceeds to the
Prior Bonds Trustee to be applied, together with other moneys provided by the
Company, to defease and redeem the Prior Bonds in full and discharge the Prior
Indenture.
Section 3.2. Refunding by the Issuer. Upon the terms and conditions of
this Financing Agreement and the Indenture, the Issuer agrees to use the
proceeds of the sale of the Bonds to refund the Prior Bonds.
Section 3.3. Execution and Delivery of the Note prior to or
simultaneously with the issuance of the Bonds, to evidence its repayment
obligations hereunder, the Company shall execute and deliver the Note in
substantially the form of Exhibit A to the Issuer for assignment to the Trustee
as security for the payment of the Bonds.
Section 3.4. No Lien on or Security Interest in Facility. This
Financing Agreement is not intended to create and does not create a lien on or
security interest in any part of the Facility as security for the payment of
amounts payable hereunder or under the Note.
ARTICLE IV
PAYMENTS ON THE NOTE
Section 4.1. Amounts Payable. (a) The Company shall make all payments
required by the Note as and when they become due and shall promptly pay all
other amounts necessary to enable the Trustee to make the transfers required by
Article IV of the Indenture.
(b) The Company shall also pay, as and when the same become due:
(1) To the Trustee, its reasonable fees for services rendered and for
expenses reasonably incurred by it as Trustee under the Indenture, including the
reasonable fees and disbursements of its counsel, the reasonable fees and
expenses of the Remarketing Agent and any other paying agents and all other
amounts that the Company herein assumes or agrees to pay, including any cost or
expense necessary to cancel and discharge the Indenture upon payment of the
Bonds.
(2) To the Issuer and its reasonable costs and expenses directly
related to the Bonds and the Facility, including the reasonable fees and
expenses of Bond Counsel and the Issuer's counsel (provided, however, that such
amounts so paid to the Issuer shall not equal or exceed an amount which would
cause the "yield" on the Note, this Financing Agreement or any other "acquired
purpose obligation" to be "materially higher" than the "yield" on the Bonds, as
such terms are defined in the Code).
(3) Amounts described in Section 4.6.
(4) All other amounts that the Company agrees to pay under the
terms of this Financing Agreement and the Indenture.
Section 4.2. Payments Assigned. The Company consents to the assignment
made by the Indenture of the Note and of the rights of the Issuer under this
Financing Agreement to the Trustee and agrees to pay to the Trustee all amounts
payable by the Company pursuant to the Note and this Financing Agreement, except
for payments made to the Issuer pursuant to Sections 4.1(b)(2) and 5.6.
Section 4.3. Default in Payments. If the Company fails to make any
payments required by the Note or this Financing Agreement when due, the Company
shall pay to the Trustee interest thereon until paid at a rate equal to the
highest rate on any Bonds then outstanding or, in case of the payment of any
amounts not to be used to pay principal of or interest on Bonds, at a rate equal
to the Prime Rate plus one percent per year.
Section 4.4. Obligations of Company Unconditional. The obligation of
the Company to make the payments on the Note and to observe and perform all
other covenants, conditions and agreements hereunder shall be absolute and
unconditional, irrespective of any rights of setoff, recoupment or counterclaim
it might otherwise have against the Issuer, the Bank, the Remarketing Agent or
the Trustee. Subject to the prepayment of the Note as provided therein, the
Company shall not suspend or discontinue any payment on the Note or hereunder or
fail to observe and perform any of its other covenants, conditions or agreements
hereunder for any cause, including without limitation, any acts or circumstances
that may constitute an eviction or constructive eviction, failure of
consideration, failure of title to any part or all of the Facility or commercial
frustration of purpose, or any damage to or destruction or condemnation of all
or any part of the Facility, or any change in the tax or other laws of the
United States of America, the State of West Virginia or any political
subdivision of either, or any failure of the Issuer, the Bank, the Remarketing
Agent or the Trustee to observe and perform any covenant, condition or
agreement, whether express or implied, or any duty, liability or obligation
arising out of or in connection with any Financing Instrument. The Company may,
after giving to the Issuer and the Trustee 10 days' notice of its intention to
do so, at its own expense and in its own name, or in the name of the Issuer if
procedurally required, prosecute or defend any action or proceeding or take any
other action involving third persons that the Company reasonably deems necessary
to secure or protect any of its rights hereunder. In the event the Company takes
any such action, the Issuer shall cooperate fully with the Company and shall
take all necessary action to substitute the Company for the Issuer in such
action or proceeding if the Company shall so request.
Section 4.5. Advances by Issuer or Trustee. If the Company fails to
make any payment or perform any act required of it hereunder, the Issuer or the
Trustee, without prior notice or demand on the Company and without waiving or
releasing any obligation or default, may (but shall be under no obligation to)
make such payment or perform such act. All amounts so paid by the Issuer or the
Trustee and all costs, fees and expenses so incurred shall be payable by the
Company on demand as an additional obligation under the Note, together with
interest thereon at the Prime Rate plus one percent per year until paid.
Section 4.6. Rebate Requirement. (a) At its sole expense on behalf of
the Issuer, the Company shall determine and pay to the United States the Rebate
Amount, hereinafter defined, as and when due in accordance with the "rebate
requirement" described in Section 148(f) of the Code and Regulations thereunder,
including without limitation, Regulations Section 1.148-3. The Company shall
retain records of all such determinations until six years after Payment of the
Bonds.
(b) Reference is made to Exhibit B hereto for additional details of the
rebate requirement. Exhibit B may be amended or substituted without compliance
with Article XI of the Indenture or Section 8.3 hereof and without any action of
the Issuer upon the Company's delivery to the Trustee of the proposed amendment
or substitution together with an opinion of Bond Counsel that compliance with
this section and Exhibit B, as amended, will not adversely affect the exclusion
of interest on the Bonds from gross income for federal income tax purposes.
(c) Notwithstanding anything contained herein to the contrary, no such
payment will be required if the Company receives and delivers to the Issuer and
the Trustee an opinion of Bond Counsel that such payment is not required under
the Code to prevent any Bonds from becoming "arbitrage bonds" within the meaning
of Section 148 of the Code.
(d) The Issuer shall not be liable to the Company by way of
contribution, indemnification, counterclaim, set-off or otherwise for any
payment made or expense incurred by the Company pursuant to this section or the
Indenture.
Section 4.7. Letter of Credit. The Company shall provide for the
payment of amounts due under Section 4.1 (a) from Available Moneys, including,
delivery to the Trustee on the date of initial authentication and delivery of
the Bonds of a Letter of Credit in favor of the Trustee and for the benefit of
the holders of the Bonds. The Company shall be entitled to provide a Substitute
Letter of Credit under certain circumstances as provided in the Indenture. Any
extension of the Letter of Credit shall be for a period of at least one year or,
if less, the fifteenth day after the maturity date of the Bonds.
<PAGE>
ARTICLE V
SPECIAL COVENANTS
Section 5.1. Operation of Facility by the Company; No Warranty of
Condition or Suitability by the Issuer. (a) The Company shall operate the
Facility, or cause it to be operated, as a nursing home facility or other
purposes contemplated by the Act.
(b) The Issuer makes no warranty, either express or implied, as to the
Facility or the condition thereof, or that the Facility has been or will be
suitable for the purposes or needs of the Company.
Section 5.2. Reference to Bonds Ineffective after Bonds Paid and Other
Obligations Satisfied. Upon payment of the Bonds and upon payment of all
obligations under this Financing Agreement and the Note, subject to Section 8.1,
all references in this Financing Agreement to the Bonds, the Trustee and the
Issuer shall be ineffective, and neither the Trustee, the holder of the Note,
the Issuer nor the holders of any of the Bonds shall thereafter have any rights
hereunder except as provided in Sections 4.1(b), 4.6 and 5.6.
Section 5.3. Certificate as to No Default. The Company shall deliver to
the Issuer and the Trustee within 120 days after the close of each of its Fiscal
Years a certificate signed by the chief executive officer, the chief
administrative officer or the chief financial officer of its corporate general
partner stating that (a) (1) the Company is not in default under the Note or
this Financing Agreement, and (2) the Company has no knowledge of any violation
of any of the terms or provisions of the Note or this Financing Agreement or of
the occurrence of any condition, event or act that, with or without notice or
lapse of time or both, would constitute an event of default hereunder or
thereunder, or (b) if it is in default, specifying the nature and period of
default and what action the Company is taking or proposes to take with respect
thereto.
Section 5.4. [Reserved)
Section 5.5. Tax Exemption. (a) Unless the Company shall deliver to the
Trustee an opinion of Bond Counsel to the effect that such use, occupation or
ownership will not adversely affect the exclusion of interest on the Bonds from
gross income for federal income tax purposes, the Company shall not:
(1) take any action or approve the Trustees taking any action or making
any investment or use of the proceeds of the Bonds that would cause the Bonds to
be "arbitrage bonds" within the meaning of Section 148 of the Code.
(2) barring unforeseen circumstances, approve the use of the proceeds
of any Bonds or any other funds other than in accordance with its
"non-arbitrage" certificate with respect to such use given immediately prior to
the delivery of the Bonds;
(3) take or permit any action that would result in more than 5% of the
proceeds of the 1980 Bonds, the Prior Bonds or the Bonds being used directly or
indirectly to make or finance loans to any person who is not an "exempt person"
within the meaning of Section 103(b)(3) of the 1954 Code or a "governmental
unit" within the meaning of Section 141(c) of the Code or otherwise cause the
1980 Bonds, the Prior Bonds or the Bonds to be or become "consumer loan bonds"
within the meaning of Section 103(o) of the 1954 Code.
(4) permit any component of the Facility to be used or occupied by the
United States of America or an agency or instrumentality thereof in any manner
for compensation, including any entity with statutory authority to borrow from
the United States of America in any case within the meaning of Section 149(b) of
the Code, or in any way cause the Bonds to be "federally guaranteed" within the
meaning of Section 103(h) of the 1954 Code or Section 149(b) of the Code.
(5) permit the addition of any "principal user" of the Facility
within the meaning of Section 103(b)(6) of the 1954 Code or Section 144(a) of
the Code; or
(6) take any other action that would adversely affect the
exclusion of interest on the Bonds from gross income.
(b) The Company shall not take or omit to take any action the taking or
omission of which would result in any of the proceeds of the Bonds, within the
meaning of Section 147(g) of the Code, being used to finance the costs of
issuance of the Bonds.
(c) The Company represents and warrants that (i) the original principal
amount of the Prior Bonds, plus any amounts held as a sinking fund for payment
of the principal of the 1980 Bonds, did not exceed the aggregate outstanding
principal amount of the 1980 Bonds as determined on the date of issuance of the
Prior Bonds, and (ii) the principal amount of the Bonds, plus any amounts held
by the Prior Bonds Trustee as a sinking fund for payment of the principal of the
Prior Bonds, do not exceed the outstanding principal amount of the Prior Bonds
as determined on the date of issuance of the Bonds.
(d) The Company represents and warrants that, within the meaning of
Section 147(b) of the Code and comparable provisions of the 1954 Code, the
"average maturity" of the Bonds does not exceed 120% of the remaining "average
reasonably expected economic life" of the Facility, such "average maturity" and
remaining "average reasonably expected economic life" being computed in the
manner contemplated by Section 147(b) of the Code and comparable provisions of
the 1954 Code. The Company further represents and warrants that the "average
maturity" of the Bonds is less than the remaining "average maturity" of the
Prior Bonds.
(e) The Company represents, covenants and agrees that not more than 25%
of the proceeds of the 1980 Bonds, the Prior Bonds or the Bonds have been or
will be used to provide a facility the primary purpose of which is one of the
following: retail food and beverage services, automobile sales or service, or
the provision of recreation or entertainment. The Company further covenants and
agrees that no part of the proceeds of the 1980 Bonds, the Prior Bonds or the
Bonds have been or will be used to provide any of the following and that no part
of the Facility will be used for any of the following purposes or activities:
any airplane, skybox or other private luxury box, health club facility, facility
used primarily for gambling, store the principal business of which is the sale
of alcoholic beverages for consumption off premises, private or commercial golf
course, country club, massage parlor, tennis club, skating facility (including
roller skating, skateboard and/or ice skating), racquet sports facility
(including any handball or racquetball court), hot tub facility, suntan
facility, racetrack or residential real property for family units.
(f) The Company represents, covenants and agrees that (i) substantially
all (90% or more) of the proceeds of the 1980 Bonds (exclusive of such proceeds
applied to redeem other 1980 Bonds) were used for the acquisition, construction,
reconstruction or improvement of land or property of a character subject to the
allowance for depreciation within the meaning of Section 103(b)(6) of the 1954
Code, (ii) less than 25% of the proceeds of the 1980 Bonds, the Prior Bonds or
the Bonds have been or will be used directly or indirectly for the acquisition
of land or an interest in land, including mineral reserves, and (iii) none of
such proceeds were or will be used for the acquisition of land or an interest in
land to be used for farming purposes.
(g) The Company represents and warrants that except for the Prior Bonds
and the Bonds, no bonds, notes or other obligations of any state, territorial
possession or any political subdivision of the United States of America or any
political subdivision of any of the foregoing or of the District of Columbia
have been issued since April 30, 1968, and are now outstanding, the proceeds of
which have been or are to be used primarily with respect to projects (i) the
"principal user" of which is or will be the Company or any "related persons," as
defined in Section 103(b)(6) of the 1954 Code or Section 144(a) of the Code and
(ii) that are located within Harrison County, West Virginia or are integrated
facilities located outside of Harrison County within one-half mile of the
Facility. The Company further represents and warrants that (i) obligations have
not been assumed, expenditures have not been made and outstanding obligations do
not exist, including, without limitation, the leasing of equipment (pursuant to
leases which do not qualify as "true" leases within the meaning of the Code),
which would cause the "aggregate face amount" of the Bonds as computed under the
provisions of Section 103(b)(6) of the 1954 Code or 144(a)(4) of the Code and
the Regulations to exceed $10,000,000 and (ii) that, within three years after
the date any of the 1980 Bonds or the Prior Bonds were issued, the Company did
not make nor permit any user of the Facility to make any expenditure, assume any
obligations or take or permit any other action to be taken which caused the
"aggregate face amount" of any of the 1980 Bonds or the Prior Bonds as computed
under the provisions of Section 103(b)(6) of the 1954 Code to exceed
$10,000,000.
(h) The Company represents and warrants that the Facility is located
only at the place or places specified in the notice of public hearing published
with respect to the Prior Bonds pursuant to Section 103(k)(2) of the 1954 Code
and Section 147(f) of the Code.
(i) The Company represents and warrants that neither the Company
(including any "related person," within the meaning of Section 144(a)(3) of the
Code) nor any other "principal user" of the Facility (including any related
person), within the meaning of Section 144(a)(2) of the Code, is a principal
user of any facility other than the Facility that is financed with (i) an
"industrial development bond," within the meaning of Section 103(b) of the 1954
Code, (ii) a "qualified small issue bond," within the meaning of Section 144(a)
of the Code, or (iii) any other "outstanding tax-exempt facility-related bonds,"
within the meaning of Section 144(a)(10) of the Code. The Company covenants and
agrees that the aggregate authorized face amount of the bonds described in the
preceding sentence (including the Bonds) which can be allocated to any "test
period beneficiary" as such term is defined either in Section 103(b)(15)(D) of
the 1954 Code or in Section 144(a)(10)(D) of the Code (including, but not
limited to the Company) will not exceed $40,000,000. The Company further
covenants and agrees that it will not permit the use of the Facility by any
person (other than the Company or a "related person" within the meaning of
Section 103(b)(6) of the 1954 Code or Section 144 of the Code) to whom any part
of the 1980 Bonds, the Prior Bonds or the Bonds would be allocated pursuant to
Section 103(b)(15) of the 1954 Code or Section 144(a)(10) of the Code, if the
amount allocated, when increased as provided in Section 103(b)(15)(A) of the
1954 Code or Section 144(a)(10)(A) of the Code, would exceed $40,000,000.
(j) The Company represents and warrants that none of the proceeds of
the 1980 Bonds issued subsequent to 1983 were used to acquire any property or an
interest therein (other than land or an interest in land) unless:
(i) the first use of such property was pursuant to such
acquisition; or
(ii) "rehabilitation expenditures," within the meaning of Section
103(b)(17)(c) of the 1954 Code with respect to that part of such property
constituting:
(A) a building (and the equipment therefor), equalled or exceeded
fifteen percent (15%) of that portion of the cost of acquiring such building
(and the equipment therefor) that was financed with the proceeds of such 1980
Bonds; and
(B) a facility other than a building, equalled or exceeded one hundred
percent (100%) of that portion of the cost of acquiring such facility that was
financed with the proceeds of such 1980 Bonds.
(1) The Issuer covenants and agrees that, prior to the issuance of the
Bonds, it shall duly elect to have the provisions of Section 103(b)(6)(D) of the
1954 Code and Section 144(a)(4) of the Code apply to such issue and such
election shall be made in accordance with the applicable Regulations or
procedures of the Internal Revenue Service. The Company covenants and agrees
that it shall furnish to the Issuer whatever information is necessary for the
Issuer to make such election and shall compile such supplemental statements and
other information as required by the applicable Regulations and procedures of
the Internal Revenue Service.
(l) The Company will comply with, and make all filings required by, all
effective rules, rulings or Regulations promulgated by the Department of the
Treasury or the Internal Revenue Service, with respect to obligations issued
under Section 103(b)(6) of the 1954 Code as a "small issue industrial
development bond" the interest on which is exempt from federal income taxation
or issued under Section 144(a) of the Code as a "qualified small issue bond" the
interest on which is excludable from gross income for federal income tax
purposes.
(m) The Company represents and warrants that the Facility does not
share common facilities (such as an enclosed mall, heating and cooling
facilities or parking facilities) with any other part of the same building,
other portions of an enclosed shopping mall or a strip of offices, stores or
warehouses that were financed with tax-exempt small issue industrial development
bonds under Section 103(b)(6) of the 1954 Code or qualified small issue bonds
under Section 144(a) of the Code.
(n) The Company represents and warrants that no rebate with respect to
the Prior Bonds is payable to the United States pursuant to the provisions of
Section 148 of the Code.
(o) The Issuer will comply with the information reporting requirements
of Section 149(e) of the Code with respect to the Bonds.
(p) The Company represents and warrants that the information contained
in the certificates or representations for the Company with respect to
compliance with the requirements of Section 149(e) of the Code, including the
information in Form 8038, is true and correct in all material respects.
(q) The Company shall take all action necessary to ensure that interest
on the Bonds, for federal income tax purposes, is not included in gross income
of the owners thereof.
Section 5.6. Indemnification. (a) The Company shall at all times
protect, indemnify and save harmless the Issuer, the Trustee and the Remarketing
Agent (collectively, the "Indemnitees") from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(hereinafter referred to as "Damages"), including without limitation (1) all
amounts paid in settlement of any litigation commenced or threatened against the
Indemnitees, if such settlement is effected with the written consent of the
Company, (2) all expenses reasonably incurred in the investigation of,
preparation for or defense of any litigation, proceeding or investigation of any
nature whatsoever, commenced or threatened against the Company, the Facility or
the Indemnitees, (3) any judgments, penalties, fines, damages, assessments,
indemnities or contributions, and (4) the reasonable fees of attorneys,
auditors, and consultants, provided that the Damages arise out of:
(A) failure by the Company or its partners, employees or agents, to
comply with the terms of this Financing Agreement or the Note, and any
agreements, covenants, obligations, or prohibitions set forth therein;
(B) any action, suit, claim or demand contesting or affecting the
title of the Facility;
(C) any breach by the Company of any representation or warranty set
forth in this Financing Agreement or the Note, or any certificate delivered by
the Company pursuant thereto, and any claim that any representation or warranty
of the Company contains or contained any untrue or misleading statement of fact
or omits or omitted to state any material facts necessary to make the statements
made therein not misleading in light of the circumstances under which they were
made;
(D) any action, suit, claim, proceeding or investigation of a judicial,
legislative, administrative or regulatory nature arising from or in connection
with the ownership, operation, occupation or use of the Facility; or
(E) any suit, action, administrative proceeding, enforcement action, or
governmental or private action of any kind whatsoever commenced against the
Company, the Facility or the Indemnitees that might adversely affect the
validity, enforceability or tax-exempt status of the Bonds, this Financing
Agreement or the Note, or the performance by the Company or any Indemnitee of
any of their respective obligations thereunder;
provided that such indemnity shall be effective only to the extent of any loss
that may be sustained by the Indemnitees in excess of the proceeds net of any
expenses of collection, received by them or from any insurance carried with
respect to such loss and provided further that the benefits of this section
shall not inure to any person other than the Indemnitees.
(b) If any action, suit or proceeding is brought against the
Indemnitees for any loss or damage for which the Company is required to provide
indemnification under this section, the Company, upon request, shall at its
expense resist and defend such action, suit or proceeding, or cause the same to
be resisted and defended by counsel designated by the Company and approved by
the Indemnitees, which approval shall not be unreasonably withheld, provided
that such approval shall not be required in the case of defense by counsel
designated by any insurance company undertaking such defense pursuant to any
applicable policy of insurance. If an Indemnitee shall have reasonably concluded
that there may be defenses available to it that are in conflict with those
available to the Company or to other Indemnitees (in which case the Company
shall not have the right to direct the defense of such action on behalf of such
Indemnitee), such Indemnitee may engage separate counsel and the reasonable
legal and other expenses incurred by such Indemnitee shall be borne by the
Company. The obligations of the Company under this section shall survive any
termination of this Agreement, including prepayment of the Note.
(c) Nothing contained herein shall require the Company to indemnify the
Issuer for any claim or liability resulting from its willful, wrongful acts or
the Trustee or the Remarketing Agent for any claim or liability resulting from
its negligence (under the standard of care set forth in Article IX of the
Indenture) or its willful, wrongful acts.
(d) All references in this section to the Issuer, the Trustee and the
Remarketing Agent, including references to Indemnitees, shall include their
members, commissioners, directors, officers, employees, representatives and
agents.
Section 5.7. Maintenance and Insurance of Facility. (a) The Company
shall, at its own expense, keep the Facility in as reasonably safe condition as
its operations shall permit and shall keep the Facility in good repair and
operating condition, ordinary wear and tear excepted, making from time to time
all necessary repairs, renewals and replacements. The Company shall comply, in
all material respects, with all laws applicable to the Facility.
(b) The Company shall, at its own expense, continuously maintain
insurance in connection with the Facility and the Company's operations against
such risks as are customarily insured against by organizations of the same
general type, including without limitation insurance for property damage,
liability for bodily injury, liability for property damage and workers'
compensation.
Section 5.8. Corporate Existence. The Company shall maintain its
existence as a West Virginia corporation and shall not, without the prior
consent of the Trustee, dissolve or otherwise dispose of all or substantially
all of its assets, consolidate with or merge into another domestic partnership
or corporation (i.e. a partnership or corporation created under the laws of the
United States of America, one of the states thereof or the District of Columbia)
or permit one or more other domestic partnerships or corporations to consolidate
with or merge into it; provided, however, that with the prior written consent of
the Bank, the Company may consolidate with or merge into another domestic
partnership or corporation, or permit one or more domestic partnerships or
corporations to consolidate with or merge into it, or sell or otherwise transfer
to another domestic partnership or corporation all or substantially all of its
assets and thereafter dissolve, or sell or assign all or substantially all of
its assets to a governmental unit, if after giving effect to such consolidation,
merger, transfer, sale or assignment the surviving, resulting or transferee
partnership, corporation or governmental unit:
(1) will not be in default under any covenant under this Financing
Agreement;
(2) if it is not the Company, has the power to assume and
assumes in writing all of the obligations of the Company herein and in the
Note; and
(3) if it is not a West Virginia partnership or corporation or a
political subdivision of the State of West Virginia, either qualifies to do
business in West Virginia or files with the Trustee a consent to service of
process reasonably acceptable to the Trustee.
Section 5.9. Obligations Under the Indenture. The Company shall
undertake all actions and carry out all responsibilities prescribed for it
under the Indenture.
<PAGE>
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
Section 6.1. Event of Default Defined. Each of the following events
shall be an Event of Default:
(a) Failure of the Company to make any payment on the Note when
due and payable;
(b) Failure of the Company to observe and perform any of its other
covenants, conditions or agreements hereunder for a period of 30 days after
notice specifying such failure and requesting that it be remedied, given by the
Issuer or the Trustee to the Company;
(c) (1) Failure of the Company to pay generally its debts as they
become due, (2) commencement by the Company of a voluntary case under the
federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or similar law, (3) consent
by the Company to the appointment of a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official for the Company or any
substantial part of its property, or to the taking possession by any such
official of any substantial part of the property of the Company, (4) making by
the Company of any assignment for the benefit of creditors generally, or (5)
taking of corporate action by the Company in furtherance of any of the
foregoing;
(d) The (1) entry of any decree or order for relief by a court having
jurisdiction over the Company or its property in an involuntary case under the
federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or similar law, (2)
appointment of a receiver, liquidator, assignee, trustee, custodian,
sequestrator or similar official for the Company or any substantial part of its
property, or (3) entry of any order for the termination or liquidation of the
Company or its affairs;
(e) Failure of the Company within 60 days after the commencement of any
proceedings against it under the federal bankruptcy laws or other applicable
federal or state bankruptcy, insolvency or similar law, to have such proceedings
dismissed or stayed;
(f) Abandonment of the Facility by the Company for a period in
excess of thirty (30) days; or
(g) An Event of Default under the Indenture.
The foregoing provisions of subsection (b) are subject to the
limitation that if by reason of force majeure the Company is unable in whole or
in part to observe and perform any of its covenants, conditions or agreements
hereunder, other than its obligations contained in Sections 4.1, 4.6, 4.7, 5.1,
5.5, 5.6 and 5.8, the Company shall not be deemed in default during the
continuance of such inability. The term "force majeure" as used herein shall
include without limitation acts of God; strikes, lockouts or other disturbances;
acts of public enemies; orders of any kind of the government of the United
States of America or the State of West Virginia or any political subdivision
thereof or any of their departments, agencies or officials, or any civil or
military authority; insurrections; riots; epidemics; landslides; lightning;
earthquakes; fires; hurricanes; tornadoes; storms; floods; washouts; droughts;
arrests; restraint of government and people; civil disturbances; explosions;
breakage or accident to machinery, transmission pipes or canals; partial or
entire failure of utilities; or any other cause or event not reasonably within
the control of the Company. The Company shall remedy with all reasonable
dispatch the cause or causes preventing the Company from carrying out its
covenants, conditions and agreements, provided that the settlement of strikes,
lockouts and other industrial disturbances shall be entirely within the
discretion of the Company, and the Company shall not be required to make
settlement of strikes, lockouts and other industrial disturbances by acceding to
the demands of any opposing party when such course is in the judgment of the
Company not in its best interests.
Section 6.2. Remedies on Default. Whenever any Event of Default
hereunder shall have occurred and is continuing, the Trustee as the assignee
of the Issuer:
(a) May, and at the written direction of the holders of not less than
25% in aggregate principal amount of Bonds then outstanding, shall declare all
amounts payable as principal and interest on the Note to be immediately due and
payable, whereupon the same shall become immediately due and payable, except
that the Trustee shall not make such a declaration unless the Bank has either
(1) consented to such declaration or (2) has failed to honor any proper drawing
under the Letter of Credit.
(b) Have access to and inspect, examine and copy the financial
books, records and accounts of the Company pertaining to the Facility.
(c) Take whatever action at law or in equity may appear necessary or
desirable to collect the amounts then due and thereafter to become due or to
enforce observance or performance of any covenant, condition or agreement of the
Company under the Note or this Financing Agreement.
Section 6.3. Application of Amounts Realized in Enforcement of
Remedies. Any amounts collected pursuant to action taken under Section 6.2
hereof shall be applied in accordance with the provisions of the Indenture, or,
if payment of the Bonds shall have been made, shall be applied according to the
provisions of Section 8.06 of the Indenture.
Section 6.4. No Remedy Exclusive. No remedy herein conferred upon or
reserved to the Trustee is intended to be exclusive of any other remedy, and
every remedy shall be cumulative and in addition to every other remedy herein or
now or hereafter existing at law, in equity or by statute. No delay or omission
to exercise any right or power accruing upon an Event of Default shall impair
any such right or power or shall be construed to be a waiver thereof, but any
such right or power may be exercised from time to time and as often as may be
deemed expedient.
Section 6.5. Attorney Fees and Other Expenses. Upon an Event of
Default, the Company on demand shall pay to the Issuer and the Trustee the
reasonable fees and expenses of their attorneys and other reasonable fees and
expenses incurred by any of them in the collection of payments under the Note or
the enforcement of any other obligations of the Company.
Section 6.6. No Additional Waiver Implied by One Waiver. If either
party or its assignee waives a default by the other party under any covenant,
condition or agreement herein, such waiver shall be limited to the particular
breach so waived and shall not be deemed to waive any other default hereunder.
ARTICLE VII
PREPAYMENT OF THE NOTE
Section 7.1. Option To Prepay in Full. Subject to requirements under
the Indenture for Available Moneys in certain instances, the Company may prepay
in full the Note, without penalty or premium, and terminate this Financing
Agreement prior to payment of the Bonds by (a) paying to the Trustee an amount
of cash or U.S. Government Obligations that, together with existing investments
in the Bond Fund, will comply with the requirements for the defeasance of the
Bonds set forth in Article VII of the Indenture, and (b) by making arrangements
satisfactory to the Trustee for giving any required notice of redemption.
Section 7.2. Mandatory Payment. The Company shall prepay the Note in
full or in part (a) upon the occurrence of a Determination of Taxability as
defined in the Indenture, or (b) as otherwise provided in Section 3.01 of the
Indenture.
Section 7.3. Option To Prepay in Part. The Company may prepay the Note
in part, and the Issuer agrees that the Trustee may accept such payments to be
paid to the Trustee for deposit in the Bond Fund and used for redemption or, at
the election of the Company, purchase of outstanding Bonds, in the manner and to
the extent provided in the Indenture. The principal amount of each Bond so
purchased, delivered or credited shall be appropriately credited by the Trustee
against the obligation of the Company to make future payments on the Note.
Section 7.4. Relation of Options to Indenture. The options granted to
the Company in this Article may be exercised whether or not the Company is in
default under this Financing Agreement, provided that any such default will not
result in the nonfulfillment of any condition to the exercise of any such
option.
Section 7.5. Obligations After Payment of Note and Termination of
Financing Agreement. Anything contained in this Article VII to the contrary
notwithstanding, the obligations of the Company contained in Section 5.6 and the
obligation of the Company to pay the costs and expenses of the Issuer, the
Trustee and the Remarketing Agent shall continue after payment of the Note and
termination of this Financing Agreement.
ARTICLE X
MISCELLANEOUS
Section 8.1. Term of Financing Agreement; Amounts Remaining After
Payment of the Bonds. This Financing Agreement shall be effective upon execution
and delivery hereof, and subject to earlier termination upon prepayment in full
of the Note and all other amounts required to be paid hereunder, including all
amounts payable under the Indenture, shall expire at midnight on September 1,
2010, or if such payment of the Note has not been made on such date, when
payment in full of the Note and all other amounts required to be paid hereunder
shall have been made, except that, notwithstanding the foregoing, the obligation
of the Company to indemnify and pay the costs and expenses of the Issuer, the
Remarketing Agent and the Trustee shall survive the expiration of this Financing
Agreement. Any amounts remaining after payment of the Bonds and payment of the
fees and expenses of the Trustee, the Remarketing Agent and the Issuer in
accordance with the Indenture shall be distributed as set forth in Section 4.07
of the Indenture.
Section 8.2. Notices, etc. Unless otherwise provided herein, all
demands, notices, approvals, consents, requests and other communications
hereunder shall be in writing and shall be deemed to have been given when
delivered in person or mailed by first class registered or certified mail,
postage prepaid, addressed:
(a) if to the Issuer, to Harrison County, West Virginia, Harrison
County Courthouse, Clarksburg, West Virginia 26301, Attention: President of
Harrison County Commission;
(b) if to the Trustee, to One Valley Bank, National Association,
P.O. Box 1793, Charleston, West Virginia 25326, Attention: Corporate Trust
Department;
(c) if to the Company, to Salem Health Care Corp., 146 Water
Street, Salem, West Virginia 26426;
(d) if to the Underwriter or Remarketing Agent, to Crews and
Associates, Inc. 2000 Union National Plaza, 124 West Capitol, Little Rock,
Arkansas 72201;
(e) if to the Bank, to NationsBank of Texas, N.A, 901 Main Street,
13th Floor, Dallas, Texas 75202, Attention: Marie
Lancanster; and
A duplicate copy of each demand, notice, approval, consent, request or
other communication given hereunder by either the Issuer or the Company to the
other shall also be given to the Trustee, the Bank and the Remarketing Agent.
The Company, the Issuer, the Trustee, the Bank and the Remarketing Agent may, by
notice given hereunder, designate any further or different addresses to which
subsequent demands, notices, approvals, consents, requests or other
communications shall be sent or persons to whose attention the same shall be
directed.
Section 8.3. Amendments to financing Agreement and Note. Neither this
Financing Agreement nor the Note shall be amended or supplemented and no
substitution shall be made for the Note subsequent to the issuance of the Bonds
and before payment of the Bonds, without the consent of the Trustee, given in
accordance with Article XI of the Indenture.
Section 8.4. Successors and Assigns. This Financing Agreement shall be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns. Without the prior written consent of
the Issuer, the Trustee and the Bank, no assignment by the Company shall relieve
the Company of its obligations hereunder.
Section 8.5. Severability. If any provision of this Financing
Agreement shall be held invalid by any court of competent jurisdiction, such
holding shall not invalidate any other provision hereof.
Section 8.6. Applicable Law. This Financing Agreement shall be
governed by the applicable laws of the State of West Virginia.
Section 8.7. Counterparts. This Financing Agreement may be executed in
counterparts, each of which shall be an original and all of which, taken
together, shall constitute but one and the same instrument; except that to the
extent, that this Financing Agreement shall constitute personal property under
the Uniform Commercial Code of West Virginia, no security interest in this
Financing Agreement may be created or perfected through the transfer or
possession of any counterpart of this Financing Agreement other than the
original counterpart, which shall be the counterpart containing the receipt
therefor executed by the Trustee following the signatures to this Financing
Agreement.
Section 8.8. Bank May Perform Company's Obligations. The Bank may
perform or observe any covenant, condition or agreement of the Company hereunder
and such performance or observance shall be treated in all respects as the act
of the Company.
Section 8.9. Entire Agreement. This Financing Agreement together with
the Indenture and the Note constitute the entire agreement between the Issuer
and the Company and supersede all prior agreements and understandings, both oral
and written, between the Issuer and the Company with respect to the subject
matter hereof.
IN WITNESS WHEREOF, the Issuer has caused this Financing Agreement to
be executed on its behalf and its seal to be affixed hereto and attested by the
duly authorized officers of The County Commission of Harrison County, West
Virginia, and the Company has caused this Financing Agreement to be executed in
its name by the duly authorized officer of its general partner, all as of the
date first above written.
THE COUNTY COMMISSION OF HARRISON COUNTY BY AND ON
BEHALF OF HARRISON COUNTY, WEST (SEAL) VIRGINIA
By
-----------------------------------------------
President
ATTEST:
By
Its
SALEM HEALTH CARE CORP., a West Virginia
corporation
By
Its
ATTEST:
By
Its
<PAGE>
RECEIPT
Receipt of the foregoing original counterpart of the Financing
Agreement dated as of September 1, 1996, between The County Commission of
Harrison County by and on behalf of Harrison County, West Virginia and Salem
Health Care Corp., is hereby acknowledged as of the 30th day of September, 1996.
ONE VALLEY BANK, NATIONAL ASSOCIATION,
as Trustee
By
Vice President
<PAGE>
The material exhibits to this document are as follows, and are available upon
request:
CONTINUING DISCLOSURE AGREEMENT executed and delivered by SALEM HEALTH CARE
CORP., a West Virginia limited partnership, as the borrower and ONE VALLEY BANK,
NATIONAL ASSOCIATION in connection with the issuance of $2,185,000 Harrison
County, West Virginia First Mortgage Refunding Revenue Bonds, Series 1996 being
issued pursuant to a Trust Indenture dated as of September 1, 1996, by and
between the Harrison County, West Virginia and One Valley Bank, National
Association.
Official Statement regarding exemption from taxation.
TAX REGULATORY AGREEMENT AND NO ARBITRAGE CERTIFICATE by and among Harrison
County, West Virginia, Salem Health Care Corp. and One Valley Bank, National
Association, Charleston, West Virginia, as Trustee.
Exhibit 10.48
INDENTURE OF TRUST
relating to
$2,185,000
Nursing Facility Refunding Revenue Bonds
(Salem Health Care Corp. Project),
Series 1996
between
THE COUNTY COMMISSION OF HARRISON COUNTY BY AND
ON BEHALF OF HARRISON COUNTY, WEST VIRGINIA
and
ONE VALLEY BANK, NATIONAL ASSOCIATION,
as Trustee
Dated as of September 1, 1996
<PAGE>
INDENTURE OF TRUST
INDENTURE OF TRUST dated as of September 1, 1996 (the "Indenture")
between THE COUNTY COMMISSION OF HARRISON COUNTY, by and on behalf of HARRISON
COUNTY, WEST VIRGINIA, a political subdivision of the State of West Virginia
(the "Issuer"), and ONE VALLEY BANK, NATIONAL ASSOCIATION, a national banking
association organized, existing and authorized to accept and execute trusts of
the character herein set out (in such capacity, together with any successor in
such capacity, the "Trustee"), as trustee.
WHEREAS, the Issuer is a duly organized political subdivision of the
State of West Virginia and is authorized by Chapter 13, Article 2C, Code of West
Virginia of 1931, as amended (the "Act"), (a) to issue its revenue bonds for the
purpose of providing funds (i) to pay the cost of acquiring, constructing,
furnishing and equipping a commercial facility comprising a health care facility
and (ii) to refund one or more series of revenue bonds previously issued
pursuant to the Act to finance any such facility, in either case by lending the
proceeds of such revenue bonds or otherwise making such proceeds available for
such purposes to any person, firm or private corporation which will operate and
maintain such facility in such a manner as shall effectuate the purposes of the
Act and (b) to secure its revenue bonds by a trust agreement between the issuer
and a corporate trustee including therein the pledge and assignment of revenues
from any such loan to the payment of such revenue bonds; and
WHEREAS, at the request of Salem Health Care Corp. (the "Company") and
in order to further the purposes of the Act, the Issuer has determined to issue
and sell its Nursing Facility Refunding Revenue Bonds (Salem Health Care Corp.
Project), Series 1996 in the original principal amount of $2,185,000 (the
"Bonds") for the purpose of providing funds, together with other available
funds, to refund in full the outstanding principal amount of its $2,670,000
First Mortgage Refunding Revenue Bonds (Salem Health Care Corp. Project) Series
1986 (the "Prior Bonds"), the proceeds of which were used to refinance the costs
of acquisition, construction and equipping of a 120-bed intermediate and skilled
nursing facility, owned and operated by the Company, located at 146 Water Street
in Salem, Harrison County, West Virginia (the "Facility"); and
WHEREAS, by issuing the Bonds to refund the Prior Bonds, the Issuer and
the Company expect to finance the Facility more economically and thereby to
achieve interest cost savings; and
WHEREAS, the Issuer has undertaken to provide for the refunding of the
Prior Bonds and the refinancing of the acquisition, construction and equipping
of the Facility by making available the proceeds from the sale of the Bonds
pursuant to the provisions of a Financing Agreement (the "Agreement") between
the Issuer and the Company, dated as of even date herewith; and
WHEREAS, the Agreement provides that the Issuer shall issue and sell
the Bonds; and that the Company shall pay, or cause to be paid, pursuant to the
Agreement, in addition to other moneys available for such purpose, an amount
sufficient to pay the Bonds in full and related expenses; and
WHEREAS, the Issuer wishes to provide in this Indenture for the
issuance of its Bonds, and the Trustee is willing to accept the trusts provided
for in this Indenture; and
WHEREAS, the execution and delivery of the Bonds and of this Indenture
and the issuance and sale of the Bonds have been duly authorized by a resolution
duly adopted by the governing body of the Issuer and all things necessary to
make the Bonds, when executed by the Issuer and authenticated by the Trustee (as
hereinafter defined), valid and binding legal obligations of the Issuer and to
make this Indenture a valid and binding agreement have been done;
ACCORDINGLY, THE ISSUER AND THE TRUSTEE AGREE AS FOLLOWS FOR THE
BENEFIT OF THE OTHER AND FOR THE BENEFIT OF THE HOLDERS OF THE BONDS ISSUED
PURSUANT TO THIS INDENTURE (SUBJECT TO THE PROVISIONS OF SECTIONS 6.01 and
12.08):
GRANTING CLAUSE
To secure first, the payment of the Bonds, the Issuer assigns and
pledges to the Trustee, and grants to the Trustee, a security interest in, all
right, title and interest of the Issuer in and to (a) the Agreement, including
any right to delivery of the Letter of Credit, the Receipts and Revenues of the
Issuer from the Agreement (as hereinafter defined), any right to bring actions
and proceedings under the Agreement or for the enforcement of the Agreement and
any right to do all things that the Issuer is entitled to do under the
Agreement, but excluding the Unassigned Rights (as hereinafter defined) and the
right to enforce the Unassigned Rights, and (b) all moneys and securities held
from time to time by the Trustee under this Indenture, first, for the equal and
proportionate benefit of all holders of the Bonds without priority or
distinction as to lien or otherwise of any Bonds over any other Bonds.
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.01. Definitions. For all purposes of this Indenture, unless
the context requires otherwise, the following terms
shall have the following meanings:
"Act" means Chapter 13, Article 2C, Code of West Virginia of 1931, as
amended.
"Additional Bonds" shall mean any Bonds authorized and issued pursuant
to Section 2.09 of this Indenture.
"Agreement" or "Financing Agreement" means the Financing Agreement,
dated as of the date of this Indenture, between the Issuer and the Company, as
such Agreement may be amended or supplemented from time to time in accordance
with its terms.
"Authorized Denominations" means with respect to all Bonds $5,000 and
any multiple thereof.
"Available Moneys" means moneys that (a) are continuously on deposit
with the Trustee in trust for the benefit of the Bondholders in a separate and
segregated account in which only Available Moneys are held and (b) are proceeds
of either (i) the Bonds received contemporaneously with and directly from the
issuance and sale of the Bonds, (ii) payments made by the Company (and, if the
bonds are then rated by any national securities rating agency, at the time of
the deposit of such payments and for a period of at least 366 days thereafter,
no Bankruptcy Filing shall have occurred), (iii) a draw by the Trustee on the
Letter of Credit, (iv) refunding bonds for which the Trustee has received a
written opinion of Bankruptcy Counsel to the effect that payment of such moneys
to the Bondholders would not constitute an avoidable preference under Section
547 of the United States Bankruptcy Code in the event the Company or the Issuer
were to become a debtor under the United States Bankruptcy Code, provided that
such opinion shall only be required if the Bonds are then rated by any national
rating agency, or (v) income derived from the investment of the foregoing.
"Bank" means the issuer of the Letter of Credit, initially NationsBank
of Texas, N.A., and, upon the issuance and delivery of a Substitute Letter of
Credit, shall mean the issuer of such Substitute Letter of Credit.
"Bankruptcy Counsel" means any counsel nationally recognized in
bankruptcy matters that is independent of the Company and the Issuer and is
reasonably acceptable to the Trustee.
"Bankruptcy Filing" means the filing of a petition by or against the
Company or the Issuer in respect of the Company, any of its partners or the
Issuer, as the case may be, as debtor under the United States Bankruptcy Code or
similar bankruptcy or insolvency act. If the petition has been dismissed and the
dismissal is final and not subject to appeal at the relevant time, the filing
will not be considered to have occurred.
"Beneficial Owner" shall have the meaning set forth in Section 2.05(c).
"Bonds" means the bonds issued pursuant to this Indenture.
"Bond Fund" means the fund by that name created by Section 4. 02.
"Bond Purchase Agreement" means the Bond Purchase Agreement dated
September 26, 1996, among the Company, the Issuer and the Underwriter, with
respect to the sale of the Bonds.
"Bond Year" means the one-year period beginning on the day after the
expiration of the preceding Bond Year. The first Bond Year begins on the date of
the delivery of the Bonds and ends on August 31, 1997. The first and the last
Bond Year may be for periods of less than one year.
"Business Day" means any day other than (a) a Saturday or Sunday, (b) a
day on which commercial banks in New York, New York, or the city or cities in
which the corporate trust office of the Trustee, the primary office of the
Remarketing Agent or the paying office of the Bank are authorized by law or
executive order to close or (c) a day on which the New York Stock Exchange is
closed. For purposes of this definition, "paying office of the Bank" means the
Bank office responsible for making payments under any Letter of Credit, which
initially shall be the office in Los Angeles, California.
"Cede & Co." means Cede & Co., the nominee of DTC or any successor
nominee of DTC with respect to the Bonds.
"Code" means the Internal Revenue Code of 1986, as amended, the
regulations (whether proposed, temporary or final) under that Code or the
statutory predecessor of that Code, and any amendments of, or successor
provisions to, the foregoing and any official rulings, announcements, notices,
procedures and judicial determinations regarding any of the foregoing, all as
and to the extent applicable. Unless otherwise indicated, reference to a Section
of the Code means that Section of the Code, including such applicable
regulations, rulings, announcements, notices, procedures and determinations
pertinent to that Section of the Code.
"Company" means Salem Health Care Corp., a West Virginia corporation,
or any successor or successors to the Company's obligations under the Agreement
as permitted under Section 5.8 of the Agreement.
"Company Representative" means a person at the time designated to act
on behalf of the Company by a written instrument furnished to the Trustee
containing the specimen signature of such person and signed on behalf of the
Company by its President, its Vice President or the Chairman of its Board of
Directors. The certificate may designate an alternate or alternates.
"Conversion Date" shall mean that Interest Payment Date, if any, upon
which the interest rate on the Bonds converts from any given rate to a Weekly
Rate, a One-year Rate, a Three-year Rate or a Fixed Rate, all as established in
Section 3.09 of this Indenture.
"Credit Modification" means, and shall be deemed to occur upon, the
acceptance of a Substitute Letter of Credit by the Trustee if (a) as a result of
such acceptance, the rating then assigned to the Bonds by any Rating Agency then
rating the Bonds would be lowered or eliminated or (b) in the event the Bonds
are not then rated, the issuer of such Substitute Letter of Credit has (i)
senior debt or long-term bank deposits that are rated by a Rating Agency at a
lower rating than the rating then assigned to the senior debt or long-term bank
deposits of the Bank, or (ii) outstanding letters of credit or other similar
instruments supporting debt obligations that are rated by a Rating Agency at a
lower rating than the rating assigned to debt obligations supported with letters
of credit or similar instruments issued by the Bank.
"DTC" means The Depository Trust Company, a limited purpose company
organized under the laws of the State of New York, and its successors and
assigns.
"DTC Participant" or "DTC Participants" means securities brokers and
dealers, banks, trust companies and clearing corporations that have access to
the DTC system.
"Determination of Taxability" shall have the meaning set forth in
Section 3.01(c).
"Escrow Agreement" means the Escrow Deposit Agreement, dated as of the
date of this Indenture, among the Issuer, the Company and the Prior Bonds
Trustee, as Escrow Agent.
"Event of Default" is defined in Section 8.01.
"Event of Taxability" shall mean delivery to the Trustee of (a) an
opinion of Bond Counsel or (b) a letter or notice from the Internal Revenue
Service to a Bondholder, in either event to the effect that interest on any Bond
is includable in gross income of the recipient thereof (other than a Bondholder
that is a "substantial user" of the Facility or a "related person" within the
meaning of Section 147(a) of the Code) for Federal income tax purposes. "Date"
of an Event of Taxability shall mean the date of receipt by the Trustee of the
material described in (a) or (b).
"Facility" or "Project" means the 128-bed intermediate and skilled
nursing and rehabilitation facility located at 146 Water Street in Salem,
Harrison County, West Virginia.
"Fixed Rate" means with respect to the Bonds the Fixed Rate established
in accordance with Section 2.02.
"Fixed Rate Period" means that period during which the Fixed Rate is in
effect.
"Indenture" means this Indenture of Trust, as it may be amended or
supplemented from time to time in accordance with its terms.
"Interest Payment Date" means the first day of each March and
September, commencing March 1, 1997, provided, however, that while the Bonds
bear interest at the Weekly Rate, the Interest Payment Date shall be the first
Business Day of each calendar month commencing the first Business Day of the
month subsequent to the Conversion Date.
"Issuer" means Harrison County, West Virginia, a political subdivision
of the State of West Virginia, acting by and through the County Commission of
Harrison County, West Virginia, and its successors and assigns.
"Issuer Representative" means the President of the Harrison County
Commission or other person designated at the time to act on behalf of the Issuer
by a written instrument furnished to the Trustee containing the specimen
signature of such person and signed on behalf of the Issuer by the President of
the Harrison County Commission.
"Letter of Credit" means an irrevocable letter of credit having the
characteristics of a "credit" or "letter of credit" set forth in Section 5-103
of the Uniform Commercial Code of the State except that a letter of credit (a)
may not be revocable and (b) may only be issued by (i) a national bank, (ii) any
banking institution organized under the laws of any state, territory or the
District of Columbia, the business of which is substantially confined to banking
and is supervised by the state or territorial banking commission or similar
officials or (iii) a branch or agency of a foreign bank, provided that the
nature and extent of federal and/or state regulation and the supervision of the
particular branch or agency is substantially equivalent to that applicable to
federal or state chartered domestic banks doing business in the same
jurisdiction. Initially, the term "Letter of Credit" shall mean the irrevocable
letter of credit issued by the Bank to the Trustee, including any permitted
supplements or amendments thereto and any renewals or extensions thereof, and,
upon the expiration or termination of the Letter of Credit and the issuance and
delivery of a Substitute Letter of Credit meeting the requirements set forth in
this paragraph and in Section 5.03 hereof, "Letter of Credit" shall mean such
Substitute Letter of Credit.
"Mandatory Repurchase Date" means, with respect to any Bonds, the date
on which such Bonds are required to be purchased pursuant to Section 3.07(a).
"Maximum Rate" means the lesser of (a) the highest interest rate
that may be borne by the Bonds under State law and (b) 12% per year.
"Note" shall mean the promissory note of the Company in the principal
amount of $2,185,000, dated as of the date of the Bonds, in the form attached to
the Agreement as Exhibit A, issued pursuant to the Agreement and delivered to
the Issuer as consideration for the use of the proceeds of the Bonds to refund
the Prior Bonds, and any amendment or supplement thereto or substitution
therefor.
"Notice of Mandatory Repurchase" means that notice required to be
prepared by the Trustee and given by the Trustee pursuant to Section 3.07.
"One-year Rate" means with respect to the Bonds the variable rate
established annually in accordance with Section 2.02. The Bonds shall initially
bear a One-year Rate of 4.00%.
"One-year Rate Period" means each period during which the One-year Rate
is in effect.
"Opinion of Bond Counsel" means an Opinion of Counsel by nationally
recognized bond counsel.
"Opinion of Counsel" means a written opinion of counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Issuer, the Trustee, the Remarketing Agent or the Company.
"Optional Tender Date" shall have the meaning set forth in Section
3.07(b)(i).
"Outstanding" when used with reference to Bonds, or "Bonds outstanding"
means all Bonds that have been authenticated and delivered by the under this
Indenture, except the following:
(a) Bonds canceled or purchased by or delivered to the Trustee for
cancellation pursuant to the provisions of this Indenture. Except as otherwise
provided in Section 3.08, Bonds purchased by the Company pursuant to optional
tender or mandatory repurchase under Section 3.07 will continue to be
outstanding until the Company directs the Trustee to cancel them;
(b) Bonds that have become due (at maturity or on redemption,
acceleration or otherwise) and for the payment, including interest accrued to
the due date, of which sufficient moneys are held by the Trustee;
(c) Bonds deemed paid by Section 7.01; and
(d) Bonds in lieu of which others have been authenticated under Section
2.05 (relating to registration and exchange of Bonds) or Section 2.06 (relating
to mutilated, lost, stolen, destroyed or undelivered Bonds).
"Owner," "owners," "Bondholder," "bondholder," "Holder," "holder" or
words of similar import mean: (a) in the event that the book-entry system of
evidence and transfer of ownership in the Bonds is employed pursuant to Section
2.05(c), Cede & Co., as nominee for DTC, or its nominee, and (b) in all other
cases, the registered owner or owners of any Bond fully registered as shown on
the register maintained by the Trustee.
"Person" means (a) any individual, (b) any corporation, partnership,
joint venture, association, joint-stock company, business trust or
unincorporated organization, or grouping of any such entities, in each case
formed or organized under the laws of the United States of America, any state
thereof or the District of Columbia or (c) the United States of America or any
state thereof, or any political subdivision of either thereof, or any agency,
authority or other instrumentality of any of the foregoing.
"Parent" means Regency Health Services, Inc., a Delaware Corporation,
and owner of 100% of the stock of the Company.
"Prior Bonds" means Harrison County, West Virginia First Mortgage
Refunding Revenue Bonds (Salem Health Care Corp. Project), Series 1986, in the
original principal amount of $2,670,000.
"Prior Bonds Trustee" means United National Bank, Charleston, West
Virginia, as indenture trustee for the Prior Bonds.
"Rating Agency" means Moody's Investors Service, Inc., if such agency's
ratings are in effect with respect to the Bonds, and Standard & Poor's Ratings
Group, if such agency's ratings are in effect with respect to the Bonds, and
their respective successors and assigns. If either such corporation ceases to
act as a securities rating agency, the Company may, with the approval of the
Remarketing Agent and the Bank, appoint any nationally recognized securities
rating agency as a replacement.
"Receipts and Revenues of the Issuer from the Agreement" means all
moneys paid to the Issuer pursuant to Section 4.1 of the Agreement, and receipts
of the Trustee credited under the provisions of this Indenture against such
payments, including all moneys (other than moneys drawn to purchase Bonds
pursuant to the terms hereof) received by the Trustee from a draw under the
Letter of Credit.
"Record Date" means (i) while the Bonds bear interest at the Weekly
Rate, the Trustee's close of business on the Business Day next preceding each
Interest Payment Date; and (ii) while the Bonds bear interest at any other
interest rate, the 15th day of the calendar month next preceding an Interest
Payment Date.
"Reimbursement Agreement" means the Credit Agreement among the Parent,
the Lenders Identified therein, NationsBank Capital Markets, Inc. and the Bank
pursuant to which the Letter of Credit is issued by the Bank and delivered to
the Trustee, and any and all modifications, alterations, amendments and
supplements thereto.
"Remarketing Agent" means initially Crew and Associates, Inc., and any
successor agent or agents appointed from time to time pursuant to Section 9.12.
"Remarketing Agreement" means (a) initially the Remarketing and
Interest Services Agreement among the Issuer, the Company and the Remarketing
Agent dated as of September 1, 1996, and any and all modifications, alterations,
amendments and supplements thereto and (b) any agreement between the Company,
the Issuer and any successor remarketing agent appointed pursuant to Section
9.12.
"Remarketing Proceeds" shall have the meaning set forth in Section
3.08(c).
"Responsible Officer" means, when used with respect to the Trustee, any
officer within the Corporate Trust Division (or any successor group of the
Trustee), including any vice president, assistant vice president, assistant
secretary or any other officer or assistant officer of the Trustee customarily
performing functions similar to those performed by the persons who at the time
shall be such officers, respectively, or to whom any corporate trust matter is
referred at the Trustee's address set forth in Section 12.01 because of his
knowledge of and familiarity with the particular subject.
"State" means the State of West Virginia.
"Substitute Letter of Credit" shall have the meaning set forth in
Section 5.03.
"Tax Regulatory Agreement" means the Tax Regulatory Agreement dated as
of the date of the delivery of the Bonds among the Company, the Issuer and the
Trustee, as the same may be amended or supplemented from time to time in
accordance with its terms or with an opinion of Bond Counsel to the effect that
such amendment will not have an adverse effect on the tax-exempt status of the
Bonds under the Code.
"Three-year Rate" means with respect to the Bonds the variable rate
established every three-years in accordance with Section 2.02.
"Three-year Rate Period" means each period during which a Three-year
Rate is in effect.
"Trustee" means the entity identified as such in the heading of this
Indenture and such entity's successors under this Indenture, and any separate or
co-trustee at the time serving as such under this Indenture.
"Unassigned Rights" means the rights of the Issuer under Section
4.1(b)(2) (relating to fees and expenses) and Section 5.6 (relating to
indemnification) of the Agreement and the rights of the Issuer to receive
documentation and notices, to give or withhold consents in connection with the
provisions of this Indenture or the Agreement and the right to enforce any of
the foregoing.
"Underwriter" means Crews and Associates, Inc.
"U.S. Government Obligations" means (a) direct obligations of the
United States for which its full faith and credit are pledged for the timely
payment thereof, (b) obligations of a person controlled or supervised by and
acting as an agency or instrumentality of the United States, the payment of
which is unconditionally guaranteed as a full faith and credit obligation of the
United States for the timely payment thereof or (c) securities or receipts
evidencing ownership interests in obligations or specified portions (such as
principal or interest) of obligations described in (a) or (b).
"Weekly Rate" means with respect to the Bonds the variable interest
rate on the Bonds established weekly in accordance with Section 2.02.
"Weekly Rate Period" means each period during which a Weekly Rate is in
effect.
All other terms used in this Indenture that are defined in Article I of
the Agreement have the same meanings assigned them in the Agreement unless the
context clearly requires otherwise.
Section 1.02. Rules of Construction. Unless the context otherwise
requires,
(a) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles
applied on a consistent basis;
(b) references to Articles and Sections are to the Articles and
Sections of this Indenture;
(c) terms defined elsewhere in this Indenture shall have the
meanings therein prescribed for them;
(d) words of the masculine gender shall be deemed and construed to
include correlative words of the feminine and neuter genders;
(e) headings used in this Indenture are for convenience of
reference only and shall not define or limit the provisions hereof;
(f) each reference herein or in the Bonds to a percentage of Bonds
required for notices, consents or for any other reason shall be deemed to refer
to Bonds then outstanding; and
(g) all references herein to time shall be Charleston, West
Virginia time unless otherwise expressly stated.
<PAGE>
ARTICLE II
THE BONDS
Section 2.01. Issuance of Bonds; Form; Dating.
(a) Authorization. The Issuer hereby authorizes and creates under this
Indenture an issue of Bonds, entitled to the benefit, security and protection of
this Indenture, to be designated "Nursing Facility Refunding Revenue Bonds
(Salem Health Care Corp. Project), Series 1996." The total principal amount of
Bonds that may be issued and outstanding hereunder shall be $2,185,000, except
as provided in Section 2.06 with respect to replacement of mutilated, lost,
stolen, destroyed or undelivered Bonds and Section 2.09 with respect to
Additional Bonds. The Bonds shall be issuable only as fully registered bonds
without coupons in Authorized Denominations only, and in substantially the form
of Exhibit A to this Indenture, with appropriate variations, omissions,
insertions, notations, legends or endorsements required by law or usage or
permitted or required by this Indenture. The Bonds may be in printed or
typewritten form. No Bonds may be issued under the provisions of this Indenture
except in accordance with this Article.
The Bonds shall be payable in lawful money of the United States but
only from the sources pledged to such purpose. The Bonds are limited obligations
of the Issuer payable solely from the revenues and receipts derived from
payments made by the Company on the Note or by the Bank under the Letter of
Credit, which revenues and receipts and security have been pledged and assigned
to the Trustee to secure payment of the Bonds in the manner and to the extent
provided herein. NEITHER THE STATE OF WEST VIRGINIA, HARRISON COUNTY, WEST
VIRGINIA, THE COUNTY COMMISSION OF HARRISON COUNTY, WEST VIRGINIA, NOR ANY OTHER
POLITICAL SUBDIVISION THEREOF SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF OR
INTEREST ON THE BONDS OR OTHER COSTS INCIDENT THERETO EXCEPT FROM THE REVENUES,
MONIES AND PROPERTY PLEDGED THEREFOR, AND NEITHER THE TAXING POWER NOR THE FULL
FAITH AND CREDIT OF THE STATE OF WEST VIRGINIA, HARRISON COUNTY, WEST VIRGINIA,
THE COUNTY COMMISSION OF HARRISON COUNTY, WEST VIRGINIA, OR ANY OTHER POLITICAL
SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON
THE BONDS OR OTHER COSTS INCIDENT THERETO. THE BONDS SHALL NEVER CONSTITUTE AN
INDEBTEDNESS OF THE ISSUER WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY
PROVISION AND SHALL NEVER CONSTITUTE OR GIVE RISE TO A PECUNIARY LIABILITY OF
THE ISSUER. NEITHER SHALL THE BONDS NOR THE INTEREST THEREON BE A CHARGE AGAINST
THE GENERAL CREDIT OR TAXING POWERS OF THE ISSUER. NO PRESENT OR FUTURE OFFICER,
MEMBER, COMMISSIONER, EMPLOYEE OR AGENT OF THE ISSUER SHALL BE PERSONALLY LIABLE
ON THE BONDS; AND NO COVENANT, AGREEMENT OR OBLIGATION CONTAINED HEREIN SHALL BE
DEEMED TO BE A COVENANT, AGREEMENT OR OBLIGATION OF ANY PRESENT OR FUTURE
MEMBER, COMMISSIONER, OFFICER, EMPLOYEE OR AGENT OF THE ISSUER IN HIS INDIVIDUAL
CAPACITY.
(b) Details of Bonds. All Bonds shall be dated September 1, 1996 and
delivery of the Bonds and shall mature, subject to prior redemption, on
September 1, 2010. Interest on the Bonds shall be computed from the Interest
Payment Date next preceding the date of authentication thereof, unless such
authentication date (a) is prior to the first Interest Payment Date following
the initial delivery of the Bonds, in which case interest shall be computed from
such initial delivery date, (b) is after a Record Date and before the subsequent
Interest Payment Date, in which case interest shall be computed from the
subsequent Interest Payment Date, or (c) is an Interest Payment Date, in which
case interest shall be computed from such authentication date; provided, that if
interest on the Bonds is in default, Bonds shall bear interest from the last
date to which interest has been paid. The principal of, redemption or purchase
price and premium, if any, and interest on the Bonds shall be payable in lawful
currency of the United States. The principal of and redemption or purchase price
and premium, if any, on the Bonds shall be payable at the principal corporate
trust office of the Trustee upon presentation and surrender of the Bonds.
Payments of interest on the Bonds shall be mailed to the persons in whose names
the Bonds are registered on the register of the Trustee at the close of business
on the Record Date next preceding each Interest Payment Date; provided that, any
Holder of a Bond or Bonds in an aggregate principal amount of not less than
$500,000 may, by prior written instructions filed with the Trustee (which
instructions shall remain in effect until revoked by subsequent written
instructions), instruct that interest payments for any period be made by wire
transfer to an account in the continental United States or other means
acceptable to the Trustee. Bonds shall be numbered from 1 upward as determined
by the Trustee and shall contain the designation "R."
(c) Delivery. Upon the execution and delivery of this Indenture, the
Issuer shall execute and deliver the Bonds to the Trustee and, upon receipt by
the Trustee of the following, the Trustee shall authenticate the principal
amount of Bonds specified in the Issuer's authorization and request, and the
Trustee shall deliver the Bonds to the purchaser or purchasers as directed by
the Issuer:
(i) a copy of the resolution or resolutions of the Issuer
authorizing the issuance of the Bonds, certified by the Clerk of the Harrison
County Commission;
(ii) original executed counterparts of the Agreement, this Indenture,
the Escrow Agreement, the Remarketing Agreement and the Tax Regulatory Agreement
and a copy of the Reimbursement Agreement;
(iii) confirmation that the Trustee has received the original,
executed Letter of Credit from the Bank;
(iv) an authorization and request from the Issuer to the Trustee to
authenticate and deliver the Bonds in specified Authorized Denominations to the
initial purchaser or purchasers upon payment to the Trustee, for the account of
the Issuer, of the purchase price for such principal amount of Bonds;
(v) an Opinion of Bond Counsel for the Bonds, addressed to the Trustee,
or upon which the Trustee may rely, to the effect that the Bonds so specified
have been validly authorized, executed and issued under the law of the State and
this Indenture has been duly authorized, executed and delivered by the Issuer;
(vi) an opinion of Counsel to the Bank addressed to the Trustee, or
upon which the Trustee may rely, to the effect that the Letter of Credit is a
binding and valid obligation of the Bank and is not subject to registration
under the Securities Act of 1933, as amended;
(vii) Internal Revenue Service Form 8038 completed by the Issuer
with respect to the Bonds;
(viii) An Opinion of Counsel that (1) the Company is a corporation duly
organized and validly existing under the laws of the State, and (2) the
Agreement and the Note have been duly authorized, executed and delivered by the
Company and are enforceable against the Company, subject to usual exceptions for
matters relating to bankruptcy and equitable principles; and
(ix) Appropriate evidence that the Remarketing Agent has accepted
its obligations and duties described in this Indenture.
(d) Disbursement. On the date of issuance of the Bonds, the Trustee
shall disburse all of the proceeds derived from the issuance of the Bonds,
together with sufficient equity money provided by the Company, to the Prior
Bonds Trustee as Escrow Agent under the Escrow Agreement in order to provide for
the defeasance in full of the Prior Bonds. All additional moneys should be
deposited in the Bond Fund and shall be applied as set forth in Section 4.04.
Section 2.02. Interest on the Bonds. The Bonds shall bear interest as
herein provided from the date thereof until paid in full. The Bonds will
initially bear interest at a One-year Rate of 4.00%. Interest accrued on the
Bonds shall be paid on each Interest Payment Date (or, if such day is not a
Business Day, on the next succeeding Business Day), commencing on March 1, 1997.
Subsequent to a Conversion Date, the Bonds shall bear interest at the lowest
rate determined by the Remarketing Agent on their date of issuance as necessary
to sell all of the Bonds at par; provided that no interest rate on the Bonds
shall exceed the Maximum Rate. The amount of interest payable on any Interest
Payment Date shall be computed on the basis of the actual number of days elapsed
over a year of 365 or 366 days, whichever may be applicable.
If, subsequent to any Conversion Date, the Bonds bear interest at the
Weekly Rate, during each Weekly Rate Period the Bonds shall bear interest at the
Weekly Rate, determined by the Remarketing Agent initially no later than the
first day of each Weekly Rate Period and thereafter no later than Wednesday (or
the next succeeding Business Day, if such Wednesday is not a Business Day) of
each week during such Weekly Rate Period. The Weekly Rate shall be the minimum
rate of interest that would cause the Bonds on the date such rate is determined
to have a market value equal to the then outstanding principal amount, plus, if
such sale would not be on an Interest Payment Date, accrued interest. Such rate
shall be determined by the Remarketing Agent in its sole discretion based on
prevailing market conditions. The determination of the Weekly Rates as provided
in this Indenture shall be conclusive and binding on the Issuer, the Company,
the Bank, the Trustee, the Remarketing Agent and the Bondholders. The
calculation and verification of interest payable on the Bonds as provided in
this Indenture shall be conclusive and binding on the Issuer, the Company, the
Bank, the Trustee, the Remarketing Agent, and the Bondholders, absent manifest
error.
If the Remarketing Agent shall not have determined a Weekly Rate for
any week, the Weekly Rate shall be the same as the Weekly Rate for the
immediately preceding week. If for any reason, the Weekly Rate cannot be
determined for any week as hereinbefore provided, the Weekly Rate for such week
shall be a rate per annum equal to 100% of the rate published in the then most
recent edition of The Bond Buyer for 30-day prime tax-exempt commercial paper
or, if The Bond Buyer no longer publishes such information, such other
publication or provider of such information as the Remarketing Agent may select.
The first Weekly Rate determined for each Weekly Rate Period shall
apply to the period commencing on the first day of such Weekly Rate Period and
ending on the next succeeding Wednesday (or the next succeeding Business Day, if
such Wednesday is not a Business Day). Thereafter, each Weekly Rate shall apply
to the period commencing on Thursday (or if the date of determination is not a
Wednesday, on the next following Business Day) and ending on the next succeeding
date of determination, or if earlier, on the last day of the Weekly Rate Period.
Promptly following the determination of each Weekly Rate, the
Remarketing Agent shall give notice thereof to the Trustee. Upon the request of
any Bondholder, the Remarketing Agent shall notify any such Bondholder of each
change in the Weekly Rate by first class mail. The failure to give any such
notice shall not affect,the change in the Weekly Rate.
The Remarketing Agent shall notify the Trustee and the Company in
writing (which may be in telecopy form) or by telephone promptly confirmed in
writing by 4:00 p.m. on the last Wednesday of each month (or if such Wednesday
is not a Business Day, on the next succeeding Business Day) of the Weekly Rate
set for each week in such month, and the principal amount of Bonds bearing
interest at the Weekly Rate during each week.
Using the Weekly Rates supplied by the Remarketing Agent, the Trustee
shall calculate the amount of interest payable on the Bonds.
Section 2.03. Execution and Authentication. The Bonds shall be signed
on behalf of the Issuer with the manual or facsimile signature of the President
of the Harrison County Commission, and the seal of the Issuer shall be impressed
or imprinted on the Bonds by facsimile or otherwise, and attested by the manual
or facsimile signature of the Clerk of the Harrison County Commission. If any
officer whose signature is on a Bond no longer holds that office at the time the
Trustee authenticates the Bond, the Bond shall nevertheless be valid. Also, if a
person signing a Bond is the proper officer on the actual date of execution, the
Bond shall be valid even if that person is not the proper officer on the nominal
date of action.
A Bond shall not be valid for any purpose under this Indenture unless
and until the Trustee manually signs the certificate of authentication on the
Bond, and such signature shall be conclusive evidence that the Bond has been
authenticated under this Indenture.
Section 2.04. Bond Register. The Trustee shall keep a register of Bonds
and of their transfer and exchange. Bonds not held under a book-entry system
must be presented at the principal corporate trust operations office of the
Trustee for registration, transfer and exchange, and Bonds may be presented at
that office for payment. Bonds not held under a book-entry system and optionally
tendered by their holders must be delivered as specified in Section 3.07(b).
Section 2.05. Registration and Exchange of Bonds; Persons Treated as
Owners; Book-Entry System.
(a) Bonds may be transferred only on the register maintained by the
Trustee. Upon surrender for transfer of any Bond to the Trustee, duly endorsed
for transfer or accompanied by an assignment duly executed by the holder or the
holder's attorney duly authorized in writing and in either case, with an
appropriate guarantee of signature conforming to the requirements of Exhibit A
hereto, the Trustee shall authenticate a new Bond or Bonds in an equal total
principal amount and registered in the name of the transferee.
Bonds may be exchanged for an equal total principal amount of Bonds of
different Authorized Denominations. The Trustee shall authenticate and deliver
Bonds that the Bondholder making the exchange is entitled to receive, bearing
numbers not then outstanding.
Except in connection with the optional tender of Bonds pursuant to
Section 3.07(b) and the delivery thereof pursuant to Section 3.08, the Trustee
shall not be required to transfer or exchange any Bond during the period
beginning 15 days before the mailing of notice calling the Bond or any portion
of the Bond for redemption and ending on the redemption date. Bonds subject to
redemption or mandatory repurchase may be transferred or exchanged only if the
Trustee provides the new holder thereof with a copy of the notice of redemption
or mandatory repurchase, as the case may be.
The holder of a Bond as shown on the register of the Trustee shall be
the absolute owner of the Bond for all purposes, and payment of principal,
interest or purchase price shall be made only to or upon the written order of
such holder or the holder's legal representative; provided that interest shall
be paid to the Person shown on the register as a holder of a Bond on the
applicable Record Date.
(b) The Trustee may require the payment by a Bondholder requesting
exchange or registration of transfer of any tax or other governmental charge
required to be paid in respect of the exchange or registration of transfer but
shall not impose any other charge.
(c) The Trustee or the Remarketing Agent may make appropriate
arrangements for the Bonds (or any portion thereof) to be issued or held by
means of a book-entry system administered by DTC with no physical distribution
of Bonds made to the public (other than those Bonds, if any, not held under such
book-entry system). References in this Section 2.05(c) to a Bond or the Bonds
shall be construed to mean the Bond or the Bonds that are held under the
book-entry system. In such event, one Bond of each maturity shall be issued to
DTC and immobilized in its custody. A book-entry system shall be employed,
evidencing ownership of the Bonds in Authorized Denominations, with transfers of
beneficial ownership effected on the records of DTC and the DTC Participants
pursuant to rules and procedures established by DTC.
Each DTC Participant shall be credited in the records of DTC with the
amount of such DTC Participant's interest in the Bonds. Beneficial ownership
interests in the Bonds may be purchased by or through DTC Participants. The
holders of these beneficial ownership interests are hereinafter referred to as
the "Beneficial owners." The Beneficial Owners shall not receive Bonds
representing their beneficial ownership interests. The ownership interests of
each Beneficial Owner shall be recorded through the records of the DTC
Participant from which such Beneficial Owner purchased its Bonds. Transfers of
ownership interests in the Bonds shall be accomplished by book entries made by
DTC and, in turn, by DTC Participants acting on behalf of Beneficial Owners. SO
LONG AS CEDE & CO., AS NOMINEE FOR DTC, IS THE REGISTERED OWNER OF THE BONDS,
THE TRUSTEE SHALL TREAT CEDE & CO. AS THE ONLY HOLDER OF THE BONDS FOR ALL
PURPOSES UNDER THIS INDENTURE, INCLUDING RECEIPT OF ALL PRINCIPAL OF AND
INTEREST ON THE BONDS, RECEIPT OF NOTICES, VOTING AND REQUESTING OR DIRECTING
THE TRUSTEE TO TAKE OR NOT TO TAKE, OR CONSENTING TO, CERTAIN ACTIONS UNDER THIS
INDENTURE.
Payments of principal, interest and purchase price with respect to the
Bonds, so long as DTC is the only owner of the Bonds, shall be paid by the
Trustee directly to DTC or its nominee, Cede & Co. as provided in the Letter of
Representation dated as of September 1, 1996 from the Issuer, the Company, the
Remarketing Agent, the Trustee to DTC (the "Letter of Representation"). DTC
shall remit such payments to DTC Participants, and such payments thereafter
shall be paid by DTC Participants to the Beneficial owners. The Issuer, the
Company, and the Trustee shall not be responsible or liable for payment by DTC
or DTC Participants, for sending transaction statements or for maintaining,
supervising or reviewing records maintained by DTC or DTC Participants.
In the event that (1) DTC determines not to continue to act as
securities depository for the Bonds or (2) the Company or the Remarketing Agent
determines that the continuation of the book-entry system of evidence and
transfer of ownership of the Bonds would adversely affect its interests or the
interests of the Beneficial Owners of the Bonds, the Issuer shall, at the
request of the Company or the Remarketing Agent, discontinue the book-entry
system with DTC. If the Remarketing Agent fails to identify another qualified
securities depository to replace DTC, the Trustee shall authenticate and deliver
replacement Bonds in the form of fully registered Bonds to each Beneficial
Owner.
THE ISSUER, THE COMPANY, THE REMARKETING AGENT, AND THE TRUSTEE SHALL
NOT HAVE ANY RESPONSIBILITY OR OBLIGATIONS TO ANY DTC PARTICIPANT OR ANY
BENEFICIAL OWNER WITH RESPECT TO (i) THE BONDS; (ii) THE ACCURACY OF ANY RECORDS
MAINTAINED BY DTC OR ANY DTC PARTICIPANT; (iii) THE PAYMENT BY DTC OR ANY DTC
PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE
PRINCIPAL OF AND INTEREST ON THE BONDS; (iv) THE DELIVERY OR TIMELINESS OF
DELIVERY BY DTC OR ANY DTC PARTICIPANT OF ANY NOTICE DUE TO ANY BENEFICIAL OWNER
THAT IS REQUIRED OR PERMITTED UNDER THE TERMS OF THIS INDENTURE TO BE GIVEN TO
BENEFICIAL OWNERS; (v) THE SELECTION OF BENEFICIAL OWNERS TO RECEIVE PAYMENTS IN
THE EVENT OF ANY PARTIAL REDEMPTION OF THE BONDS; OR (vi) ANY CONSENT GIVEN OR
OTHER ACTION TAKEN BY DTC, OR ITS NOMINEE, CEDE & CO., AS OWNER.
In the event that a book-entry system of evidence and transfer of
ownership of the Bonds is discontinued pursuant to the provisions of this
Section, the Bonds shall be delivered solely as fully registered Bonds without
coupons in the Authorized Denominations, shall be lettered "IR" and numbered
separately from 1 upward, and shall be payable, executed, authenticated,
registered, exchanged and canceled pursuant to the provisions hereof.
(d) The Remarketing Agent shall not be limited to utilizing a
book-entry system maintained by DTC but may enter into a custody agreement with
any bank or trust company serving as custodian (which may be the Trustee serving
in the capacity of custodian) to provide for a book-entry or similar method for
the registration and registration of transfer of all or a portion of the Bonds.
SO LONG AS A BOOK-ENTRY SYSTEM OF EVIDENCE OF TRANSFER OF OWNERSHIP OF
ALL THE BONDS IS MAINTAINED IN ACCORDANCE HEREWITH, THE PROVISIONS OF THIS
INDENTURE RELATING TO THE DELIVERY OF PHYSICAL BOND CERTIFICATES SHALL BE DEEMED
INAPPLICABLE OR BE OTHERWISE SO CONSTRUED AS TO GIVE FULL EFFECT TO SUCH
BOOK-ENTRY SYSTEM.
Section 2.06. Mutilated, Lost, Stolen, Destroyed or Undelivered Bonds.
(a) If any Bond is mutilated, lost, stolen or destroyed, the Trustee
shall authenticate a new Bond of the same denomination for any mutilated, lost,
stolen or destroyed Bond if there is delivered to the Trustee at its principal
corporate trust operations office, (1) in the case of a mutilated Bond, such
mutilated Bond and (2) in the case of any lost, stolen or destroyed Bond,
evidence of such loss, theft or destruction reasonably satisfactory to the
Issuer, Bank, Trustee and Company, together with an indemnity from the
Bondholder, reasonably satisfactory to them. If the Bond has matured and if the
evidence and indemnity described above have been provided by the Bondholder,
instead of issuing a duplicate Bond, the Trustee, with the consent of the
Company, shall pay the Bond without requiring surrender of the Bond and make
such requirements as the Trustee deems fit for its protection, including a lost
instrument bond. The Issuer, the Company and the Trustee may charge the
Bondholder their reasonable fees and expenses in this connection.
(b) In the event that any Bond purchased pursuant to an optional tender
or mandatory repurchase is not delivered by the holder thereof on the date such
Bond is purchased, the Issuer shall execute (if necessary) and the Trustee shall
authenticate and deliver a new Bond of like aggregate principal amount as the
Bond purchased, which Bond shall, for all purposes of this Indenture, be deemed
to evidence the same debt as the Bond purchased and shall be remarketed,
delivered and registered in accordance with Section 3.08(d) hereof.
If any Bond is purchased by the Trustee with Available Moneys provided
by the Company and sufficient for such purchase, the Trustee, upon request of
the Company, shall authenticate a new Bond in any Authorized Denomination
specified by the Company, registered as the Company may direct and deliver it to
the Company, or to its order, whether or not such Bond is ever delivered. If any
Bond is purchased with funds obtained by a drawing on the Letter of Credit, the
Trustee shall comply with the provisions of Section 3.08(d)(ii).
(c) Every new Bond issued pursuant to this Section 2.06 shall (i)
constitute an additional contractual obligation of the Issuer regardless of
whether, in the case of (a) above, the mutilated, lost, stolen or destroyed Bond
and, in the case of (b) above, the Bond purchased shall be enforceable at any
time by anyone, and (ii) be entitled to all of the benefits of this Indenture
equally and proportionately with any and all other Bonds issued and outstanding
hereunder.
(d) All Bonds shall be held and owned on the express condition that the
foregoing provisions of this Section 2.06 are exclusive with respect to the
replacement or payment of mutilated, lost, stolen or destroyed Bonds and the
replacement of any Bond purchased pursuant to an optional tender or mandatory
repurchase and, to the extent permitted by law, and shall preclude any and all
other rights and remedies with respect to the replacement or payment of
negotiable instruments or other investment securities without their surrender,
notwithstanding any law or statute to the contrary now existing or enacted
hereafter.
Section 2.07. Cancellation of Bonds. All Bonds paid, redeemed or
purchased, either at or before maturity, shall be delivered to the Trustee when
such payment, redemption or purchase is made, and except as otherwise provided
herein shall be canceled. Whenever a Bond is delivered to the Trustee for
cancellation (upon payment, redemption, defeasance or otherwise), or for
transfer, exchange or replacement pursuant to Section 2.05 or 2.06, the Trustee
shall safeguard such Bond for such period of time as may be required by
governmental regulations and thereafter promptly cancel the Bond and prepare a
certificate of destruction therefor.
Section 2.08. Temporary Bonds. Until definitive Bonds are ready for
delivery, the Issuer may execute and the Trustee shall authenticate temporary
Bonds substantially in the form of the definitive Bonds, with appropriate
variations. The Issuer shall, without unreasonable delay, prepare and the
Trustee shall authenticate definitive Bonds in exchange for the temporary Bonds.
Such exchange shall be made by the Trustee without charge to the Bondholders.
Temporary Bonds shall not otherwise be eligible for transfer or exchange under
Section 2.05.
Section 2.09. Additional Bonds.
(a) At any time while the Issuer is not in default under this Indenture
and subject to the approval and execution of a supplemental Indenture making
appropriate provisions therefor in accordance with Section 10.01 hereof and
subject to receipt by the Trustee of the documents listed below, the Issuer may
issue one or more series of Additional Bonds for the purpose of providing funds
to be used, with any other available funds, for the purpose of (i) paying the
cost of all improvements, restoration, repairing, rebuilding, rearranging and
replacements of the Project or any part thereof by the Company pursuant to, or
(ii) refunding all or part of any prior series of Bonds, or any combination of
the above. Each series of Additional Bonds shall be issued pursuant to a
supplement to this Indenture. Unless otherwise provided in a supplemental
Indenture, all such Additional Bonds shall be in substantially the same form as
the Bonds, but shall be of such denominations, bear such dates, bear interest at
such rates, have such maturity dates, redemption dates and redemption premiums,
contain an appropriate series designation, and be issued at such prices all as
approved by Company.
The Trustee shall authenticate and deliver such Additional Bonds, but
only upon receipt of the following:
(1) A certificate of the Issuer, signed by its President, that it
is not in default under this Indenture.
(2) A certificate of the Company, signed by a Company
Representative approving the issuance and terms of such
Additional Bonds and that it is not in default under the
Agreement.
(3) A certified copy of a resolution or resolutions of the Issuer
authorizing a)the execution and delivery of the amendment to
the Agreement referred to in subparagraph 4 of this Section
2.09, (b) the execution and delivery of the supplemental
Indenture referred to in subparagraph 5 hereof, and (c) the
issuance, award, execution and delivery of such Additional
Bonds.
(4) An original executed counterpart of an amendment to the
Agreement providing, among other things, for increasing the
amounts payable by the Company thereunder to include payment
of principal of, premium, if any, and interest on such
Additional Bonds.
(5) An original executed counterpart of a supplemental Indenture
providing for the issuance of such Additional Bonds.
(6) Evidence of the consent of the Bank to the issuance of such
Additional Bonds.
(7) An opinion of Counsel that the amendment to the Agreement and
a new promissory note each has been properly authorized,
executed, and delivered by Company, that the supplemental
Indenture has been properly authorized, executed, and
delivered by the Issuer, and that such amendment to the
Agreement, new promissory note, and supplemental Indenture
(assuming in the case of the supplemental Indenture, proper
authorization and execution and delivery thereof by the
Trustee), are valid and binding and enforceable in accordance
with their respective terms, except as same is affected by
laws affecting creditors' rights and the enforcement thereof
generally and except to the extent that the remedy of specific
performance and other equitable remedies are always within the
discretion of the Court, and that the amendment to the
Agreement and the supplemental Indenture have been duly
recorded in every necessary recording office and appropriate
financing statements have been filed in all filing offices
where such filing shall be necessary;
(8) A written opinion of Nationally Recognized Bond Counsel that
the issuance of such Additional Bonds has been duly authorized
by the Issuer and will have no adverse effect upon the
exemption from Federal income taxes of interest on the Bonds
or any other then outstanding series of Additional Bonds.
(9) A request and authorization by the Issuer, signed by its
President, to the Trustee to authenticate and deliver such
Additional Bonds upon payment to the Trustee for the account
of the Issuer of a specified sum.
(b) When the requirements of subsection A of this Section have been met
to the reasonable satisfaction of the Trustee and when the Additional Bonds
shall have been executed and authenticated in the manner required by this
Indenture, the Trustee shall deliver such Additional Bonds but only upon payment
to the Trustee of the purchase price of such Additional Bonds.
(c) The proceeds of all Bonds issued under the provisions of this
Section (other than refunding Bonds) shall be deposited with the Trustee in a
special fund appropriately designated and held in trust for the purpose of
paying the costs for which such Additional Bonds were issued to finance except
that any accrued interest received on the sale of such Additional Bonds and any
amount authorized for the payment of interest during any period of acquisition
and construction and for a reasonable period thereafter shall be deposited to
the credit of the Bond Fund (i.e., in the designated subaccount therein). The
proceeds of all refunding Bonds issued under the provisions of this Section
shall be deposited with the Trustee in a special escrow account pledged solely
to the payment of the principal of, premium, if any, and interest on the
refunded Bonds, except that the accrued interest received on the sale of such
Additional Bonds may be deposited instead in the Bond Fund.
<PAGE>
ARTICLE III
REDEMPTION, PURCHASE AND REMARKETING
Section 3.01. Redemption of Bonds.
(a) Optional Redemption-Bonds in Weekly Rate Mode. While the Bonds bear
interest at the Weekly Rate, the Bonds may be redeemed by the Issuer at the
direction of the Company, in whole on any Business Day, or in part on any
Interest Payment Date, or, if such Interest Payment Date is not a Business Day
on the next succeeding Business Day, without premium, at the principal amount
thereof with interest accrued to, but excluding, the redemption date; provided
that any such redemption in part shall be in a minimum redemption amount of
$100,000.
(b) Optional Redemption-Bonds in One-year Rate Mode or Three-year Rate
Mode. While the Bonds bear interest at either the One-year Rate or the
Three-year Rate, the Bonds may be redeemed by the Issuer at the direction of the
Company, in whole or in part on the final Interest Payment Date occurring during
such One-year Rate Period or Three-year Rate Period, at a redemption price of
par plus interest accrued to the date fixed for redemption.
(c) Optional Redemption-Bonds in Fixed Rate Mode. While the Bonds bear
interest at a Fixed Rate, the Bonds may be redeemed by the Issuer at the
direction of the Company, in whole or in part at any time on and after the tenth
anniversary date subsequent to the Conversion Date upon which the interest rate
on the Bonds was converted to a Fixed Rate, at a redemption price of par plus
interest accrued to the date fixed for redemption.
NOTWITHSTANDING ANYTHING IN THIS INDENTURE TO THE CONTRARY, IN NO EVENT
SHALL PROCEEDS OF THE LETTER OF CREDIT BE USED TO PAY THE REDEMPTION PRICE OF
BONDS CALLED FOR REDEMPTION PURSUANT TO SECTIONS 3.01(a), 3.01(b) or 3.01(c).
(d) Mandatory Sinking Fund Redemption. (i) The Bonds are subject to
mandatory sinking fund redemption prior to their scheduled maturity, on
September 1, 1997, and on each succeeding September 1 to and including September
1, 2010, or if any such date is not a Business Day, on the next succeeding
Business Day, without premium, at a redemption price of the principal amount
thereof with interest accrued to, but excluding, the redemption date, in the
following principal amounts:
Principal
Year Amount
1997 $110,000
1998 110,000
1999 120,000
2000 125,000
2001 135,000
2002 140,000
2003 150,000
2004 155,000
2005 165,000
2006 175,000
2007 185,000
2008 190,000
2009 205,000
2010 (Maturity) 220,000
(ii) At its option, to be exercised on or before the 45th day next
preceding any such sinking fund redemption date, the Issuer, or the Company on
behalf of the Issuer, may:
(x) deliver to the Trustee for cancellation Bonds in
any aggregate principal amount desired to be credited
against the Issuer's sinking fund redemption obligations; or
(y) instruct the Trustee, to credit against the Issuer's
sinking fund redemption obligations any Bonds that prior to
such date have been redeemed (otherwise than through the
operation of the sinking fund) and canceled by the Trustee and
not theretofore applied as a credit against any sinking fund
redemption obligation.
Each Bond so delivered or previously redeemed shall be credited by the
Trustee at 100% of the principal amount thereof against the obligation of the
Issuer on such sinking fund redemption dates. Any excess over such obligation
shall be credited against future sinking fund redemption obligations in
chronological order, and the principal amount of the Bonds to be redeemed by
operation of the sinking fund shall be accordingly reduced.
(e) Mandatory Redemption on Determination of Taxability. The Bonds are
also subject to mandatory redemption at a redemption price equal to the
principal amount thereof with interest to, but excluding, the redemption date in
whole (or in part as provided below), without premium, on the first day of a
month within 180 days after the Company receives written notice from a
Bondholder or former Bondholder or the Trustee of a final determination by the
Internal Revenue Service or a court of competent jurisdiction that the interest
paid or to be paid on any Bond is or was includable in the gross income of the
Bond's owner (other than an owner that is a "substantial user" of the Facility
or a "related person" within the meaning of Section 147(a) of the Code) for
federal income tax purposes (a "Determination of Taxability"), or if such date
is not a Business Day, on the next succeeding Business Day. No such
determination will be considered final unless the Bondholder or former
Bondholder involved in the determination gives the Company, the Trustee, the
Remarketing Agent and the Bank prompt written notice of the commencement of the
proceedings resulting in the determination and offers the Company, subject to
the Company's agreeing to pay all expenses of the proceeding and to indemnify
the holder against all liabilities that might result from it, the opportunity to
control the defense of the proceeding and either the Company does not agree
within 30 days to pay the expenses, indemnify the holder and control the defense
or the Company exhausts or chooses not to exhaust available procedures to
contest or obtain review of the result of the proceedings. Fewer than all the
Bonds may be redeemed if redemption of fewer than all would result in the
interest payable on the Bonds remaining outstanding being not includable in the
gross income for federal income tax purposes of any holder. If fewer than all
Bonds are redeemed, the Remarketing Agent shall select the Bonds to be redeemed
by lot as provided in Section 3.03 or by such other method acceptable to the
Remarketing Agent as may be approved in an opinion of Bond Counsel.
(f) Mandatory Redemption on Expiration or Termination of Letter of
Credit Without Extension or Providing a Substitute Letter of Credit. The Bonds
are subject to mandatory redemption, in whole without premium at a redemption
price equal to 100% of the principal amount thereof plus accrued and unpaid
interest thereon to, but not including, the redemption date, on the Interest
Payment Date that next precedes by at least 14 days the stated expiration or
termination date of the Letter of Credit or, if such Interest Payment Date is
not a Business Day, on the next succeeding Business Day, unless by the 15th day
prior to such Interest Payment Date the Company provides to the Trustee, and the
Trustee has accepted, (1) evidence that such Letter of Credit has been extended
or (2) a Substitute Letter of Credit to be effective on or prior to such
Interest Payment Date.
(g) Mandatory Redemption upon Failure of Remarketing Agent to Remarket
Bonds. Bonds unable to be remarketed by the Remarketing Agent pursuant to
Section 3.08 of this Indenture shall be subject to mandatory redemption at a
redemption price equal to the principal amount thereof plus accrued and unpaid
interest thereof to, but not including, the redemption date in the manner set
forth in Section 3.08.
Section 3.02. Redemption Date. The redemption date of Bonds to be
redeemed pursuant to the optional redemption provisions in Section 3.01(a)
through (c) shall be a date permitted by such clauses and specified by the
Company in the notice delivered pursuant to the preceding Section. The
redemption date for mandatory redemptions shall be as specified in Section
3.01(d) through (g), as the case may be, or determined by the Trustee
consistently with the provisions thereof.
Section 3.03. Selection of Bonds To Be Redeemed. Except as otherwise
provided in this Section 3.03, if fewer than all the Bonds are to be redeemed,
the Remarketing Agent shall select the Bonds to be redeemed by lot or such other
method as it deems in its sole discretion to be fair and appropriate and shall
notify the Trustee (which notice may be provided by telephone, immediately
confirmed in writing by legible facsimile transmission, registered or certified
mail, overnight express delivery, or other secure means), of the holders and
denominations of Bonds to be redeemed. The Remarketing Agent shall make the
selection from Bonds not previously called for redemption. In the event the
Remarketing Agent fails to notify the Trustee of the Bonds to be redeemed on or
before the 35th day prior to the redemption. day, the Trustee shall select Bonds
for redemption from among the Outstanding Bonds as set forth below. The Trustee
shall treat each holder of Bonds as the owner of one Bond for purposes of
selection for redemption and shall select Bonds for redemption by lot (1) from
among the holders of less than $1,000,000 in aggregate principal amount,
provided that if there are no such holders, or if, after selection from among
such holders such selection has not resulted in redemption of a sufficient
amount of Bonds, then (2) from among the holders of $1,000,000 or more in
aggregate principal amount of Bonds. In the event the Trustee selects Bonds for
redemption, the Trustee shall, on or before the day on which notice of
redemption is mailed to the holders, give telephonic notice to the Remarketing
Agent of the Bonds selected for redemption and the name of the holder or holders
thereof. No portion of a Bond may be redeemed that would result in a Bond that
is smaller than the then permitted minimum Authorized Denomination. For this
purpose, the Remarketing Agent or the Trustee shall consider each Bond in a
denomination larger than the minimum denomination permitted by the Bonds at the
time to be separate Bonds each in the minimum denomination. Provisions of this
Indenture that apply to Bonds called for redemption also apply to portions of
Bonds called for redemption.
Notwithstanding anything to the contrary in this Indenture, there shall
be no redemption of less than all of the Bonds if there shall have occurred and
be continuing an Event of Default.
Section 3.04. Notice to Trustee; Notice of Redemption.
(a) If the Company wishes that any Bonds be redeemed pursuant to the
optional redemption provisions in Section 3.01(a) through (c) hereof, the
Company shall notify the Trustee, the Trustee, the Bank and the Remarketing
Agent in writing of the applicable provision, the redemption date, the principal
amount of Bonds to be redeemed and other necessary particulars. The Company
shall give such notices at least 40 days before the redemption date.
(b) For Bonds being redeemed pursuant to Subsections (a) through (e) of
Section 3.01, the Trustee shall prepare and send notice of each redemption to
each Bondholder whose Bonds are being redeemed, the Company, the Remarketing
Agent and the Bank by first-class mail at least 30 days but not more than 60
days before each redemption. If the Bonds are being held under a book-entry
system administered by DTC and less than all of the Bonds are called for
redemption, the Remarketing Agent shall notify the Trustee of the names and
addresses of the Beneficial Owners of the Bonds selected for redemption pursuant
to Section 3.03, and the Trustee shall prepare and send notice of such
redemption to each such Beneficial owner at the time and in the manner provided
in this Section 3.04(b). The notice shall identify the Bonds or portions thereof
to be redeemed and shall state (i) the type of redemption and the redemption
date, (ii) the redemption price, (iii) that the Bonds called for redemption must
be surrendered to collect the redemption price, (iv) the address at which the
Bonds must be surrendered, (v) that interest on the Bonds called for redemption
ceases to accrue on the redemption date, (vi) the CUSIP number of the Bonds and
(vii) any condition to the redemption.
The procedure for redemption of Bonds pursuant to 3.01(f) shall be
identical except that notice shall be sent at least 7 days before each
redemption.
The procedure for redemption of Bonds pursuant to 3.01(g) shall be as
set forth in Section 3.08 of this Indenture.
With respect to any Bonds to be redeemed that have not been presented
for redemption within 60 days after the redemption date, the Trustee, at the
expense of the Company, shall prepare and the Trustee shall give a second notice
of redemption to the holder of any such Bonds that have not been presented for
redemption, by first-class mail, within 30 days of the end of such 60-day
period.
Failure by the Trustee to give any notice of redemption as to any
particular Bonds will not affect the validity of the call for redemption of any
Bonds in respect of which no such failure has occurred. Any notice mailed as
provided in the Bonds will be conclusively presumed to have been given whether
or not actually received by any holder.
Section 3.05. Payment of Bonds Called for Redemption. Upon surrender to
the Trustee, Bonds called for redemption shall be paid as provided in this
Article at the redemption price provided for in this Article. On the date fixed
for redemption, notice having been given in the manner and under the conditions
hereinabove provided, the Bonds or portions thereof called for redemption shall
be due and payable at the redemption price provided therefor, plus accrued
interest to such date. On such redemption date, if moneys sufficient to pay the
redemption price of the Bonds to be redeemed, plus accrued interest thereon to
the date fixed for redemption, are held by the Trustee, interest on the Bonds
called for redemption shall cease to accrue; such Bonds shall cease to be
entitled to any benefits or security under this Indenture or to be deemed
outstanding; and the holders of such Bonds shall have no rights in respect
thereof except to receive payment of the redemption price thereof, plus accrued
interest to the date of redemption.
Section 3.06. Bonds Redeemed in Part. Upon surrender of a Bond redeemed
in part, the Trustee shall authenticate for the holder a new Bond or Bonds equal
in principal amount to the unredeemed portion of the Bond surrendered.
Section 3.07. Other Redemption; Purchase of Bonds.
(a) Mandatory Repurchase of Bonds; Notice. Except as provided
in Section 3.07(e), Bonds are subject to mandatory repurchase as follows:
(i) on the effective date of any Substitute Letter of Credit delivered
pursuant to Section 5.03, if, but only if, such Substitute Letter of Credit will
result in a Credit Modification, at a purchase price equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon to but not
including the date of purchase; and
(ii) on any Interest Payment Date selected by the Company, or if such
Interest Payment Date is not a Business Day, on the next succeeding Business
Day, at a purchase price equal to 100% of the principal amount thereof plus
accrued and unpaid interest thereon to but not including the date of purchase;
provided that any such mandatory repurchase, except as provided in Section 9.12
hereof, shall be subject to the prior written consent of the Bank; and
The Trustee shall prepare and send to the holders of Bonds subject to
mandatory repurchase, and to the Remarketing Agent, the Bank and the Company, a
Notice of Mandatory Repurchase at least 15 days but not more than 60 days before
the Mandatory Repurchase Date. Any Notice of Mandatory Repurchase shall be given
by first-class mail and shall be substantially in the form attached hereto as
Exhibit B.
With respect to any Bonds to be purchased that have not been presented
for purchase within 60 days after the Mandatory Repurchase Date, the Trustee, at
the expense of the Company, prepare and send a second notice of purchase to the
holder of any such Bonds, by first-class mail, within 30 days of the end of such
60-day period.
(b) Optional Tender of Bonds. (i) Except as provided in Section
3.07(e), while the Bonds bear interest at the Weekly Rate, the holder (or while
the Bonds are held pursuant to a book-entry system, the Beneficial Owner) of any
Bond may elect to tender such Bond (or portion thereof, provided that each of
the portion to be purchased and the portion to be retained is in an Authorized
Denomination) for purchase at a purchase price equal to 100% of the principal
amount of such Bond (or portion thereof), plus accrued and unpaid interest
thereon to but not including the date of purchase, on any Business Day (the
"Optional Tender Date"), but only upon (A) receipt by the Remarketing Agent by
not later than 11:00 a.m. at least seven calendar days or five Business Days,
whichever may be earlier, but not more than 30 days, prior to such Optional
Tender Date of telephonic (followed, if requested by the Remarketing Agent, by
written or facsimile confirmation delivered to the Remarketing Agent no later
than the close of business on the next succeeding Business Day) or other notice
stating (x) the principal amount of the Bond (or portion thereof) to be
tendered, (y) the Bond number or other identification satisfactory to the
Remarketing Agent, and (z) the Optional Tender Date on which such Bond will be
tendered; and (B) if the Bonds are not being held under a book-entry system,
delivery of such Bond (with an appropriate instrument of transfer duly executed
in blank) to the Trustee by 10:00 a.m. on such Optional Tender Date.
(ii) Any notice of optional tender for purchase delivered pursuant to
subpart (i) above shall be irrevocable and shall be binding on the holder giving
or delivering such notice and on any transferee of such holder.
(iii) Upon receipt by the Remarketing Agent of a notice of optional
tender for purchase pursuant to subparagraph (i) above, the Remarketing Agent
shall give prompt telephonic notice thereof to the Trustee.
(c) Payment for Purchased Bonds. To the extent that sufficient moneys
have been made available therefor to the Trustee by 3:30 p.m. on the purchase
date pursuant to Sections 3.08 and 5.02, upon surrender to the Trustee of Bonds
optionally tendered or called for mandatory repurchase as provided herein, the
purchase price therefor (as provided in this Section) shall be paid in
immediately available funds by the Trustee not later than the close of business
on the purchase date. From and after the Mandatory Repurchase Date or Optional
Tender Date, as applicable, or, if later, the date on which such moneys are made
available to the Trustee, interest accruing on such Bonds shall cease to be
payable to the prior holder thereof, such Bonds shall cease to be entitled to
the benefits or security of this Indenture and to such extent the prior holder
shall have recourse solely to the funds held by the Trustee for the purchase of
such Bonds as provided in Section 4.06.
(d) Bonds Purchased in Part. Upon surrender of a Bond purchased in part
and receipt by the Trustee thereof, the Trustee shall authenticate and deliver
to the surrendering holder a new Bond equal in principal amount to the
unpurchased portion of the Bond surrendered.
(e) Limitations on Tenders.
(i) The holders shall not have the right or be required, as the case
may be, to tender any Bond for purchase on an Optional Tender Date or a
Mandatory Repurchase Date if on such date, following the occurrence of an Event
of Default, the Trustee shall have declared the principal of and interest on the
Bonds to be immediately due and payable pursuant to Section 8.02.
(ii) Notwithstanding the provisions of Section 3.07(b), holders of
Bonds called for redemption or mandatory repurchase shall not have the right
(without the prior consent of the Remarketing Agent) to tender such Bonds for
purchase on an Optional Tender Date if such Optional Tender Date will occur on
or after the 10th day prior to the date fixed for redemption or mandatory
repurchase. Notwithstanding the foregoing, holders of Bonds called for
redemption shall not have the right in any event to tender such Bonds for
purchase on an Optional Tender Date if such Optional Tender Date will occur on
or after the second day prior to the date fixed for redemption.
Section 3.08. Remarketing of Purchased Bonds.
(a) Bonds To Be Remarketed. Bonds purchased pursuant to
optional tender or mandatory repurchase shall be remarketed by the Remarketing
Agent as provided in this Section except an follows:
(i) Bonds purchased pursuant to an optional tender or a mandatory
repurchase and as to which the Remarketing Agent has received a notice of
redemption may be remarketed before the date fixed for redemption only if the
purchaser receives prior to purchasing such Bond a notice that such Bond is
subject to redemption on the date fixed for redemption, notwithstanding the fact
that such notice of redemption may be sent to such purchaser after the time
period mentioned in Section 3.04(b).
(ii) The Remarketing Agent shall not be required to offer Bonds for
sale under this Section (1) during the continuance of an Event of Default, (2)
following receipt of notice from the Internal Revenue Service, a Bondholder or
former Bondholder, the Company, the Trustee of an Event of Taxability or a
Determination of Taxability or (3) as otherwise provided in the Remarketing
Agreement.
(iii) Bonds purchased pursuant to an optional tender and as to which
the Remarketing Agent has received a Notice of Mandatory Repurchase may be
remarketed before the Mandatory Repurchase Date only if the purchaser receives a
copy of the Notice of Mandatory Repurchase prior to purchasing such Bond.
(iv) When a Letter of Credit is in effect, the Remarketing Agent shall
not knowingly remarket any Bonds to the Issuer or the Company or any partner or
affiliate of either thereof pursuant to this Section 3.08 unless either (i) the
entire purchase price is paid from Available Moneys or (ii) prior to such sale,
the Trustee shall have received a written opinion of Bankruptcy Counsel to the
effect that such purchase would not result in a preferential payment pursuant to
the provisions of Section 547 of the Bankruptcy Code.
(b) Remarketing Effort. Except as provided in (a) above or except to
the extent the Company directs the Remarketing Agent not to do so, the
Remarketing Agent shall use reasonable efforts to remarket on the purchase date
all Bonds purchased pursuant to Section 3.07 and to the extent such purchased
Bonds are not remarketed on the purchase date, shall notify the Trustee in the
manner provided below. Bonds not remarketed shall be subject to mandatory
redemption as provided in Section 3.01(g).
As early as practicable but not later than 10:00 a.m. on each Business
Day on which the Remarketing Agent is required to remarket Bonds pursuant to
this Section 3.08, the Remarketing Agent shall (A) notify the Trustee by
telephone, with such notice promptly confirmed in writing, of (i) the amount of
Bonds that have been remarketed and which have not been remarketed, (ii) the
amount of proceeds from such remarketing and the amount needed to redeem the
Bonds which have not been remarketed, and (iii) the information to enable the
Trustee to prepare new Bond certificates with respect to Bonds that were
remarketed and (B) transfer to the Trustee the proceeds from such remarketing as
provided in (c) below. The Trustee shall immediately notify the Company by
telephone, with such notice promptly confirmed in writing, of the amount of such
proceeds and the Trustee shall take action as set forth in Section 5.02(a). If
the Trustee fails to receive such notice from the Remarketing Agent by 10:00
a.m., the Trustee shall immediately the Company of the principal amount of all
Bonds to be remarketed and/or redeemed on such date and the Trustee shall take
action as set forth in Section 5.02(a).
(c) Remarketing Proceeds. To the extent the Remarketing Agent has
remarketed Bonds and has received funds representing a payment for such Bonds
(the "Remarketing Proceeds") from the purchasers thereof, the Remarketing Agent
shall promptly, but in no event later than 10:30 a.m. forward the Remarketing
Proceeds by wire transfer (or in such other manner as is acceptable to the
Remarketing Agent and the Trustee) to the Trustee with notice. All such
Remarketing Proceeds shall be deposited in a separate, segregated account of the
Bond Fund for application in accordance with the provisions of Section 3.08 and
Article IV hereof and, until so applied, shall be held in trust for the benefit
of the holders tendering such Bonds for purchase.
(d) Delivery of Purchased Bonds. Bonds purchased pursuant to
Section 3.07 shall be delivered to the purchasers thereof upon receipt of
payment therefor. Prior to such delivery the Trustee shall provide for
registration of transfer to the Holders, as provided in a written notice from
the Remarketing Agent; and
Section 3.09. Authority for and Conditions to Conversion of Interest
Rate. The interest rate borne on the Bonds shall be converted to an interest
rate of in a different interest rate mode upon receipt by the Trustee, the
Remarketing Agent, the Bank of a direction from the Issuer, given at the
direction of the Company, specifying the date new interest rate mode shall be
determined (which date shall not be less than five Business Days prior to the
effective date thereof), the resulting interest rate mode (i.e., Weekly Rate,
One-year Rate, Three-year Rate or Fixed Rate) and the effective date thereof
(which shall be a Business Day not less than 45 days from the date the Authority
gives such direction). Such request and direction shall be accompanied by an
opinion of counsel, which counsel shall be acceptable to the Trustee, addressed
to the Trustee, the Company, the Bank and the Remarketing Agent, stating that
such conversion is authorized or permitted by the Indenture, and that conversion
to the new interest rate mode is in accordance with the provisions of the
Indenture and will not adversely affect the exclusion from gross income for
federal income tax purposes of interest on the Bonds. Conversion to a new
interest rate mode shall not occur without such opinion. Upon the date stated in
such directions as the date the new interest rate mode shall be determined, the
Remarketing Agent shall determine the Weekly Rate, One-year Rate, Three-year
Rate or Fixed Rate, which shall be the rate or rates which, if borne by the
Bonds, would, based on prevailing financial market conditions, be the interest
rate or rates necessary, but would not exceed the interest rate or rates
necessary, to enable each maturity of the Bonds to be remarketed at 100% of the
principal amount thereof.
NOTWITHSTANDING ANYTHING IN THIS INDENTURE OR IN THE BONDS CONTRARY, IN
THE EVENT THE INTEREST RATE ON THE BONDS IS CONVERTED TO A FIXED RATE, NO
FURTHER CONVERSIONS WILL BE PERMITTED OR AUTHORIZED UNDER THIS INDENTURE.
Section 3.10. Notice to Owners of Conversion to New Interest Rate Mode.
The Trustee shall give notice to the Remarketing Agent and by first class mail,
postage prepaid, to the Owners of Bonds not less than 30 days prior to the
effective date of conversion to the new interest rate mode. Such notice shall
state (i) that the interest rate on the Bonds will be converted to a new
interest rate mode, (ii) whether the new interest rate mode is the Weekly Rate,
One-year Rate, Three-year Rate or the Fixed Rate, (iii) the effective date of
conversion to the new interest rate mode, (iv) the date the new interest rate
mode is to be determined and the procedure for notifying Owners of the new
interest rate mode, (v) the dates upon which interest on the Bonds will be
payable after the effective date of the new interest rate mode, (vi) that after
conversion to a Fixed Rate, if applicable the Owners of the Bonds will no longer
have the right to deliver the Bonds to the Remarketing Agent for purchase, and
(vii) that all Outstanding Bonds not purchased prior to the effective date will
be purchased on the effective date of the new interest rate mode, except Bonds
with respect to which the Owner has directed the Company not to purchase in
accordance herewith.
Section 3.11. Notification of Interest Rate; Replacement Bonds. Upon
determining the interest rate to be borne under the new interest rate mode, the
Remarketing Agent shall provide notice of such rate to the Trustee by telephone,
with written confirmation in writing and the Trustee shall give notice by first
class mail, postage prepaid to the owners of the Bonds which shall set forth
such interest rate. In connection with the conversion of the interest rate to a
Fixed Rate, the Trustee, at the direction of the Company shall deliver
replacement Bonds bearing the Fixed Rate with deletion of such terms as are no
longer applicable. Any such replacement Bonds shall be executed and
authenticated as provided herein. In the event that definitive Bonds are not
available for delivery, temporary replacement Bonds may be delivered as provided
herein.
Section 3.12. Certain Provisions of Bonds and Indenture Inapplicable
After Conversion to Fixed Rate.
The day after the effective date of conversion to the Fixed Rate, the
Bonds shall no longer be subject to those provisions of the Indenture or the
Bonds relating to computation of interest rate, remarketing of Bonds, optional
tender of the Bonds, mandatory repurchase of the Bonds, or any provisions
relating to the conversion of the interest rate on the Bonds.
Additionally, following conversion to the Fixed Rate, all references
herein to the Remarketing Agent shall be of no further effect.
Section 3.13. Interest on Bonds After Conversion to Fixed Rate.
Following conversion to a One-year Rate, a Three-year Rate, or a Fixed Rate, the
Bonds shall bear interest at such interest rate, payable each March 1 and
September 1, commencing on the first March 1 or September 1 following such
conversion. The amount of interest payable on any Interest Payment Date shall be
computed on the basis of the actual number of days elapsed over a year of 365 or
366 days, whichever may be applicable.
<PAGE>
ARTICLE IV
PAYMENT OF BONDS AND
CREATION OF FUNDS
Section 4.01. Payment of Bonds. The Trustee shall make payments when
due of principal of and interest on Bonds (including upon the redemption of the
Bonds as described in Article III hereof) and the purchase price of Bonds
purchased pursuant to an optional tender or a mandatory repurchase:
(a) first, (but only with respect to payments of purchase price) from
the available proceeds of the remarketing of Bonds under Section 3.08, excluding
any remarketing to the Issuer, the Company or affiliate of either thereof unless
the proceeds thereof constitute Available Moneys;
(b) second, from any other Available Moneys held by the Trustee in
the Bond Fund; and
(c) third, from moneys drawn by the Trustee under the Letter of
Credit and deposited in the Bond Fund;
(d) last, from any other moneys available to the Trustee.
The proceeds of investments of any moneys in any of these categories may be used
to the same extent as the moneys invested could be used.
Section 4.02. Creation of Bond Fund. There is hereby created by the
Issuer and ordered established with the Trustee a trust fund to be designated
"Harrison County, West Virginia/Salem Health Care Corp.: Bond Fund." The money
and securities in such fund shall be held in trust by the Trustee and applied as
herein provided and, until such application, the money and securities in such
Fund shall be subject to a lien and charge in favor of the Bondholders.
Section 4.03. Payments into Bond Fund. There shall be deposited into
the Bond Fund, as and when received:
(a) all moneys received from a drawing under the Letter of Credit;
(b) all payments specified in section 4.1 of the Agreement; and
(c) all other moneys received by the Trustee under and pursuant to any
of the provisions of the Agreement (other than Sections 4.1(b) and 5.6 thereof)
that are required or that are accompanied by directions that such moneys are to
be paid into the Bond Fund. To the extent that moneys described in (a), (b) or
(c) above would not constitute Available Moneys at the time of such deposit, the
Trustee shall create separate subaccounts in the Bond Fund in which moneys
described in each of such (a), (b) and (c) above shall be held until such moneys
constitute Available Moneys. The Trustee shall create a separate subaccount in
the Bond Fund for, and shall not commingle moneys described in Section 4.01(a)
with, any other moneys hereunder. So long as any of the Bonds issued hereunder
are Outstanding the Issuer shall deposit, or cause to be paid to the Trustee for
deposit in the Bond Fund for its account, sufficient sums from the amounts
derived from the Agreement promptly to pay when due the principal of all Bonds
(whether at maturity, upon redemption or acceleration or otherwise), interest on
the Bonds and the purchase price of the Bonds as the same become due and
payable, except that all payments shall be limited as provided in Section 2.01
and the Issuer makes no representation or warranty that the amount deposited
will be adequate to make all payments when due.
Section 4.04. Use of Moneys in Bond Fund. Except as provided in Section
4.06, moneys in the Bond Fund shall be used solely for the payment of the
principal of and interest on the Bonds as the same shall become due and payable
whether at maturity, upon redemption or otherwise and for the purchase price of
the Bonds as the same shall become due, and the Trustee shall make such payment
in accordance with the provisions of the Bonds and this Indenture; provided,
however, that to the extent such principal, interest or purchase price is paid
with proceeds of a drawing under the Letter of Credit and the Parent does not
reimburse the Bank directly, the Trustee shall promptly reimburse the Bank from
funds on deposit in the Bond Fund (other than Remarketing Proceeds or proceeds
from a drawing on the Letter of Credit).
Section 4.05. Custody of Bond Fund. The Bond Fund shall be held in the
custody of the Trustee but in the name of the Issuer. The Issuer hereby
authorizes and directs (a) the Trustee to withdraw sufficient funds from the
Bond Fund to pay the principal of, interest on and the purchase price of the
Bonds as the same become due and payable, and to withdraw from the Bond Fund
funds sufficient to pay any other amounts payable therefrom as the same become
due and payable; provided however, that to the extent such principal, interest
or purchase price is paid with proceeds of a drawing under the Letter of Credit
and the Parent does not reimburse the Bank directly, the Trustee shall promptly
reimburse the Bank from funds on deposit in the Bond Fund other than Remarketing
Proceeds to be paid to former holders or proceeds from a drawing on the Letter
of Credit.
Section 4.06. Moneys To Be Held in Trust. All money that the Trustee
shall have withdrawn from the Bond Fund or shall have received from any other
source and set aside for the purpose of paying any of the Bonds hereby secured,
either at the maturity thereof or by purchase (other than as provided in Section
3.08 hereof) or call for redemption or for the purpose of paying any interest on
the Bonds hereby secured, shall be held in trust by the Trustee for the
respective Holders. Moneys received by the Remarketing Agent or Trustee from the
sale of a Bond under Section 3.08 or from the purchase of any Bond shall be held
segregated from other funds held by the Remarketing Agent or Trustee in trust
for the benefit of the person from whom such Bond was purchased and shall not be
invested while so held. Any money that is so set aside or transferred and that
remains unclaimed by the Holders for the escheat period provided by State law
shall be treated as abandoned property, and the Trustee shall report and remit
this property according to the requirements of State law and thereafter the
Holders shall look only to the appropriate State agency or official for payment
and then only to the extent of the amounts so received, without any interest
thereon, and the Trustee and the Issuer shall have no responsibility with
respect to such money.
Section 4.07. Payment to Company From Bond Fund. After payment in full
of the principal of and interest on the outstanding Bonds, the fees, charges and
expenses of the Issuer, the Trustee, the Remarketing Agent and the Bank
(including without limitation the fees and expenses of their respective counsel)
and all other amounts required to be paid hereunder, including payments of
rebatable arbitrage, any amounts remaining in the Bond Fund shall be paid
immediately to the Company.
Section 4.08. Investment of Moneys. To the extent permitted by law, the
Trustee shall invest and reinvest moneys held by it representing proceeds of
drawings under the Letter of Credit and Available Moneys on deposit in the Bond
Fund only in U.S. Government obligations (or in a mutual fund composed solely of
U.S. Government Obligations) maturing at such times as such amounts will be
needed for the purposes thereof. Unclaimed moneys held by the Trustee under
Section 4.06 shall be held uninvested by the Trustee.
The Trustee may make investments permitted by this Article through or
from their own bond departments or the bond departments of any bank or trust
company under common control with the Trustee. Investments shall be registered
in the name of the Trustee, or its nominee and held by or under the control of
the Trustee. The Trustee shall sell and reduce to cash a sufficient amount of
investments whenever the cash held by them is insufficient. The Issuer
represents that it will take no action that would cause moneys held by the
Trustee in connection with the Bonds to be used in a manner that would cause the
Bonds to be classified as "arbitrage bonds" within the meaning of Section 148 of
the Code.
<PAGE>
ARTICLE V
LETTER OF CREDIT
Section 5.01. Requirements for Letter of Credit. In order to secure its
obligations under the Agreement, pursuant to Section 4.7 of the Financing
Agreement, the Company has agreed (a) upon the initial authentication and
delivery of the Bonds, to deliver to the Trustee the Letter of Credit, issued by
the Bank in favor of the Trustee and for the benefit of the holders of the
Bonds; and (b) to ensure that so long as any Bonds remain outstanding, a Letter
of Credit shall be in effect with respect to such Bonds with terms substantially
conforming to those of the original Letter of Credit.
Section 5.02. Draws on Letter of Credit; Extensions.
(a) The Trustee shall make timely draws in accordance with the Letter
of Credit such that timely payment under Section 4.01 is made without resort to
the sources of payment described in Subsections (c) and (d) of Section 4.01.
Such draws shall be in amounts equal to the total principal and interest due on
redemption price, or purchase price payable with respect to, the Bonds, less the
amounts (if any) available under Subsection (a) of Section 4.01. If any such
draws are made on a Mandatory Repurchase Date in connection with the delivery of
a Substitute Letter of Credit, such draws shall be made under the existing
Letter of Credit and not on the Substitute Letter of Credit. The Trustee shall
make such draws in such a fashion as to be able to obtain by 3:15 p.m. and to
make such payment when due in accordance with this Indenture and the Bonds.
(b) In drawing on the Letter of Credit, the Trustee will be acting on
behalf of the Bondholders by facilitating payment of the Bonds and not on behalf
of the Issuer or Company and shall not be subject to the control of either.
Proceeds of draws on the Letter of Credit shall be held in the Bond Fund.
(c) The Trustee shall advise the Company and the Parent by telecopy or
telex on the date of each draw on the Letter of Credit of the amount and date of
such draw and of the reason for such draw.
(d) For extensions of the term of the Letter of Credit, the Trustee
shall, at the direction of a Company Representative, but only if required to
evidence an extension of the term of the Letter of Credit, surrender the Letter
of Credit to the Bank in exchange for a new Letter of Credit of the Bank or the
Letter of Credit with notations thereon, as the Bank may so elect, conforming in
all material respects to the Letter of Credit except that the expiration date
shall be extended. Any such extension shall be for a period of at least one year
or, if less, until the 15th day following the maturity date of the Bonds.
Section 5.03. Substitute Letter of Credit.
(a) At any time while a Letter of Credit is in effect with respect to
the Bonds, upon at least 60 days' prior written notice to the Trustee and the
Remarketing Agent, the Company may, subject to the approval of the Remarketing
Agent, provide for the delivery to the Trustee of a substitute Letter of Credit
complying with the provisions of this Indenture (the "Substitute Letter of
Credit"), which shall be effective upon acceptance by the Trustee. Any
Substitute Letter of Credit shall have a stated expiration date of at least one
year following the effective date thereof.
(b) On or before the date of delivery of any Substitute Letter of
Credit to the Trustee, as a condition to the acceptance by the Trustee of such
Substitute Letter of Credit, the Company shall furnish to the Trustee:
An opinion of Counsel addressed to the Trustee to the effect that (A)
the Substitute Letter of Credit is the valid and binding obligation of the
issuer thereof enforceable against such issuer in accordance with its terms
except insofar as its enforceability may be limited by any insolvency or similar
proceedings applicable to the issuer or by proceedings affecting generally the
rights of the issuer's creditors or by general equitable principles; (B)
payments of principal, interest or purchase price on the Bonds from the proceeds
of a draw on the Substitute Letter of Credit will not constitute avoidable
preferences under any applicable bankruptcy, reorganization, insolvency or other
similar laws; and (C) the Substitute Letter of Credit does not constitute a
separate security requiring registration under any applicable federal or state
securities laws. In the case of a Substitute Letter of Credit issued by a branch
or agency of a foreign commercial bank, there shall also be delivered an opinion
of Counsel from a firm licensed to practice law in the jurisdiction in which the
head office of such bank is located, addressed to the Trustee, to the effect
that the Substitute Letter of Credit is the valid and binding obligation of such
bank, enforceable against such bank in accordance with its terms, subject to the
limitations referred to in Section 5.03(b)(i)(A) above;
(ii) written evidence that the issuer of the Substitute Letter of
Credit meets the requirements for an issuer of a Letter of Credit as set forth
in the definition of Letter of Credit;
(iii) an opinion of Bond Counsel addressed to the Trustee to the effect
that the delivery and acceptance of such Substitute Letter of Credit is
authorized under this Indenture and its delivery and acceptance will not
adversely affect the exclusion from gross income of the interest on the Bonds
for federal income tax purposes;
(iv) written approval by the Remarketing Agent of the delivery of
the Substitute Letter of Credit; and
(v) a letter from each Rating Agency or, in the event the Bonds are not
then rated, other written evidence satisfactory to the Trustee and the
Remarketing Agent, stating whether or not the acceptance of the Substitute
Letter of Credit will result in a Credit Modification.
The Trustee shall accept any such Substitute Letter of Credit only in
accordance with the terms, and upon satisfaction of the conditions, contained in
this Section and any other applicable provisions of this Indenture. If
acceptance of the Substitute Letter of Credit results in the occurrence of a
Mandatory Repurchase Date, the Trustee shall not terminate or surrender the
Letter of Credit until the Trustee shall have made such drawings thereunder, if
any, as shall be required under the Indenture to provide for payment of the
purchase price of the Bonds, and shall have received the proceeds of such
drawing from the Bank.
(c) Not more than 60 days and not less than 15 days prior to the
effective date of the Substitute Letter of Credit, the Trustee shall, in
addition to the notice required by Section 12.01(b), send by registered or
certified mail, to each holder of the Bonds, notice of the issuance of the
Substitute Letter of Credit, which notice shall include (i) the identity of the
issuer thereof, (ii) the date the Substitute Letter of Credit will be effective,
(iii) whether the Substitute Letter of Credit will result in a Credit
Modification and (iv) if applicable, notice pursuant to Section 3.07 that the
Bonds are subject to mandatory repurchase pursuant to Section 3.07.
Section 5.04. Enforcement of the Letter of Credit. The Trustee shall
hold and maintain the Letter of Credit for the benefit of the Owners of the
Bonds until the Letter of Credit terminates or expires in accordance with its
terms.
When the Letter of Credit terminates or expires in accordance with its
terms, the Trustee shall immediately surrender it to the Bank. Except in the
case of a redemption in part pursuant to Article III hereof or any other
reduction in the principal amount of Bonds outstanding, the Trustee shall not
request that the Bank reduce the amount of the Letter of Credit. If at any time,
all Bonds shall cease to be outstanding, the Trustee shall surrender the Letter
of Credit to the Bank in accordance with the terms thereof.
If at any time the Bank fails to honor a draft presented under the
Letter of Credit in conformity with the terms thereof, the Trustee shall give
immediate telephonic notice thereof to the Remarketing Agent and the Company.
<PAGE>
ARTICLE VI
COVENANTS
Section 6.01. Payment of Bonds. The Issuer shall promptly pay, or cause
to be paid, the principal of, whether at maturity, by acceleration, call for
redemption, or otherwise, and purchase price and interest on the Bonds, to the
Trustee for payment to the registered owners of the Bonds on the dates and in
the manner provided herein authorizing the issuance thereof and in the Bonds,
according to the true intent and meaning thereof, but subject to the limitations
set forth in Section 2.01(a) hereof.
Section 6.02. Covenants and Representations of Issuer. The Issuer shall
observe and perform all covenants, conditions and agreements on its part
contained in this Indenture, in every Bond executed, authenticated and delivered
hereunder and in all of its proceedings pertaining thereto; provided, however,
that the liability of the Issuer under any such covenant, condition or agreement
for any breach or default by the Issuer thereof or thereunder shall be limited
solely to the Receipts and Revenues of the Issuer from the Agreement. The Issuer
represents that it is duly authorized under the Constitution and laws of the
State, including particularly and without limitation the Act, to issue the Bonds
authorized by this Indenture and to execute this Indenture, to assign the
Financing Agreement and the Note and to pledge the Receipts and Revenues of the
Issuer from the Agreement in the manner and to the extent herein set forth; that
all action on its part with respect to the issuance of the Bonds and the
execution and delivery of this Indenture duly and effectively has been taken;
and that the Bonds in the hands of the owners thereof are and will be valid and
enforceable limited obligations of the Issuer according to the terms thereof
except as limited by bankruptcy and usual equity principles.
Section 6.03. Further Assurances. The Issuer shall execute and deliver
such supplemental indentures and such further instruments, and do such further
acts, as the Trustee may reasonably require for the better assuring, assigning
and confirming to the Trustee the amounts assigned under this Indenture for the
payment of the Bonds.
<PAGE>
ARTICLE VII
DISCHARGE OF INDENTURE
Section 7.01. Bonds Deemed Paid; Discharge of Indenture. All Bonds
shall be deemed paid for all purposes of this Indenture when
(a) payment of the greater of the principal of and the maximum amount
of interest that may become due on the Bonds to the due date of such principal
and interest (whether at maturity, upon redemption, acceleration or otherwise)
and the payment of the purchase price of any Bond that may be optionally
tendered by the owner either (i) has been made in accordance with the terms of
Section 3.07(c) or (ii) has been provided for by depositing with the Trustee (A)
moneys sufficient to make such payment, which moneys must comply with the
provisions of Section 4.01(b) or (c) and/or (B) noncallable U.S. Government
Obligations maturing as to principal and interest in such amounts and at such
times as will insure the availability of sufficient moneys to make such payment
without regard to the reinvestment thereof, provided that (i) such U.S.
Government Obligations must be purchased from Available Moneys and (ii) the
Trustee shall have received written evidence from each Rating Agency, if any,
rating the Bonds that as a result of such action, their rating on the Bonds will
not be lowered or eliminated; and
(b) all compensation and expenses of the Issuer and the Trustee (as
well as the fees and expenses of their Counsel) pertaining to each Bond in
respect of which such payment or deposit is made have been paid or provided for
to the respective satisfaction of the Trustee.
When a Bond is deemed paid, it shall no longer be secured by or
entitled to the benefits of this Indenture, except for payment from moneys or
U.S. Government Obligations under (a)(ii) above and except that it may be
optionally tendered if and as provided in Section 3.07(b) and it may be
transferred, exchanged, registered, discharged from registration or replaced as
provided in Article II.
Notwithstanding the foregoing, no deposit under (a)(ii) above made for
the purpose of paying the redemption price of a Bond (as opposed to the final
payment thereof upon maturity) will be deemed a payment of a Bond as aforesaid
until (x) notice of redemption of the Bond is given in accordance with Article
III or, if the Bond is not to be redeemed within the next 60 days, until the
Company has given the Trustee, in form satisfactory to the Trustee, irrevocable
instructions to notify, as soon as practicable, the holder of the Bond, in
accordance with Article III, that the deposit required by (a)(ii) above has been
made with the Trustee and that the Bond is deemed to be paid under this Article
and stating the redemption date upon which moneys are to be available for the
payment of the principal of the Bond or (y) the maturity of the Bond.
Additionally, and while the deposit under clause (a)(ii) above made for the
purpose of paying the final payment of a Bond upon its maturity will be deemed a
payment of such Bond as aforesaid, the Trustee shall mail notice to the Owner of
such Bond, as soon as practicable, stating that the deposit required by (a)(ii)
above has been made with the Trustee and that the Bond is deemed to be paid
under this. Article.
When all Outstanding Bonds are deemed paid under the foregoing
provisions of this Section and other sums due hereunder, under the Agreement and
the Remarketing Agreement are paid, the Trustee shall upon request acknowledge
the discharge of the Issuer's obligations under this Indenture except for
obligations relating to optional tender as provided in Section 3.07(b),
obligations under Article II in respect of the transfer, exchange, registration,
discharge from registration and replacement of Bonds, and obligations under
Section 9.06 hereof with respect to the Trustee's compensation and
indemnification, and the Trustee without further direction shall surrender the
Letter of Credit to the Bank, in accordance with the terms of the Letter of
Credit. Bonds delivered to the Trustee for payment shall be canceled by the
Trustee pursuant to Section 2.07.
A Company Representative shall direct the deposit, investment and use
of the moneys and securities described in this Section such that no deposit will
be made and no use made of any such deposit which would cause any Bonds to be
treated as "arbitrage bonds" within the meaning of Section 148 of the Code.
Before accepting or using any such deposit, the Trustee may request an opinion
of Bond Counsel as to whether such use or acceptance would cause the Bonds to be
so treated and that all conditions hereunder have been satisfied, and the
Trustee may conclusively rely on such opinion with regard thereto.
The Trustee may request a certificate of an independent certified
public accountant to the effect that a deposit will be sufficient to defease the
Bonds as provided in this Section 7.01.
Upon receipt of any amount pursuant to this Article VII, the Trustee
shall give written notice thereof, which notice shall include, without
limitation, the amount of such deposit and any instructions given to the Trustee
pursuant thereto, to the Remarketing Agent by first-class mail, postage prepaid.
Section 7.02. Application of Trust Money. The Trustee shall hold in
trust money or U.S. Government Obligations deposited with it pursuant to the
preceding Section and shall apply the deposited money and the money from the
U.S. Government Obligations in accordance with this Indenture only to the
payment of principal of, interest on, or purchase prince of, the Bonds.
<PAGE>
ARTICLE VIII
DEFAULTS AND REMEDIES
Section 8.01. Events of Default. Each of the following events shall be
an Event of Default:
(a) Default in the due and punctual payment of any interest on any
Bond;
(b) Default in the due and punctual payment of the principal
of any Bond (whether at maturity, by acceleration or redemption, upon
purchase or otherwise);
(c) Subject to the provisions of Section 8.11, default in the
observance or performance of any other of the covenants, conditions or
agreements on the part of the Issuer under the Indenture or in the Bonds;
(d) Receipt by the Trustee of notice from the Bank that an Event of
Default has occurred under the Reimbursement Agreement accompanied by a demand
by the Bank that the Trustee declare the Bonds to be immediately due and
payable; or
(e) The occurrence of an Event of Default under the Financing
Agreement.
Section 8.02. Acceleration and Duty to Draw on Letter of Credit.
(a) Upon the occurrence of an Event of Default under Section 8.01(a),
(b) or (d) hereof, the Trustee shall, by notice to the Issuer, the Holders, the
Bank, the Remarketing Agent and the Company, declare the entire unpaid principal
of and interest on the Bonds immediately due and payable and, thereupon, the
entire unpaid principal of and interest on the Bonds shall forthwith become
immediately due and payable. Upon the occurrence of any other Event of Default,
the Trustee may and, if requested by the holders of 25% in aggregate principal
amount of Bonds then Outstanding, shall, by notice to the Issuer, the Holders,
the Bank, the Remarketing Agent and the Company, declare the entire unpaid
principal of and interest on the Bonds immediately due and payable and,
thereupon, the entire unpaid principal of and interest on the Bonds shall
forthwith become due and payable; provided, however, that anything in this
Article VIII to the contrary, so long as the Bank has honored all proper
drawings under the Letter of Credit, without the prior written consent of the
Bank, the Trustee shall not have the right to declare the principal of all Bonds
and the interest accrued thereon to become immediately due and payable as a
result of the occurrence.of an Event of Default under Section 8.01(c) or (e).
Upon any such declaration the Issuer shall forthwith pay to the holders of the
Bonds the entire unpaid principal of and accrued interest on the Bonds, but only
from the revenues and receipts herein specifically pledged for such purpose.
Upon the occurrence of an Event of Default specified in Section 8.01 and a
declaration of acceleration hereunder, the Trustee as assignee of the Issuer
shall immediately exercise its right under the Note and the Agreement to declare
all installments on the Note to be immediately due and payable. In the event the
Trustee fails to accelerate as required by this Section 8.02(a), the owners of a
majority in aggregate principal amount of Bonds outstanding shall have the right
to take such actions.
(b) Upon the acceleration of the maturity of the Bonds, by declaration
or otherwise, the Trustee shall immediately draw upon the Letter of Credit for
the aggregate unpaid principal amount of the Bonds and all interest accrued
thereon, which shall be applied immediately as set forth in Section 8.03. Upon
such acceleration, interest on the Bonds shall cease to accrue as of the date of
declaration of such acceleration.
Section 8.03. Disposition of Amounts Drawn on Letter of Credit;
Assignment of Rights to Contest.
(a) All amounts drawn on the Letter of Credit by the Trustee in
accordance with Section 8.02(b) shall be held by the Trustee in the Bond Fund
(and invested in accordance with Section 4.08), shall be applied immediately to
the payment of principal and interest accrued on the Bonds.
(b) The Trustee hereby assigns to the Bank all its rights to contest or
otherwise dispute in the Trustee's name, place and stead and at the Bank's sole
election and cost any claim of preferential transfer made by a bankruptcy
trustee, debtor-in-possession or other similar official with respect to any
amount paid to the Trustee by or on behalf of the Company or the Issuer to be
applied to principal of or interest on the Bonds, to the extent of payments made
to the Trustee pursuant to a drawing under the Letter of Credit. The Trustee
shall cooperate with and assist the Bank in any such contest or dispute as the
Bank may reasonably request; provided, however, that the Bank shall reimburse
the Trustee for its reasonable costs incurred in connection with providing such
cooperation and assistance. The Trustee shall give the Bank prompt notice of any
claim of preferential transfer of which the Trustee has knowledge. The foregoing
assignment shall not be deemed to confer upon the Bank any right to contest or
otherwise dispute any claim of preferential transfer with respect to any amount
as to which there has been no drawing under the Letter of Credit. The assignment
set forth above shall in no event be effective until the Bank shall have first
furnished to the Trustee an agreement to indemnify the Trustee and the holders
of the Bonds against any claim, liability or damage that they might suffer by
reason of any such contest or dispute.
Section 8.04. Other Remedies; Rights of Bondholders. Upon the
occurrence of an Event of Default the Trustee, subject to the terms of this
Indenture, may proceed to protect and enforce its rights and the rights of the
Bondholders by mandamus or other suit, action or proceeding at law or in equity,
including but not limited to an action for specific performance of any agreement
herein contained or making a demand for payment from the Company and taking
action pursuant to any other document to which the Trustee is a party.
Upon the occurrence of an Event of Default, if requested to do so by
the holders of 25% in aggregate principal amount of Bonds then outstanding and
if indemnified as provided in Section 9.01(d), the Trustee, subject to the terms
of this Indenture, shall exercise such one or more of the rights and powers
conferred by this Article as the Trustee, upon being advised by counsel, shall
deem most expedient in the interests of the Bondholders.
No remedy conferred by this Indenture upon or reserved to the Trustee
or to the Bondholders is intended to be exclusive of any other remedy, but each
such remedy shall be cumulative and shall be in addition to any other remedy
given to the Trustee or to the Bondholders hereunder or now or hereafter
existing at law or in equity or by statute.
No delay or omission to exercise any right or power accruing upon any
default or Event of Default shall impair any such right or power or shall be
construed to be a waiver of any such default or Event of Default or acquiescence
therein, and every such right and power may be exercised from time to time and
as often as may be deemed expedient.
No waiver of any default or Event of Default hereunder, whether by the
Trustee pursuant to Section 8.10 or by the Bondholders, shall extend to or shall
affect any subsequent default or Event of Default or shall impair any rights or
remedies consequent thereon.
Section 8.05. Right of Bondholders To Direct Proceedings. Anything in
this Indenture to the contrary notwithstanding, the holders of a majority in
aggregate principal amount of Bonds then outstanding shall have the right, at
any time, by an instrument or instruments in writing executed and delivered to
the Trustee, to direct the method and place of conducting all proceedings to be
taken in connection with the enforcement of the terms and conditions of this
Indenture or for the appointment of a receiver or any other proceedings
hereunder; provided, however, that such direction shall not be otherwise than in
accordance with the provisions of law and of this Indenture.
Section 8.06. Application of Moneys. All moneys received by the Trustee
pursuant to any right given or action taken under the provisions of this Article
shall, after payment of the cost and expenses of the proceedings resulting in
the collection of such moneys and of the expenses, liabilities and advances
incurred or made by the Trustee and the fees and expenses, if any, of the Issuer
in carrying out this Indenture or the Agreement, be deposited in the Bond Fund;
provided, however, that no proceeds from any draw on the Letter of Credit shall
be used for any purpose other than payment of principal of and interest on the
Bonds or purchase thereof. All moneys in the Bond Fund shall be applied as
follows:
(a) Unless the principal of all the Bonds shall have become of shall
have been declared due and payable:
First - To the payment to the persons entitled thereto of all
installments of interest then due on the Bonds, in the order of the maturity of
the installments of such interest and, if the amount available shall not be
sufficient to pay in full any particular installment, then to the payment
ratably, according to the amounts due on such installment, to the persons
entitled thereto, without any discrimination or preference except as provided in
Section 8.13 and as to any difference in the respective rates of interest
specified in the Bonds;
Second - To the payment to the persons entitled thereto of the unpaid
principal of any of the Bonds which shall have become due (other than Bonds
called for redemption for the payment of which moneys are held pursuant to the
provisions of this Indenture), in the order of their due dates, with interest on
such Bonds at the respective rates specified therein from the respective dates
upon which they become due and, if the amount available shall not be sufficient
to pay in full Bonds due on any particular date, together with such interest,
then first to the payment of such interest ratably, according to the amount of
such interest due on such date, and then to the amount of such principal,
ratably, according to the amount of such principal due on such date, to the
persons entitled thereto, without any discrimination or preference except as
provided in Section 8.13 and as to any difference in the respective rates of
interest specified in the Bonds; and
Third - To the extent permitted by law, to the payment to the persons
entitled thereto of the unpaid interest on overdue installments of interest
ratably, according to the amounts of such interest due on such date, without any
discrimination or preference except as provided in Section 8.13 and as to any
difference in the respective rates of interest specified in the Bonds.
(b) If the principal of all the Bonds shall have become due or shall
have been declared due and payable, all such moneys shall be applied to the
payment of the principal and interest then due and unpaid upon the Bonds,
including to the extent permitted by law interest on overdue installments of
interest, without preference or priority of principal over interest or of
interest over principal, or of any installment of interest over any other
installment of interest, or of any Bond over any other Bond, ratably, according
to the amounts due respectively for principal and interest, to the persons
entitled thereto, without any discrimination or privilege except as provided in
Section 8.13.
(c) If the principal of all the Bonds shall have been declared due and
payable, and if such declaration shall thereafter have been rescinded and
annulled under the provisions of this Article, then, subject to the provisions
of subsection (b) of this Section in the event that the principal of all the
Bonds shall later become due or be declared due and payable, the moneys shall be
applied in accordance with the provisions of subsection (a) of this Section.
(d) All amounts received by the Trustee from a draw upon the Letter of
Credit shall be applied exclusively to the payment of principal of and interest
on the Bonds.
Whenever moneys are to be applied pursuant to the provisions of this
section, such moneys shall be applied at such times and from time to time as the
Trustee shall determine, having due regard to the amount of such moneys
available for application and the likelihood of additional moneys becoming
available for such application in the future. Whenever the Trustee shall apply
such moneys, it shall fix the date (which shall be an Interest Payment Date
unless it shall deem another date more suitable) upon which such application is
to be made. The Trustee shall give such notice as it may deem appropriate of the
deposit with it of any such moneys and of the fixing of any such date, and shall
not be required to make payment to the holder of any Bond until such Bond is
presented to the Trustee for appropriate endorsement or for cancellation if
fully paid.
Whenever all principal of and interest on all Bonds have been paid
under the provisions of this Section and all expenses and charges of the Trustee
and the Issuer have been paid, and all obligations of the Company to the Bank
pursuant to the Reimbursement Agreement have been paid in full the balance
remaining in the Bond Fund shall be paid to the Company as provided in Section
4.07.
Section 8.07. Remedies Vested in Trustee. All rights of action
(including the right to file proof of claims) under this Indenture or under any
of the Bonds may be enforced by the Trustee without the possession of any of the
Bonds or the production thereof in any trial or other proceeding relating
thereto and any such suit or proceeding instituted by the Trustee may be brought
in its name as Trustee without the necessity of joining as plaintiffs or
defendants any holders of the Bonds, and any recovery of judgment shall be for
the equal benefit of the holders of the outstanding Bonds.
Section 8.08. Limitations on Suits. Except to enforce the rights given
under Sections 8.02(a), 8.05 and 8.12, no holder of any Bond shall have any
right to institute any suit, action or proceeding in equity or at law for the
enforcement of this Indenture or for the execution of any trust thereof or any
other remedy hereunder, unless (a) a default has occurred of which the Trustee
has been notified as provided in Section 9.05, or of which by such Section it is
deemed to have notice, (b) such default shall have become an Event of Default
and the holders of at least 25% in aggregate principal amount of Bonds then
outstanding shall have made written request to the Trustee and shall have
offered it reasonable opportunity either to proceed to exercise the powers
hereinbefore granted or to institute such action, suit or proceeding in its own
name, (c) such holders have offered to the Trustee indemnity as provided in
Section 9.01(d), (d) the Trustee for 60 days after such notice shall fail or
refuse to exercise the powers hereinbefore granted, or to institute such action,
suit or proceeding in its own name or in the name of such holders, (e) no
direction inconsistent with such request has been given to the Trustee during
such 60 day period by the holders of a majority in aggregate principal amount of
Bonds then outstanding, and (f) notice of such action, suit or proceeding is
given to the Trustee; it being understood and intended that no one or more
holders of the Bonds shall have any right in any manner whatsoever to affect,
disturb or prejudice this Indenture by its, his or their action or to enforce
any right hereunder except in the manner herein provided, and that all
proceedings at law or in equity shall be instituted and maintained in the manner
herein provided and for the equal benefit of the holders of all Bonds then
outstanding.
The notification, request and offer of indemnity set forth in the
preceding paragraph, at the option of the Trustee, shall be conditions precedent
to the execution of the powers and trusts in this Indenture and to any action or
cause of action for the enforcement of this Indenture or for any other remedy
hereunder.
Section 8.09. Termination of Proceedings. In case the Trustee shall
have proceeded to enforce any right under this Indenture by the appointment of a
receiver, by entry or otherwise, and such proceedings shall have been
discontinued or abandoned for any reason, or shall have been determined
adversely, then.and in every such case the Issuer, the Company, the Bondholders
and the Trustee shall be restored to their former positions and rights
hereunder, and all rights, remedies and powers of the Trustee shall continue as
if no such proceedings had been taken.
Section 8.10. Waivers of Events of Default. The Trustee, with the
written consent of the Bank, may waive any Event of Default hereunder and its
consequences and rescind any declaration of maturity of principal of and
interest on the Bonds and the Note, and shall do so with the consent of the
Bank, upon the written request of the holders of (a) a majority in aggregate
principal amount of Bonds then outstanding in respect of which default in the
payment of principal and/or interest exists, or (b) a majority in aggregate
principal amount of Bonds then outstanding in the case of any other default;
provided, however, that:
(1) there shall not be waived without the consent of the holders of all
Bonds then outstanding:
(A) any default in the payment of the principal of any
outstanding Bonds when due (whether at maturity or by mandatory or optional
redemption), or
(B) any default in the payment when due of the interest on any such
Bonds unless, prior to such waiver or rescission:
(i) there shall have been paid or provided for all arrears of interest
at the rate borne by the Bonds on overdue installments of principal, all arrears
of payments of principal when due and all expenses of the Trustee in connection
with such default, and
(ii) in case of any such waiver or rescission, or in case of the
discontinuance, abandonment or adverse determination of any proceeding taken by
the Trustee on account of any such default, the Trustee and the Bondholders
shall be restored to their respective former positions and rights hereunder;
(2) no declaration of maturity under Section 8.02 made at the request
of the holders of 25% in aggregate principal amount of Bonds then outstanding
shall be rescinded unless requested by the holders of a majority in aggregate
principal amount of Bonds then outstanding; and
(3) unless the Trustee has received written evidence that the Letter of
Credit is reinstated in full as to principal and interest, there shall be no
waiver or rescission if the Letter of Credit shall have been drawn upon due to
the occurrence of an Event of Default.
No such waiver or rescission shall extend to any subsequent or other
default, or impair any right consequent thereon.
Section 8.11. Notice of Defaults; Opportunity of Company to Cure
Defaults. Anything contained in this Indenture to the contrary notwithstanding,
no default specified in Section 8.01(c) on the part of the Issuer shall
constitute an Event of Default until (a) notice of such default shall be given
(1) by the Trustee to the Issuer, the Bank and the Company or (2) by the holders
of 25% in aggregate principal amount of Bonds then outstanding to the Trustee,
the Issuer, the Bank and the Company, and (b) the Issuer and the Company shall
have had 30 days after such notice to correct such default or cause such default
to be corrected, and shall not have corrected such default or caused such
default to be corrected within such period; provided, however, if any default
specified in Section 8.01(c) shall be such that it cannot be corrected within
such period, it shall not constitute an event of default if corrective action is
instituted by the Issuer or the Company within such period and diligently
pursued until such default is corrected; provided, further, that the period for
corrective action shall not in any event extend more than 180 days after such
notice to correct such default.
With regard to any alleged default concerning which notice is given to
the Company, the Company may, but is under no obligation to, perform any
covenant, condition or agreement the nonperformance of which is alleged in such
notice to constitute a default, in the name and stead of the Issuer with full
power to do any and all things and acts to the same extent that the Issuer could
do and perform any such things and acts with power of substitution.
Section 8.12. Unconditional Right To Receive Principal and Interest.
Nothing in this Indenture shall, however, affect or impair the right of any
Bondholder to enforce, by action at law, payment of the principal or purchase
price of or interest on any Bond at and after the maturity thereof, or on the
date fixed for redemption or purchase or (subject to the provisions of Section
8.02) on the same being declared due prior to maturity as herein provided, or
the obligation of the Issuer to pay the principal or purchase price of and
interest on each of the Bonds issued hereunder to the respective holders thereof
at the time, place, from the source and in the manner herein and in the Bonds
expressed.
Section 8.13. Bonds Outstanding. In the event the Bonds are held under
a book entry system, the securities depositary shall provide the Trustee, upon
request of the Trustee, the names, addresses and principal amount of the
Beneficial Owners of the Bonds. Subject to the provisions of Section 8.14, such
Beneficial Owners shall be treated in all respects as the holders of the Bonds
for purposes of this Article, and the Trustee shall send notices to such
Beneficial owners as required by this Article. Notwithstanding anything else in
this Article to the contrary, Company Bonds shall not be deemed to be
outstanding for purposes of this Article and the Company as holder thereof shall
not be entitled to any rights or payments therefor pursuant to Sections 8.05,
8.06, 8.08 and 8.10.
Section 8.14. Bank Deemed Holder. For all purposes of this Article VIII
(other than receipt of payments), the Bank shall, so long as the Letter of
Credit shall not have been dishonored (other than for a reason permitted by the
Letter of Credit), be deemed the holder and registered owner of all Bonds. As
such, the Bank may take all actions permitted by this Article VIII to be taken
by the holders or Beneficial Owners of the Bonds, to the exclusion of the actual
holders and Beneficial Owners of the Bonds; the purpose of this Section 8.14
being to permit the Bank to direct the taking of actions and enforcement of
remedies permitted by this Article VIII so long as the Letter of Credit shall
not have been dishonored (other than for a reason permitted by the Letter of
Credit).
<PAGE>
ARTICLE IX
TRUSTEE AND REMARKETING AGENT
Section 9.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise its rights and powers and use the same degree of care and skill
in its exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) 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
(ii) in the absence of bad faith, gross negligence or willful
misconduct on its part, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed, upon certificates
or opinions furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates and opinions to
determine whether they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own grossly
negligent action, its own grossly negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of (b) above;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee was
grossly 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 8.05.
(d) The Trustee may refuse to perform any duty or exercise any right or
power unless it receives indemnity reasonably satisfactory to it against any
loss, liability or expense, but the Trustee may not require indemnity as a
condition to declaring the principal of and interest on the Bonds to be due
immediately under Section 8.02 or to drawing on the Letter of Credit or to
taking action under the Letter of Credit. The Trustee shall not be required to
give any bond or surety in respect of the execution of the trust created hereby
or the powers granted hereunder.
(e) The Trustee shall not be liable for interest on any cash held by it
except as the Trustee may agree with the Company or with the Issuer with the
consent of the Company.
(f) The Trustee may conclusively rely on a Company
Representative's certificate as to whether a Bankruptcy Filing has occurred.
(g) The Trustee shall strictly comply with the terms of the Letter
of Credit.
(h) The Trustee shall maintain adequate records pertaining to the funds
held by the Trustee, the investment thereof and the disbursement therefrom;
notwithstanding anything to the contrary in this Indenture or the Agreement, the
Trustee shall not be required to advance its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder.
(i) Every provision of this Indenture that in any way relates
to the Trustee is subject to all the foregoing paragraphs of this Section.
(j) The Trustee shall in no event be responsible for ensuring that the
rate of interest due and payable on the Bonds under this Indenture does not
exceed the highest legal rate of interest permissible under federal or state law
applicable thereto.
Section 9.02. Rights of Trustee.
(a) Subject to the foregoing Section, including, but not limited to,
Sections 9.01(b)(ii) and 9.01(c), the Trustee may rely on any document believed
by it to be genuine and to have been signed or presented by the proper person.
The Trustee need not investigate any fact or matter stated in the document. Any
action taken by the Trustee pursuant to this Indenture upon the request or
authority or consent of any person, who at the time of making such request or
authority or consent is the owner of any Bond, shall be conclusive and binding
upon all future owners of any Bond issued in replacement thereof.
(b) Before the Trustee acts or refrains from acting, it may require a
certificate of an appropriate officer or officers of the Issuer or the Company
or an opinion of Counsel stating that (i) the person making such certificate or
opinion has read such covenant or condition; (ii) the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based; (iii) 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 (iv) a statement as to whether or not, in the opinion of
such person, such condition or covenant has been complied with. The Trustee
shall not be liable for any loss or damage or action it takes or omits to take
in good faith in reliance on the certificate or opinion of Counsel.
(c) The Trustee may execute any of the trusts or powers hereunder and
perform any of its duties through agents, attorneys or employees or co-trustees
and shall not be responsible for the misconduct or negligence of any agent,
attorney, employee or co-trustee appointed with due care.
Section 9.03. Individual Rights of Trustee, Etc. The Trustee in its
individual or any other capacity may become the owner, custodian or pledgee of
Bonds and may otherwise deal with the Issuer, the Bank or with the Company or
its affiliates with the same rights it would have if it were not Trustee.
Section 9.04. Trustee's Disclaimer. Subject to Sections 9.01(b) and
9.01(c):
(a) the Trustee makes no representation as to the validity or adequacy
of this Indenture or the Bonds, and it shall not be responsible for any
statement in the Bonds or for the perfection of any lien created by this
Indenture or otherwise as security for the Bonds;
(b) the Trustee may construe any of the provisions of this Indenture
insofar as same may appear to be ambiguous or inconsistent with any other
provision hereof, and any construction of any such provisions hereof by Trustee
in good faith shall be binding upon the Bondholders, the Issuer, the Company and
the Remarketing Agent;
(c) the Trustee shall not be responsible for the application of any of
the proceeds of the Bonds or any other moneys deposited with it and paid out,
withdrawn or transferred hereunder if such application, payment, withdrawal or
transfer shall be made in accordance with the provisions of this Indenture;
(d) the Trustee shall not be under any obligation to see to the
recording or filing of this Indenture, the Agreement, any financing statements
or any other instrument or otherwise to the giving to any person of notice of
the provisions hereof or thereof; and
(e) the Trustee shall not be under any obligation to effect or maintain
insurance or to renew any policies of insurance or to inquire as to the
sufficiency of any policies of insurance carried by the Company, or to report,
or make or file claims or proof of loss for, any loss or damage insured against
or that may occur, or, to keep itself informed or advised as to the payment of
any taxes or assessments, or to require any such payment to be made.
Section 9.05. Notice of Defaults. The Trustee shall not be required to
take notice, or be deemed to have notice, of any default or Event of Default
under this Indenture, other than an Event of Default under Section 8.01(a), (b)
or (d), unless specifically notified in writing at such address as set forth in
Section 12.01 hereof of such default or Event of Default by the holders of at
least 25% in principal amount of the Bonds then Outstanding, by the Bank, by the
Remarketing Agent or by the Company.
If an event occurs that with the giving of notice or lapse of time or
both would be an Event of Default, and if the event is continuing and if the
Trustee has actual notice or is deemed to have notice thereof as herein
provided, the Trustee shall mail to each Bondholder, the Remarketing Agent and
the Bank notice of the event upon such occurrence. Except in the case of a
default in payment or purchase of any Bonds, the Trustee may withhold the notice
if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of Bondholders;
provided that, in any event such notice shall not be withheld from the Bank or
the Remarketing Agent.
Section 9.06. Compensation and Indemnification of Trustee. For acting
under this Indenture, the Trustee shall be entitled to compensation by the
Company (which shall not be limited by any statute regulating the compensation
of a trustee of an express trust) of reasonable fees for the Trustee's services
and reimbursement of advances, counsel fees and other expenses reasonably and
necessarily made or incurred by the Trustee in connection with its services
under this indenture.
The Trustee shall be indemnified by the Company for, and shall be held
harmless against, any loss, liability or expense incurred without gross
negligence, willful misconduct or bad faith on the Trustee's part, arising out
of or in connection with the acceptance or administration of the trust created
by this Indenture, including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder.
To secure the payment or reimbursement to the Trustee provided for in
this Section, the Trustee shall have a senior claim, to which the Bonds are made
subordinate, on all money or property held or collected by the Trustee, except
moneys held under Article VII or otherwise held in trust to pay principal of,
interest on and purchase price of the Bonds, and except amounts drawn under the
Letter of Credit and Available Moneys on deposit in the Bond Fund.
Section 9.07. Eligibility of Trustee. Each of the initial Trustee and
any successor Trustee at the time of its appointment shall: (i) be a corporation
or national banking association duly organized under the laws of the United
States of America or any state or territory thereof, doing business and having
an office in such location as shall be approved by the Issuer and the
Remarketing Agent, (ii) have a combined capital and surplus of at least
$25,000,000 as set forth in its most recent published annual report of
condition, and (iii) be authorized by law to perform all the duties imposed upon
it by this Indenture.
Section 9.08. Replacement of Trustee. The Trustee may resign and be
discharged of the trust created by this Indenture by notifying the Issuer, the
Bank and the Company; provided, however, that no such resignation shall become
effective until the appointment of a successor trustee, as hereinafter provided.
The holders of not less than a majority in principal amount of the Bonds may
remove the Trustee by notifying the removed Trustee and may appoint a successor
Trustee with the Issuer's, the Bank's and the Company's prior written consent;
provided, however, that no such removal-shall become effective until the
appointment of a successor trustee, as hereinafter provided. The Issuer may, in
its sole discretion, and at the request of the Company shall, remove the
Trustee, but in the case where such removal is requested by the Company, only
after obtaining the prior written consent of the Bank. Upon the removal or
replacement of the Trustee for any reason, the Issuer and the Company shall give
written notice thereof to the Remarketing Agent and the Bank by first-class
mail, postage prepaid.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Issuer, with the prior written consent of
the Bank and the Company, shall, at the expense of the Company, use its best
efforts to appoint promptly a successor Trustee. Notice of such appointment
shall be given by the Issuer to the Remarketing Agent in writing by first-class
mail.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuer, the Bank, the Company and
the Remarketing Agent. Immediately thereafter, the retiring Trustee shall
transfer all property held by it as Trustee to the successor Trustee, the
resignation or removal of the retiring Trustee shall then (but only then) become
effective, and the successor Trustee shall have all the rights, powers and
duties of the Trustee under this Indenture. The successor Trustee shall notify
the holders of the Bonds of its acceptance of the trusts hereunder by
first-class mail promptly following such acceptance.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuer, the
Bank, the Company or the holders of a majority in principal amount of the Bonds
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 9.07, any Bondholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Section 9.09. Duties of Remarketing Agent.
(a) The Remarketing Agent shall, in accordance with the Remarketing
Agreement, determine the Weekly Rate on the Bonds and perform the other duties
provided for to be done by it in Section 2.02, Section 3.08, Section 4.01 and
Section 4.06. The Remarketing Agent may for its own account or as broker or
agent for others deal in Bonds and may do anything any other Bondholder may do
to the same extent as if the Remarketing Agent were not serving as such. The
Remarketing Agent shall have no duty to act hereunder to the extent the
Remarketing Agent is not required to perform its obligations under the
Remarketing Agreement.
(b) The Remarketing Agent may execute and perform any of its duties
hereunder through agents, attorneys, employees or co-remarketing agents and
shall not be responsible for the misconduct or negligence of any agent,
attorney, employee or co-remarketing agent appointed with due care.
Section 9.12. Eligibility of Remarketing Agent; Replacement. The
Remarketing Agent shall be a member of the National Association of Securities
Dealers, Inc. having excess net capital of at least $5,000,000 or, in the
alternative, a national banking association having a combined capital stock,
surplus and undivided profits of at least $50,000,000, and, if the Bonds are
rated by a Rating Agency, the Remarketing Agent must be rated at least Baa3/P-3
or otherwise be acceptable to the Rating Agency.
Crews and Associates, Inc. is hereby appointed as the initial
Remarketing Agent and is herein referred to as the "Remarketing Agent." Any
Remarketing Agent shall accept its appointment hereunder in writing. The
Remarketing Agent may resign by notifying the Issuer, the Company, the Trustee
and the Bank at least 45 days before the effective date of the resignation. The
Issuer, at the direction of the Company but only with the Bank's prior written
consent, which consent shall not be unreasonably withheld, shall, at any time
remove the Remarketing Agent as the Issuer's designee for determining interest
rates and appoint a successor by notifying the Remarketing Agent, the Bank and
the Trustee at least 60 days prior to the effective date of such removal. Upon
the resignation or removal of the Remarketing Agent, the Issuer, at the
direction of the Company, but only with the prior written consent of the Bank,
which consent shall not be unreasonably withheld, shall appoint a successor by
notifying the Remarketing Agent, the Bank and the Trustee, if the Remarketing
Agent resigns or is removed pursuant to the terms of this Indenture and, after
45 days in the case of resignation or 60 days in the case of removal, the Issuer
at the direction of the Company, has failed to appoint a successor Remarketing
Agent in accordance with the terms of this Section 9.12, the Company shall
immediately give notice thereof to the Trustee and shall direct the Trustee to
give notice to the holders of all Bonds of a mandatory repurchase of such bonds
pursuant to Section 3.07(a)(ii) hereof. Such mandatory repurchase shall take
place on the first Interest Payment Date to occur following such Notice of
Mandatory Repurchase by the Trustee (of if such date is not a Business Day, on
the next succeeding Business Day), unless such Mandatory Repurchase Date is a
date less than 15 days after such Notice of Mandatory Repurchase is given, in
which case such mandatory repurchase shall occur on the next succeeding Interest
Payment Date (or, if such date is not a Business Day, on the next succeeding
Business Day). Notwithstanding the foregoing, no such resignation or removal
shall be effective until either (i) the successor Remarketing Agent has
delivered an acceptance of its appointment to the Trustee or (ii) the Mandatory
Repurchase Date described above.
Section 9.10. [Reserved]
Section 9.11. Successor Trustee or Agent by Merger. If the Trustee or
the, Remarketing Agent consolidates with, merges or converts into, or transfers
all or substantially all its assets (or, in the case of a bank or trust company,
its corporate trust assets) to, another corporation or national banking
association, the resulting, surviving or transferee corporation or national
banking association without any further act shall be the successor Trustee, the
Remarketing Agent, provided that such corporation or national banking
association shall otherwise be eligible to serve in such capacity under this
Indenture.
Section 9.12. Appointment of Co-Trustee. It is the purpose of this
Indenture that there shall be no violation of any law of any jurisdiction
(including particularly the law of the State) denying or restricting the right
of banking corporations or associations to transact business as trustee in such
jurisdiction. It is recognized that in case of litigation under this Indenture
or the Agreement, and in particular in case of the enforcement thereof upon a
default or an Event of Default, or in case the Trustee deems that by reason of
any present or future law of any jurisdiction it may not exercise any of the
powers, rights or remedies herein granted to the Trustee or hold title to the
properties, in trust, as herein granted, or take any action which may be
desirable or necessary in connection therewith, it may be necessary that the
Trustee appoint an additional individual or institution as a separate or
co-trustee. The following provisions of this Section are adapted to these ends.
In the event that the Trustee appoints an additional individual or
institution as a separate or co-trustee, each and every remedy, power, right,
claim, demand, cause of action, immunity, estate, title, interest and lien
expressed or intended by this Indenture to be exercised by or vested in or
conveyed to the Trustee with respect thereto shall be exercisable by and vest in
such separate or co-trustee but only to the extent necessary to enable such
separate or co-trustee to exercise such powers, rights and remedies, and every
covenant and obligation necessary to the exercise thereof by such separate or
co-trustee shall run to and be enforceable by either of them; provided, however,
that no co-trustee shall be liable by reason of any act or omission of any other
such co-trustee.
Should any instrument in writing from the Issuer be required by the
separate or co-trustee so appointed by the Trustee for more fully and certainly
vesting in and confirming to him or it such properties, rights, powers, trusts,
duties and obligations, any and all such instruments in writing shall, on
request, be executed, acknowledged and delivered by the Issuer. In case any
separate or co-trustee or a successor to either shall die, become incapable of
acting, resign or be removed, all the estates, properties, rights, powers,
trusts, duties and obligations of such separate or co-trustee, so far as
permitted by law, shall vest in and be exercised by the Trustee until the
appointment of a new co-trustee or successor to such separate or co-trustee.
<PAGE>
ARTICLE X
AMENDMENTS OF AND
SUPPLEMENTS TO INDENTURE
Section 10.01. Without Consent of Bondholders. The Issuer and the
Trustee may amend or supplement this Indenture or the Bonds without prior notice
to or consent of any Bondholder:
(a) to cure any ambiguity, inconsistency or formal defect or
omission;
(b) to grant to the Trustee for the benefit of the Bondholders
additional rights, remedies, powers or authority;
(c) to subject to this Indenture additional collateral or to add
other agreements of the Issuer;
(d) to modify this Indenture or the Bonds to permit qualification under
the Trust Indenture Act of 1939, as amended, or any similar federal statute at
the time in effect; to permit the qualification of the Bonds for sale under the
securities laws of any state of the United States; or to prevent the application
of the Investment Company Act of 1940, as amended, to any of the transactions
contemplated by, or any of the parties to this Indenture, the Agreement or the
Bonds;
(e) to provide for uncertificated Bonds or to make any change
necessary to give effect to a custody agreement pursuant to Section 2.05(d);
(f) to evidence the succession of a new Trustee or the appointment
by the Trustee of a co-trustee;
(g) to make any change to reflect any provision in the Code or the
interpretations thereof by the Internal Revenue Service provided that such
change does not materially adversely affect the rights of any Bondholder;
(h) to make any change not materially adversely affecting any
Bondholder's rights requested by the Rating Agency in order (i) to obtain a
rating from the Rating Agency after the initial issuance of the Bonds if the
Bonds are initially issued without a rating equivalent to the rating assigned to
other securities supported by a Letter of Credit of the Bank or (ii) to maintain
any rating on the Bonds;
(i) to make any change not materially adversely affecting any
Bondholder's rights to provide for or to implement the provisions of a Letter
of Credit;
(j) to make any change to provide for or to implement the provisions of
a Letter of Credit only if such Letter of Credit and the changes to this
Indenture become effective on a Mandatory Repurchase Date;
(k) to make any change to be effective on any Mandatory Repurchase Date
provided that such change has been disclosed to all owners of Bonds who purchase
on such date;
(l) to make any change that does not materially adversely affect
the rights of any Bondholder;
(m) to add to this Indenture the obligation of the Trustee, the Issuer
or the Company to disclose such information regarding the Bonds, the Facility,
the Issuer, the Company or the Bank as shall be required or recommended to be
disclosed in accordance with applicable regulations or guidelines established
by, among others, the American Bankers Association Corporate Trust Committee; or
(n) to provide for the issuance of Additional Bonds under Section
2.09.
Section 10.02. With Consent of Bondholders. If an amendment of or
supplement to this Indenture or the Bonds without any consent of Bondholders is
not permitted by the preceding Section, the Issuer and the Trustee may enter
into such amendment or supplement without prior notice to any Bondholders but
with the consent of the holders of at least a majority in principal amount of
the Bonds then outstanding. However, without the consent of all Bondholders
affected, no amendment or supplement may (a) extend the maturity of the
principal of, or interest on, any Bond, (b) reduce the principal amount of, or
rate of interest on, any Bond or change the terms of any redemption, (c) effect
a privilege or priority of any Bond or Bonds over any other Bond or Bonds
(except as provided herein), (d) reduce the percentage of the principal amount
of the Bonds required for consent to such amendment or supplement, (e) impair
the exclusion from gross income for purposes of federal income taxation of
interest on any Bond, (f) eliminate the holders' rights to optionally tender the
Bonds, extend the due date for the purchase of Bonds optionally tendered by the
holders thereof or reduce the purchase price of such Bonds, (g) create a lien
ranking prior to or on a parity with the lien of this Indenture on the property
described in the Granting Clause of this Indenture or (h) deprive any Bondholder
of the lien created by this Indenture on such property. In addition, if moneys
or U.S. Government Obligations have been deposited or set aside with the Trustee
pursuant to Article VII for the payment of Bonds and those Bonds shall not have
in fact been actually paid in full, no amendment to the provisions of that
Article shall be made without the consent of the holder of each of those Bonds
affected.
Section 10.03. Effect of Consents. After an amendment or supplement
becomes effective, it shall bind every Bondholder unless it makes a change
described in any of the lettered clauses of the preceding Section. In such case,
the amendment or supplement shall bind each Bondholder who consented to it and
each subsequent holder of a Bond or portion of a Bond evidencing the same debt
as the consenting holder's Bond.
Section 10.04. Notation on or Exchange of Bonds. If an amendment or
supplement changes the terms of a Bond, the Trustee may request that the holder
deliver the Bond to it. The Trustee may place an appropriate notation on the
Bond regarding the changed terms and return it to the holder. Alternatively, if
the Trustee, the Issuer and the Company determine, the Issuer in exchange for
the Bond shall issue and the Trustee shall authenticate a new Bond that reflects
the changed terms. In either event, the cost of placing such notation on the
Bond(s) shall be borne by the Company.
Section 10.05. Signing by Trustee of Amendments and Supplements. The
Trustee shall sign any amendment or supplement to this Indenture or the Bonds
authorized by this Article if the amendment or supplement 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 an amendment or supplement,
the Trustee shall be entitled to receive and (subject to Section 9.01) shall be
fully protected in relying on an Opinion of Counsel stating that such amendment
or supplement is authorized by this Indenture and is duly authorized, executed
and delivered and enforceable in accordance with its terms.
Section 10.06. Company, Bank and Remarketing Agent Consent Required. An
amendment or supplement to this Indenture or the Bonds shall not become
effective unless the Company, the Remarketing Agent (but only to the extent that
such amendment affects the rights, duties or obligations of the Remarketing
Agent hereunder) and the Bank deliver to the Trustee their written consents to
the amendment or supplement. In any event, no amendment or supplement hereto
shall become effective until the Remarketing Agent acknowledges receipt of a
copy of such supplement or amendment.
Section 10.07. Notice to Bondholders. The Trustee shall cause notice of
the execution of a supplemental indenture to be mailed promptly by first-class
mail to each Bondholder at the holder's registered address. The notice shall
state briefly the nature of the supplemental indenture and that copies thereof
are on file with the Trustee for inspection by all Bondholders.
Section 10.08. Opinion of Bond Counsel Required. An amendment or
supplement to this Indenture shall not become effective unless the Trustee has
received an opinion of Bond Counsel addressed to the Trustee, the Bank, the
Company and the Remarketing Agent to the effect that the amendment or supplement
will not impair the exclusion of interest on the Bonds from the gross income of
the recipients thereof for purposes of federal income taxation.
<PAGE>
ARTICLE XI
AMENDMENTS OF AND SUPPLEMENTS TO AGREEMENT
Section 11.01. Without Consent of Bondholders. The Issuer, with the
consent of the Company, may enter into, and the Trustee may consent to, any
amendment of or supplement to the Agreement or the Note, without prior notice to
or consent of any Bondholder, if the amendment or supplement is required (a) by
the provisions of the Agreement or this Indenture, (b) to cure any ambiguity,
inconsistency or formal defect or omission, (c) to identify more precisely the
Facility, (d) in connection with any authorized amendment of or supplement to
this Indenture, or (e) to make any change comparable to those described in
Section 10.01.
Section 11.02. With Consent of Bondholders. If an amendment of or
supplement to the Agreement or the Note without any consent of Bondholders is
not permitted by the foregoing Section, the Issuer may enter into, and the
Trustee may consent to, such amendment or supplement without prior notice to any
Bondholder but with the consent of the holders of at least a majority in
principal amount of the Bonds then outstanding. However, without the consent of
each Bondholder affected, no amendment or supplement may result in a change
comparable to those described in the lettered clauses of Section 10.02.
Section 11.03. Consent by Trustee to Amendments or Supplements. The
Trustee shall consent to any amendment or supplement to the Agreement or the
Note authorized by this Article if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may, but need not, consent to such an amendment or
supplement. In consenting to an amendment or supplement, the Trustee shall be
entitled to receive and (subject to Section 9.01) shall be fully protected in
relying on an opinion of Counsel stating that such amendment or supplement is
authorized by this Indenture and has been duly authorized, executed and
delivered and is enforceable in accordance with its terms.
Section 11.04. Notice to Bondholders. The Trustee shall cause notice of
the execution of an amendment or supplement to the Agreement or the Note to be
mailed promptly by first-class mail to each Bondholder at the holder's
registered address. The notice shall state briefly the nature of the amendment
or supplement and that copies thereof are on file with the Trustee for
inspection by all Bondholders.
Section 11.05. Bank and Remarketing Agent Consent Required. An
amendment or supplement to the Agreement or the Note shall not become effective
unless the Remarketing Agent (but only to the extent that such amendment or
supplement affects the rights, duties or obligations of the Remarketing Agent
hereunder or thereunder) and the Bank deliver to the Trustee their written
consents to the amendment or supplement. In any event, no such amendment or
supplement shall become effective until the Remarketing Agent acknowledges
receipt of a copy of such amendment or supplement.
ARTICLE XII
MISCELLANEOUS
Section 12.01. Notices.
(a) Any notice, request, direction, designation, consent,
acknowledgment, certification, appointment, waiver or other communication
required or permitted by this Indenture or the Bonds must be in writing except
as expressly provided otherwise in this Indenture or the Bonds.
(b) Except as otherwise provided herein, any notice or other
communication shall be sufficiently given and deemed given when delivered by
hand or mailed by first-class mail, postage prepaid, addressed as follows or, if
the communication may be given by telex or telecopy under the provisions of this
Indenture, when telexed or telecopied to the following numbers:
(1) if to the Issuer, to Harrison County, West Virginia,
Harrison County Courthouse, Clarksburg, West Virginia 26301, Attention:
President of Harrison County Commission;
(2) if to the Trustee, to One Valley Bank, National
Association, P.O. Box 1793, Charleston, West Virginia 25326, Attention:
Corporate Trust Department;
(3) if to the Company, to Salem Health Care Corp., 146 Water
Street, Salem, West Virginia 26426;
(4) if to the Underwriter or Remarketing Agent, to Crews and
Associates, Inc. 2000 Union National Plaza, 124 West Capitol, Little Rock,
Arkansas 72201;
(5) if to the Bank, to NationsBank of Texas, N.A, 901 Main
Street, 13th Floor, Dallas, Texas 75202, Attention: Marie Lancanster; and
(6) if to the Parent, Regency Health Services, Inc. 2742 Dow
Avenue, Tustin, California 92780, Attention: David Grant, Esquire.
Any addressee may designate additional or different addresses or telex
or telecopy numbers for purposes of this Section. Notwithstanding the provisions
of this Section 12.01, any notice to the Trustee shall only be sufficient and
deemed given when mailed to the Trustee at the address provided in this Section
12.01 by certified mail, return receipt requested, and received by the Trustee.
A copy of any notice to any party given hereunder (with the exception
of notices required for drawings under any Letter of Credit) shall be provided
to the Remarketing Agent in the manner such notice is otherwise given.
The Beneficial Owner of $1,000,000 or more or Bonds may, by written
notice to the Trustee, request that all notices given with respect to such Bonds
be given to the registered owner thereof and to a second address provided in
such written notice to the Trustee. Upon receipt of such notice described in the
preceding sentence, the Trustee shall send all notices relating to the relevant
Bonds to the registered owner and the second address so designated.
Section 12.02. Bondholders' Consents. Any consent or other instrument
required by this Indenture to be signed by Bondholders may be in any number of
concurrent documents and may be signed by a Bondholder or by the holder's agent
appointed in writing. Proof of the execution of such instrument or of the
instrument appointing an agent and of the ownership of Bonds, if made in the
following manner, shall be conclusive for any purposes of this Indenture with
regard to any action taken by the Trustee under the instrument:
(a) The fact and date of a person's signing an instrument may be proved
by the certificate of any officer in any jurisdiction who by law has power to
take acknowledgments within that jurisdiction that the person signing the
writing acknowledged before the officer the execution of the writing, or by an
affidavit of any witness to the signing.
(b) The fact of ownership of Bonds, the amount or amounts, numbers and
other identification of such Bonds and the date of holding shall be proved by
the registration books kept pursuant to this Indenture.
In determining whether the holders of the required principal amount of
Bonds Outstanding have taken any action under this Indenture, Bonds owned by the
Issuer, the Company or any partner or affiliate of either thereof shall be
disregarded and deemed not to be Outstanding; provided, however, that Bank Bonds
shall not be disregarded and shall be deemed to be outstanding for such purpose.
In determining whether the Trustee shall be protected in relying on any such
action, only Bonds that the Trustee knows to be so owned shall be disregarded.
Section 12.03. Notices to Rating Agency. If applicable, the Trustee
shall notify any Rating Agency rating the Bonds, in writing, of the occurrence
of any of the following events prior to the occurrence thereof: (a) any change
in the identity of the Trustee or the Remarketing Agent; (b) any amendment or
modification of or change to this Indenture, the Agreement, the Reimbursement
Agreement or the Letter of Credit; (c) the expiration or termination of the
Letter of Credit, or any extension thereof; (d) the payment in full of the
principal of and interest on the Bonds; and (e) the delivery of any written
opinion of Bankruptcy Counsel required to be delivered under the terms of this
Indenture.
Section 12.04. Limitation of Rights. Nothing expressed or implied in
this Indenture or the Bonds shall give any person other than the Trustee, the
Issuer, the Bank, the Company, the Remarketing Agent and the Bondholders any
right, remedy or claim under or with respect to this Indenture.
Section 12.05. Severability. If any provision of this Indenture shall
be determined to be unenforceable by a court of law, that shall not affect any
other provision of this Indenture; provided, no holding or invalidity shall
require the Trustee to make any payment from any source except those pledged
hereunder.
Section 12.06. Payments Due on Non-Business Days. If a payment date is
not a Business Day at the place of payment, then payment shall be made at that
place on the next succeeding Business Day, with the same force and effect as if
made on the payment date, and, in the case of any such payment, no interest
shall accrue for the intervening period.
Section 12.07. Governing Law. This Indenture and the authority of the
Issuer to issue the Bonds shall be governed by and construed in accordance with
the laws of the State, but it is the intention of the Issuer that the situs of
the trust created by this Indenture be in the state in which is located the
corporate trust office of the Trustee from time to time acting under this
Indenture. The word "Trustee" as used in the preceding sentence shall not be
deemed to include any additional individual or institution appointed as a
separate or co-trustee pursuant to Section 9.15 of this Indenture. It is the
further intention of the Issuer that the Trustee administer said trust in the
state in which it is located, from time to time, and that same be for all
purposes hereunder, the situs of said trust.
Section 12.08. No Liability. No provision, covenant or agreement
contained in this Indenture or in the Bonds, or any obligation herein or therein
imposed upon the Issuer, or the breach thereof, shall constitute or give rise to
or impose upon the Issuer a pecuniary liability or a charge upon its general
credit or taxing power. In making the agreements, provisions, and covenants set
forth in this Indenture, the Issuer has not obligated itself except with respect
to the Facility and the application of the revenues, income and all other
property therefrom and the security therefor including the Letter of Credit, as
hereinabove provided. No official or member of the Issuer shall be personally
liable on the Indenture or the Bonds, nor shall the issuance of the Bonds be
considered as misfeasance in office.
Section 12.09. Counterparts. This Indenture may be signed in several
counterparts, each of which shall be an original and all of which together
shall constitute the same instrument.
Section 12.10. References to the Bank. The Bank shall have no rights to
enforce any provision of this Indenture during any period in which it is in
default under the Letter of Credit.
IN WITNESS WHEREOF, the Issuer has caused this Indenture to be executed
in its name and on its behalf by the President of the County Commission of
Harrison County, West Virginia and its official seal to be impressed hereon and
attested by the Clerk of the County Commission of Harrison County, West
Virginia, and the Trustee, to evidence its acceptance of the trust hereby
created, has caused this Indenture to be executed in its name and on its behalf
by its duly authorized officers, all as of the day and year first above written.
HARRISON COUNTY, WEST VIRGINIA
By:
President, Harrison County Commission
[SEAL]
ATTEST:
Clerk, Harrison County Commission
ONE VALLEY BANK, NATIONAL ASSOCIATION
By:
Its:
[SEAL]
ATTEST:
By:
Its:
Exhibit 21
LIST OF SUBSIDIARIES
Americare Development Corp. - Inactive Corporation (Ohio)
Americare Homecare, Inc. (Ohio)
Care at Home
Care Home Health
Americare Midwest, Inc. (Ohio)
Americare of West Virginia, Inc. (West Virginia)
Beckley Health Care Corp. (West Virginia)
Americare Pine Lodge Nursing & Rehabilitation Center
Braswell Enterprises, Inc. (California)
Claremont Care Center
Laurel Park, A Center of Effective Living
Olive Vista, A Center for Problems of Living
Palomares Rehabilitation & Nursing Center
St. Theresa Rehabilitation Center
Sierra Vista
BREL, Inc. (California)
Brittany Rehabilitation Center, Inc. (California)
Brittany Healthcare Center
Care Development Corp. - Inactive Corporation (California)
Care Enterprises, Inc. (Delaware)
Americare Arlington Nursing & Rehabilitation Center
Americare Homestead Nursing & Rehabilitation Center
Autumnwood of Sylvania
Brookhaven Convalescent Center
Edison Health Care
Glanzman-Colonial Nursing Center
Care Finance, Inc. (California)
Care Enterprises West (Utah)
Anza Nursing & Rehabilitation Center
Arizona Nursing Center
Arroyo Vista Nursing Center
Bayside Nursing & Rehabilitation Center
Burlingame Nursing & Rehabilitation Center
Calistoga Care Nursing & Rehabilitation Center
Cedars Nursing & Rehabilitation Center
Del Capri Terrace Nursing Center
Escondido Nursing Center
Garfield Nursing Center
Gateway Nursing & Rehabilitation
Center Hilltop Nursing & Rehabilitation Center
Hollister Nursing Center
Huntington Valley Nursing Center
Intercommunity Nursing Center
Kingsburg Nursing & Rehabilitation Center
La Mariposa Nursing & Rehabilitation Center
Lemon Grove Nursing Center
Manteca Nursing & Rehabilitation Center
Manzanita Nursing & Rehabilitation Center
North Valley Nursing & Rehabilitation Center
Park Central Nursing & Rehabilitation Center
Petaluma Nursing & Rehabilitation Center
Premier Rehabilitation & Nursing Center
Quincy Nursing & Rehabilitation Center
Santa Monica Nursing Center
Sierra Nursing & Rehabilitation Center
Sonoma Nursing & Rehabilitation Center
Susanville Nursing & Rehabilitation Center
Tri City Nursing & Rehabilitation Center
Valley View Home
Washington Manor Nursing & Rehabilitation Center
Watsonville Care Center East
Watsonville Care Center West
Weed Nursing & Rehabilitation Center
Willits Nursing & Rehabilitation Center
Care Home Health Services (California)
Care at Home
Newport Beach
San Diego
San Leandro
Sonoma
Upland
Care Home Health
Newport Beach
San Diego
San Leandro
San Marcos
Sonoma
Suisun City
Upland
Carmichael Rehabilitation Center (California)
Carmichael Convalescent Hospital
Casa de Vida Rehabilitation Center - Inactive Corporation (California)
Circleville Health Care Corp. (Ohio)
Americare Circleville Nursing & Rehabilitation Center
Coalinga Rehabilitation Center (California)
Coalinga Convalescent Center
Covina Rehabilitation Center (California)
Covina Rehabilitation Center
Dunbar Health Care Corp. (West Virginia)
Americare Dunbar Nursing & Rehabilitation Center
Evergreen Rehabilitation Center (California)
Evergreen Convalescent Center
Fairfield Rehabilitation Center (California)
Fairfield Health Care Center
First Class Pharmacy, Inc. (California)
Assist-a-Care
Resource Home Infusion Pharmacy
Resource Pharmacy
Fullerton Rehabilitation Center (California)
Fairway Convalescent Center
Glendora Rehabilitation Center (California)
Glendora Rehabilitation Center
Glenville Health Care Corp. (West Virginia)
Americare Glenville Nursing & Rehabilitation Center
Grand Terrace Rehabilitation Center (California)
Grand Terrace Convalescent Hospital
Hallmark Health Services, Inc. (Delaware)
Arbor Glen Health Care Center
Brookwood Care Center
Park Tustin Rehabilitation & Healthcare
Playa del Rey Rehabilitation & Care Center
Rose Villa Care Center
Hampshire Insurance Company (Turks & Caicos)
Harbor View Group Home, Inc. (California)
Harbor View Group Home
Harbor View Rehabilitation Center (California)
Harbor View
Hawthorne Rehabilitation Center (California)
South Bay Child Care Center
Healthcare Network (California)
Heritage Rehabilitation Center (California)
Heritage Rehabilitation Center
Huntington Beach Convalescent Hospital (California)
Huntington Beach Convalescent Hospital
The Huntington
Jackson Rehabilitation Center, Inc. (California)
Kit Carson Convalescent Hospital
Linda Mar Rehabilitation Center (California)
Linda Mar Healthcare & Rehabilitation Center
Marion Health Care Corp. (Ohio)
Americare Marion Health Care Corp.
Meadowbrook Rehabilitation Center (California)
Meadowbrook Manor
Meadowview Rehabilitation Center - Inactive Corporation (California)
New Lexington Health Care Corp. (Ohio)
Americare New Lexington Nursing & Rehabilitation Center
Newport Beach Rehabilitation Center (California)
Newport Rehabilitation Center
North State Home Health Care, Inc. (California)
North State Home Health Care, Inc.
Oasis Mental Health Treatment Center, Inc. (California)
Oasis Mental Health Treatment Center, Inc.
Paradise Rehabilitation Center, Inc. (California)
Heritage Paradise
Paso Robles Rehabilitation Center (California)
Paso Robles Convalescent Hospital
Putnam Health Care Corp. (West Virginia)
Americare Putnam Nursing & Rehabilitation Center
Regency High School, Inc. (California)
Regency High School
Regency Rehab Hospitals, Inc.
Regency Rehab Properties, Inc.
Regency-North Carolina, Inc. (North Carolina)
Buena Vista Nursing Center
Cherry Oaks Nursing Center
Country Forest Manor
Countryside Villa of Duplin
Crystal Coast Rehabilitation Center
Greenfield Manor
High Country Healthcare
James A. Johnson Nursing Center
Medical Park Nursing Center
Mountainview Care Center
Northwood Health Care Center
Regency-Tennessee, Inc. (Tennessee)
Brookhaven Health Care Center
Decatur Health Care
Hillside Manor Rehabilitation Center
Huntsville Manor Rehabilitation Center
Jackson Manor Nursing Home
Lawrenceburg Manor
Mountainview Healthcare & Rehabilitation Center
Wariota Health Care Center
RHS Management Corporation (California)
Rose Rehabilitation Center - Inactive Corporation (California)
Rosewood Rehabilitation Center, Inc. (California)
Rosewood Terrace Rehabilitation & Living Center
Salem Health Care Corp. (West Virginia)
Americare Salem Nursing & Rehabilitation Center
Sandia Vista Development Corp. - Inactive Corporation (New Mexico)
Shandin Hills Rehabilitation Center (California)
Shandin Hills Behavior Therapy Center
SCRS & Communicology, Inc. of Ohio (Ohio)
Stockton Rehabilitation Center, Inc. (California)
Heritage of Stockton
Sunset Villa Corp. - Inactive Corporation (New Mexico)
Vista Knoll Rehabilitation Center, Inc. (California)
Vista Knoll Specialized Care Facility
Willowview Rehabilitation Center (California)
Willowview Convalescent Hospital
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Regency Health Services, Inc.:
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 33-77732, 33-55930, 33-53554 and 333-7173.
Orange County, California ARHTUR ANDERSEN LLP
February 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 22,875
<SECURITIES> 0
<RECEIVABLES> 85,672
<ALLOWANCES> 4,723
<INVENTORY> 0
<CURRENT-ASSETS> 141,416
<PP&E> 179,010
<DEPRECIATION> 43,938
<TOTAL-ASSETS> 353,576
<CURRENT-LIABILITIES> 74,242
<BONDS> 182,490
0
0
<COMMON> 168
<OTHER-SE> 80,780
<TOTAL-LIABILITY-AND-EQUITY> 353,576
<SALES> 0
<TOTAL-REVENUES> 558,050
<CGS> 0
<TOTAL-COSTS> 453,131
<OTHER-EXPENSES> 40,273
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,060
<INCOME-PRETAX> 11,011
<INCOME-TAX> 4,612
<INCOME-CONTINUING> 6,399
<DISCONTINUED> 0
<EXTRAORDINARY> 1,193
<CHANGES> 0
<NET-INCOME> 5,206
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
