-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C6uc3j3RdCGG+jDmmDqhPeJzmjLMsGTc8mK8cSABGpRL4cknh1Bqq7SLWlnuAgoY Sz2g46gVVfVYa9NjESh2xw== 0000940180-98-000934.txt : 19980827 0000940180-98-000934.hdr.sgml : 19980827 ACCESSION NUMBER: 0000940180-98-000934 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980812 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980826 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARBORSIDE HEALTHCARE CORP CENTRAL INDEX KEY: 0001011693 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 043307188 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-14358 FILM NUMBER: 98698417 BUSINESS ADDRESS: STREET 1: 470 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6175561515 MAIL ADDRESS: STREET 1: 470 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 8-K 1 CURRENT REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): August 11, 1998 --------------- HARBORSIDE HEALTHCARE CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 01-14358 04-3307188 - ----------------------------------- ------------------ ------------------- State or Other Jurisdiction Commission (IRS Employer of Incorporation File Number Identification No.) 470 Atlantic Avenue Boston, Massachusetts 02210 - ------------------------------------------------------------------------------- (Address of Principal Executive Offices) Zip Code Registrant's telephone number, including area code: (617) 556-1515 -------------- Not Applicable. - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) Item 1 Changes in Control of Registrant On April 15, 1998, Harborside Healthcare Corporation ("Harborside") entered into a Merger Agreement with HH Acquisition Corp. ("MergerCo"), an entity organized for the sole purpose of effecting a merger on behalf of Investcorp S.A., certain of its affiliates and certain other international investors (the "New Investors"). On August 11, 1998, MergerCo merged with and into Harborside, with Harborside as the surviving corporation. As a result of the transaction, and pursuant to the Merger Agreement, the New Investors acquired approximately 91% of the post-merger common stock of Harborside. The remaining 9% of the common stock was retained by existing shareholders, including management. As a result of the merger, Harborside shares will be de-listed from the New York Stock Exchange. The merger was approved by a majority of Harborside's shareholders at a special meeting held on August 11, 1998. Each share not retained by existing shareholders was converted into $25 in cash, representing in the aggregate, cash payments of approximately $184 million. Holders of outstanding stock options of the Company converted the majority of their options into cash at $25 per underlying share (less applicable exercise price) with aggregate payments of approximately $8 million. In connection with the transaction and prior to the merger, the New Investors made cash common equity contributions of $165 million to MergerCo, and MergoCo obtained gross proceeds of $99.5 million through the issuance of 11% Senior Subordinated Discount Notes ("Discount Notes") due 2008 and $40 million through the issuance of 13.5% Exchangeable Preferred Stock ("Preferred Stock") mandatorily redeemable in 2010. In connection with the merger, Harborside also entered into a new $250 million secured credit facility with Chase Securities Inc., as Arranger, Morgan Stanley Senior Funding, Inc. and BT Alex. Brown Incorporated, as Co-Arrangers, Bankers Trust Company, as Documentation Agent, Morgan Stanley Senior Funding, Inc., as Syndication Agent, The Chase Manhattan Bank, as Administration Agent and the lenders named therein. The Discount Notes and the Preferred Stock were privately placed by Morgan Stanley & Co. Incorporated, Chase Securities Inc. and BT Alex. Brown Incorporated. The Credit Agreement for the senior credit facility, the Indenture for the Discount Notes and the Certificate of Designations for the Preferred Stock are included as exhibits to this Form 8-K. ITEM 7. Financial Statements and Exhibits (b) Pro Forma Financial Information UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The following unaudited pro forma consolidated financial information (the "Unaudited Pro Forma Consolidated Financial Information") is based on the unaudited historical consolidated financial statements of the Company and the unaudited historical financial statements of the Briarfield Facilities and the Rhode Island Facilities. The unaudited pro forma consolidated statements of operations for the three months and the six months ended June 30, 1998 have been prepared to give effect to: (i) the Completed 1998 Acquisitions; and (ii) the Recapitalization, as if each had occurred on January 1, 1997; and exclude non-recurring items directly attributable to the Recapitalization. The unaudited pro forma balance sheet as of June 30, 1998 has been prepared as if the recapitalization had occurred on that date. The unaudited pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable. The pro forma statements of operations do not purport to present what the Company's results of operations would actually have been had the Recapitalization and the Completed 1998 Acquisitions in fact occurred on January 1, 1997, or to project the Company's results of operations for any future period. The pro forma balance sheet data do not purport to present what the Company's financial position actually would have been had the Recapitalization in fact occurred on June 30, 1998, or to project the Company's financial position at any future date. The Issuer expects that the Recapitalization will be treated as a recapitalization for financial accounting purposes. Accordingly, no pro forma adjustments were made to the historical basis of the Company's assets and liabilities. For the purpose of presenting the unaudited pro forma consolidated statements of operations, "Completed 1998 Acquisitions Combined" refers to the historical results of operations of the entities acquired as part of the Completed 1998 Acquisitions, as adjusted. As used in the Unaudited Pro Forma Consolidated Financial Information, (i) "Pro Forma Before Recapitalization" gives pro forma effect to the Completed 1998 Acquisitions and (ii) "Pro Forma" gives pro forma effect to each of the foregoing acquisitions and the Recapitalization. HARBORSIDE HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 --------------------------------------------------------------------------------- HARBORSIDE COMPLETED HEALTHCARE 1998 RECAPITALIZATION CORPORATION ACQUISITIONS PRO FORMA BEFORE ADJUSTMENTS PRO FORMA (A) COMBINED (B) RECAPITALIZATION (C) (M) ----------- ------------ ---------------- ---------------- ---------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Total net revenues....... $ 148,640 $ 5,693 $ 154,333 $ 16 (D) $ 154,349 Expenses: Facility operating..... 117,030 4,504 121,534 -- 121,534 Management fees.......... -- 446 446 -- 446 General and administrative.. 7,475 -- 7,475 -- 7,475 Service charges paid to affiliates.... 628 -- 628 600 (E) 1,228 Depreciation and amortization.. 2,263 -- 2,263 984 (F) 3,247 Synthetic lease rent.......... 1,501 761 2,262 (2,262)(G) -- Facility rent.. 10,120 -- 10,120 -- 10,120 --------- ------- -------- ------- --------- Total expenses...... 139,017 5,711 144,728 (678) 144,050 --------- ------- -------- ------- --------- Income from operations..... 9,623 (18) 9,605 694 10,299 Other: Interest expense, net.. (3,202) -- (3,202) (6,925)(H) (10,127) Loss on investment in limited partnership... (72) -- (72) -- (72) --------- ------- -------- ------- --------- Income before income taxes... 6,349 (18) 6,331 (6,231) 100 Income taxes.... (2,476) 7 (2,469) 2,430 (I) (39) --------- ------- -------- ------- --------- Net income...... $ 3,873 $ (11) $ 3,862 $(3,801) $ 61 ========= ======= ======== ======= ========= Net income...... $ 3,873 $ 3,862 $ 61 Preferred divi- dends.......... -- -- (3,135)(J) --------- -------- --------- Net income (loss) available (attributable) to common stockholders... $ 3,873 $ 3,862 $ (3,074) ========= ======== ========== Net income (loss) available (attributable) to common stockholders per share: Basic.......... $ .48 $ .48 $ (.42) ========= ========= ========== Diluted........ $ .47 $ .46 $ (.42) ========= ========= ========== Weighted average number of com- mon shares used in per share computations: Basic.......... 8,010,339 8,010,339 7,261,332 Diluted........ 8,327,525 8,327,525 7,261,332
See Accompanying Notes to Unaudited Pro Forma Consolidated Statements of Operations HARBORSIDE HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 -------------------------------------------------------------------- COMPLETED HARBORSIDE 1998 HEALTHCARE ACQUISITIONS PRO FORMA RECAPITALIZATION CORPORATION COMBINED BEFORE ADJUSTMENTS PRO FORMA (K) (L) RECAPITALIZATION (C) (M) ----------- ------------ ---------------- ---------------- --------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Total net revenues......... $ 76,186 $ 845 $ 77,031 $ 8 (D) $ 77,039 Expenses: Facility operating........ 59,649 673 60,322 -- 60,322 Management fees........... -- 75 75 -- 75 General and administrative........... 4,110 -- 4,110 -- 4,110 Service charges paid to affiliates............... 315 -- 315 300 (E) 615 Depreciation and amortization............. 1,178 -- 1,178 492 (F) 1,670 Synthetic lease rent...... 1,051 110 1,161 (1,161)(G) -- Facility rent............. 5,014 -- 5,014 -- 5,014 --------- ------- --------- ------- --------- Total expenses............ 71,317 858 72,175 (369) 71,806 --------- ------- --------- ------- --------- Income from operations..... 4,869 (13) 4,856 377 5,233 Other: Interest expense, net..... (1,552) -- (1,552) (3,483)(H) (5,035) Loss on investment in limited partnership...... (41) -- (41) -- (41) --------- ------- --------- ------- --------- Income before income taxes..................... 3,276 (13) 3,263 (3,106) 157 Income taxes............... (1,278) 5 (1,273) 1,211 (I) (62) --------- ------- --------- ------- --------- Net income................. $ 1,998 $ (8) $ 1,990 $(1,895) $ 95 ========= ======= ========= ======= ========= Net income................. $ 1,998 $ 1,990 $ 95 Preferred dividends........ -- -- (1,594)(J) --------- --------- --------- Net income (loss) available (attributable) to common stockholders.............. $ 1,998 $ 1,990 $ (1,499) ========= ========= ========= Net income (loss) available (attributable) to common stockholders per share: Basic..................... $ .25 $ .25 $ (.21) ========= ========= ========= Diluted................... $ .24 $ .24 $ (.21) ========= ========= ========= Weighted average number of common shares used in per share computations: Basic..................... 8,010,884 8,010,884 7,261,332 Diluted................... 8,350,530 8,350,530 7,261,332
See Accompanying Notes to Unaudited Pro Forma Consolidated Statements of Operations HARBORSIDE HEALTHCARE CORPORATION NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (A) Represents the historical unaudited consolidated statement of operations of the Company for the six months ended June 30, 1998. (B) During 1998, the Company acquired the Briarfield and Rhode Island Facilities through synthetic lease financings. To reflect the pro forma effect of these acquisitions on the Company's operations, the schedule below presents the unaudited historical statements of operations of the Briarfield and Rhode Island Facilities, which were acquired on April 1, 1998 and May 8, 1998, respectively, for the period from January 1, 1998 through their respective acquistion dates.
COMPLETED BRIARFIELD RHODE ISLAND 1998 FACILITIES FACILITIES PRO FORMA ACQUISITIONS (1) (2) ADJUSTMENTS COMBINED (6) -------------- ------------ ----------- ------------ (IN THOUSANDS) Total net revenues...... $2,296 $ 3,261 $ 136 (3) $ 5,693 Expenses: Facility operating.... 1,786 2,718 -- 4,504 Management fees....... 166 280 -- 446 Depreciation and amortization......... 87 56 (143)(4) -- Synthetic lease rent.. -- -- 761 (4) 761 ------ ------- ------ ------- Total expenses...... 2,039 3,054 618 5,711 ------ ------- ------ ------- Income from operations.. 257 207 (482) (18) Other: Interest expense, net.................. (166) (27) 193 (4) -- ------ ------- ------ ------- Income before income taxes.................. 91 180 (289) (18) Income taxes............ -- -- 7 (5) 7 ------ ------- ------ ------- Net income.............. $ 91 $ 180 $ (282) $ (11) ====== ======= ====== =======
- -------- (1) Reflects the unaudited historical results of operations of the Briarfield Facilities for the three months ended March 31, 1998. (2) Reflects the unaudited historical results of operations of the Rhode Island Facilities for the four months ended April 30, 1998. (3) In Ohio and Rhode Island, a portion of a facility's Medicaid reimbursement rate is related to the capital costs incurred to finance the facility. As facility financing changes as a result of an acquisition, the reimbursement of such capital costs (and accordingly, a facility's net revenues) is affected as well. This adjustment represents the aggregate increase in revenue that is directly attributable to the Company's acquisition of the Briarfield and Rhode Island Facilities and the related financings. The adjustment, which can occur upon a change of facility ownership, is computed in accordance with the state Medicaid program cost reporting rules and regulations by substituting the effects of the Company's financing for the amounts included in the historical Medicaid cost reports. (4) Reflects the following adjustments: (a) the elimination of historical combined amounts recorded by the Briarfield and Rhode Island Facilities for depreciation and amortization expense which had been recorded as a result of the ownership of the underlying assets; (b) the elimination of historical combined amounts recorded by the Briarfield and Rhode Island Facilities for interest expense as the Company did not assume the related indebtedness; and (c) the synthetic lease rent expense that the Company would have incurred had the Completed 1998 Acquisitions occurred on January 1, 1997. (5) Reflects the adjustment to the provision for federal and state income taxes which the Company would have recorded (based on the Company's historical effective tax rate of 39%) had the Completed 1998 Acquisitions occurred on January 1, 1997. (6) The pro forma financial results exclude the $446 effect of the elimination of historical management fees paid under contracts with related parties that were terminated as a condition to closing the Completed 1998 Acquisitions. Subsequent to the dates of such acquisitions, no services were provided to the Company by these related parties. HARBORSIDE HEALTHCARE CORPORATION NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (C) The recapitalization adjustments give effect to the Merger and the recapitalization financings which occurred in connection with the Merger. The recapitalization financings included (but were not limited to) the following: (i) the receipt of cash equity contributions of $165.0 million; (ii) the issuance of $40.0 million of Exchangeable Preferred Stock; and (iii) the issuance of the Discount Notes, yielding gross proceeds of approximately $99.5 million. A portion of the net proceeds of the Offering were used to refinance all borrowings under the Company's previously existing credit facility and to finance the purchase of the Company's facilities described in note (D) below, which prior to the Merger were leased through the Company's previously existing synthetic lease facility. The unaudited pro forma consolidated statements of operations exclude the following non-recurring items that were directly attributable to the recapitalization: (i) $31.2 million of fees and expenses that were incurred by the Company in connection with the recapitalization, and a related income tax benefit of $3.4 million; (ii) the write-off of $.9 million of debt issuance costs related to existing debt retired in connection with the recapitalization, and a related income tax benefit of $.3 million; and (iii) a $7.9 million compensation charge resulting from the conversion of outstanding stock options in connection with the recapitalization, and a related income tax benefit of $3.1 million. (D) In connection with the recapitalization, the previously existing synthetic lease financings related to the Dayton Facilities, the Briarfield Facilities and the Rhode Island Facilities were eliminated and the Company purchased these facilities through the exercise of existing purchase options using cash available to the Company through the recapitalization financings. In Ohio and Rhode Island, a portion of a facility's Medicaid reimbursement rate is related to the capital costs incurred to finance the facility. As facility financing changes as a result of an acquisition, the reimbursement of such capital costs (and accordingly, a facility's net revenue) is affected as well. This adjustment represents the following aggregate increases (decreases) in total net revenues that are directly attributable to the acquisition and related refinancing of the following facilities at the time of the recapitalization: HARBORSIDE HEALTHCARE CORPORATION NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FOR THE SIX MONTHS ENDED THREE MONTHS ENDED JUNE 30, 1998 JUNE 30, 1998 ----------------- ------------------ (IN THOUSANDS) Dayton Facilities....... $ 44 $ 22 Briarfield Facilities... (43) (22) Rhode Island Facilities............. 15 8 ---- ---- $ 16 $ 8 ==== ====
(E) Reflects the amortization of prepaid management advisory and consulting services fees to be paid to Investcorp International Inc. (F) Depreciation expense related to the purchase of the Dayton Facilities, the Briarfield Facilities and the Rhode Island Facilities is estimated using the straight-line method. Had the Dayton Facilities, the Briarfield Facilities and the Rhode Island Facilities been acquired on January 1, 1997, the resulting depreciation and amortization would have been approximately $984 and $492 for the six months ended June 30, 1998 and the three months ended June 30, 1998, respectively. In addition, in conjunction with the recapitalization, the two principal beneficial stockholders of the Company prior to the Merger entered into one-year non-compete agreements with the Company. To reflect the one-year term, none of such amortization is reflected for the six months or the three months ended June 30, 1998. (G) Reflects the elimination of synthetic lease rent expense as a result of the elimination of the previously existing synthetic lease financings for the Dayton Facilities, the Briarfield Facilities and the Rhode Island Facilities. In connection with the Merger, the Company purchased these facilities for $59,250 through the exercise of existing purchase options. See note (D) above. HARBORSIDE HEALTHCARE CORPORATION NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (H) In connection with the recapitalization, the Company's borrowings under its existing credit facility were refinanced using a portion of the proceeds of the recapitalization financings. The adjustments to the Company's interest expense, net, to reflect the refinancing of this debt as of January 1, 1997 are as follows:
FOR THE FOR THE SIX MONTHS ENDED THREE MONTHS ENDED JUNE 30, 1998 JUNE 30, 1998 ----------------- ------------------ (IN THOUSANDS) Elimination of the historical interest expense related to the existing credit facility and the historical amortization of debt issuance costs related to the Company's debt and synthetic lease arrangements to be retired in connection with the recapitalization....... $ (606) $ (282) Interest expense related to the $250.0 million New Credit Facility with an assumed interest rate of LIBOR (5.65%) plus 2.25% (7.90%) (1)............ 830 415 Interest expense resulting from $99.5 million gross proceeds of the Discount Notes, at an interest rate of 11.00%................. 6,091 3,045 Amortization of debt issuance costs of $8.5 million associated with the recapitalization financings over the respective terms of indebtedness........... 610 305 ------ ------ $6,925 $3,483 ====== ======
-------- (1) Interest expense is calculated assuming $5.5 million outstanding under the new credit facility and a .5% fee on the unused portion. (I) Reflects the adjustment to the provision for federal and state income taxes which the Company would have recorded (based on the Company's historical effective tax rate of 39%) had the matters described in notes (D) through (H) occurred at January 1, 1997. (J) Dividends on the Exchangeable Preferred Stock are expected to accrue quarterly over the first five years (i.e., dividends will not be paid in cash during this period) at an annual rate of 13.50%. (K) Represents the unaudited consolidated statement of operations of the Company for the three months ended June 30, 1998. (L) During 1998, the Company acquired the Briarfield and Rhode Island Facilities through synthetic lease financings. To reflect the pro forma effect of the acquisition of the Rhode Island Facilities on the Company's operations, the schedule below presents the unaudited historical statements of operations of the Rhode Island Facilities, which were acquired on May 8, 1998, for the period from April 1, 1998 through its acquisition. HARBORSIDE HEALTHCARE CORPORATION NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
COMPLETED 1998 RHODE ISLAND PRO FORMA ACQUISITIONS FACILITIES ADJUSTMENTS COMBINED (6) ------------ ----------- ------------ (IN THOUSANDS) Total net revenues...... $ 829 $ 16 (1) $ 845 Expenses: Facility operating.... 673 -- 673 Management fees....... 75 -- 75 Depreciation and amortization......... 15 (15)(2) -- Synthetic lease rent.. -- 110 (2) 110 ------ ----- ------ Total expenses...... 763 95 858 ------ ----- ------ Income from operations.. 66 (79) (13) Other: Interest expense, net.................. (7) 7 (3) -- ------ ----- ------ Income before income taxes.................. 59 (72) (13) Income taxes............ -- 5 (4) 5 ------ ----- ------ Net income.............. $ 59 $ (67) $ (8) ====== ===== ======
-------- (1) In Rhode Island, a portion of a facility's Medicaid reimbursement rate is related to the capital costs incurred to finance the facility. As facility financing changes as a result of an acquisition, the reimbursement of such capital costs (and accordingly, a facility's net revenues) is affected as well. This adjustment represents the aggregate increase in revenue that is directly attributable to the Company's acquisition of the Rhode Island Facilities and the related financings. The adjustment, which can occur upon a change of facility ownership, is computed in accordance with the state Medicaid program cost reporting rules and regulations by substituting the effects of the Company's financing for the amounts included in the historical Medicaid cost reports. (2) Reflects the following adjustments: (a) the elimination of historical combined amounts recorded by the Rhode Island Facilities for depreciation and amortization expense which had been recorded as a result of the ownership of the underlying assets; (b) the elimination of historical combined amounts recorded by the Rhode Island Facilities for interest expense as the Company did not assume the related indebtedness; and (c) the synthetic lease rent expense that the Company would have incurred had the Completed 1998 Acquisitions occurred on January 1, 1997. (3) Reflects the adjustment to the provision for federal and state income taxes which the Company would have recorded (based on the Company's historical effective tax rate of 39%) had the Completed 1998 Acquisitions occurred on January 1, 1997. (4) The pro forma financial results exclude the $75 effect of the elimination of historical management fees paid under contracts with related parties that were terminated as a condition to closing the Completed 1998 Acquisitions. Subsequent to the dates of such acquisitions, no services were provided to the Company by these related parties. HARBORSIDE HEALTHCARE CORPORATION NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (M) The pro forma financial results exclude the effects of the elimination of certain contracts terminated as a condition to closing the Completed 1998 Acquisitions. On a pro forma basis, the Company would have realized net cost reductions of $446 and $75 for the six months ended June 30, 1998 and the three months ended June 30, 1998, respectively, as a result of the elimination of these historical contracts. On a pro forma basis, assuming the elimination of these contracts in connection with such acquisitions on January 1, 1997, there would have been no management fees for the six months or the three months ended June 30, 1998. HARBORSIDE HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998
HARBORSIDE HEALTHCARE CORPORATION RECAPITALIZATION (A) ADJUSTMENTS PRO FORMA ----------- ---------------- --------- ASSETS Current assets: Cash and cash equivalents........... $ 3,028 $ -- (B) $ 3,028 Accounts receivable, net................... 41,484 -- 41,484 Prepaid expenses and other................. 8,466 (336)(C) 8,130 Deferred income taxes................. 2,150 -- 2,150 -------- -------- -------- Total current assets.............. 55,128 (336) 54,792 Restricted cash......... 7,116 -- 7,116 Property and equipment, net.................... 102,048 59,250 (D) 161,298 Intangible assets, net.. 9,673 14,106 (E) 23,779 Note receivable......... 7,487 -- 7,487 Deferred income taxes... 71 -- 71 -------- -------- -------- Total assets......... $181,523 $ 73,020 $254,543 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt........ $ 202 -- $ 202 Current portion of capital lease obligation............ 4,204 -- 4,204 Accounts payable....... 7,963 -- 7,963 Employee compensation and benefits.......... 13,696 -- 13,696 Other accrued liabilities........... 5,786 -- 5,786 Accrued interest....... 199 -- 199 Current portion of deferred income....... 803 -- 803 -------- -------- -------- Total current liabilities......... 32,853 -- 32,853 Long-term portion of deferred income........ 5,045 -- 5,045 Long-term debt.......... 36,346 85,040 (F) 121,386 Long-term portion of capital lease obligation............. 51,594 -- 51,594 -------- -------- -------- Total liabilities.... 125,838 85,040 210,878 -------- -------- -------- Exchangeable preferred stock, redeemable...... -- 40,000 (G) 40,000 Stockholders' equity: Common stock........... 80 66 (H) 146 Additional paid-in capital............... 48,469 164,934 (H) 213,403 Treasury stock, at cost.................. -- (183,881)(H) (183,881) Retained earnings...... 7,136 (33,141)(H) (26,005) -------- -------- -------- Total stockholders' equity.............. 55,685 (52,020) 3,665 -------- -------- -------- Total liabilities and stockholders' equity.............. $181,523 $ 73,020 $254,543 ======== ======== ========
See Accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet HARBORSIDE HEALTHCARE CORPORATION NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (A) Represents the historical unaudited consolidated balance sheet of the Company as of June 30, 1998. (B) Reflects the following sources and uses of funds in connection with the recapitalization: Total sources: Gross proceeds from the issuance of the Discount Notes........... $ 99,493 Proceeds from the issuance of 6,600,000 shares of common stock at $25.00 per share (1)............................................ 165,000 Gross proceeds from the issuance of the Exchangeable Preferred Stock........................................................... 40,000 Borrowings under the new credit facility......................... 5,547 -------- 310,040 ======== Total uses: Redemption of existing 7,355,245 shares of Harborside Common Stock at $25.00 per share....................................... $183,881 Conversion to cash of 648,923 options at a weighted average exercise price of $12.87........................................ 7,871 Exercise of existing purchase options for leased facilities...... 59,250 Refinancing of existing credit facility.......................... 20,000 Transaction fees and expenses of the Recapitalization (2)............................................................. 39,038 -------- 310,040 ========
-------- (1) These shares consist of 5,940,000 shares of Harborside Class B Common Stock, 640,000 shares of Harborside Class C Common Stock and 20,000 shares of Harborside Class D Common Stock to be exchanged on a one- for-one basis in the Merger for shares of Class B Stock, Class C Stock, and Class D Stock, respectively, of the Issuer. Shares of Harborside Class B Common Stock and Harborside Class C Common Stock are non-voting, while the shares of Harborside Class D Common Stock have 330 votes per share. (2) The $39.0 million of fees and expenses includes: $8.5 million of debt issuance costs associated with the recapitalization financings, $6.0 million of management fees prepaid to III, a $.5 million payment related to the Non-Compete Agreements and $30.8 million of other fees and expenses to be paid in connection with the recapitalization, less $6.8 million related to the income tax benefits related to certain of such fees and expenses, conversion of options, and the write-off of deferred issuance costs associated with retired debt. The $30.8 million of fees and expenses paid in connection with the recapitalization include standby commitment fees, legal and accounting fees, and compensation and other charges associated with the recapitalization. (C) Reflects forgiveness of loans associated with the change of control. (D) Reflects the exercise of existing purchase options for the Dayton Facilities, the Briarfield Facilities and the Rhode Island Facilities. (E) Reflects the following: Debt issuance costs related to the recapitalization financings....................................................... $ 8,503 Management fees prepaid to Investcorp International Inc. ......... 6,000 Payments related to the Non-Compete Agreement..................... 500 Elimination of debt issuance costs related to retired debt........ (897) ------- $14,106 =======
HARBORSIDE HEALTHCARE CORPORATION NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (F) Reflects the following: Refinancing of existing credit facility........................... $ (20,000) Borrowings under the new credit facility.......................... 5,547 Gross proceeds from the issuance of the Notes..................... 99,493 --------- $ 85,040 =========
(G) Reflects the issuance of the Exchangeable Preferred Stock. (H) Reflects the following: Issuance of 6,600,000 shares of common stock par value $.01....... $ 66 Issuance of 6,600,000 shares of common stock at $25.00 per share, additional paid-in-capital.................................................. 164,934 Redemption of existing 7,355,245 shares of Harborside Common Stock at $25.00 per share.............................................. (183,881) Conversion to cash of 648,923 options at a weighted average exer- cise price of $12.87............................................. (7,871) Certain fees and expenses incurred by the Company in connection with the Recapitalization (1).................................... (32,123) Tax benefit of management transaction bonuses, standby commitment fees, conversion of options, and write-off of deferred issuance costs associated with retired debt............................... 6,855 --------- $ (52,020) =========
-------- (1) Represents $30.8 million in fees and expenses paid in connection with the Recapitalization, a $.4 million non-cash charge related to the forgiveness of employee loans, and a $.9 million non-cash charge associated with the elimination of deferred financing costs related to retired debt. (c) Exhibits 4.1 Indenture, dated as of July 31, 1998, including therein the form of Note, between HH Acquisition Corp. and United States Trust Company of New York, as Trustee, providing for 11% Senior Subordinated Discount Notes due 2008. 4.2 Certificate of Designations, effective August 11, 1998, of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of 13 1/2% Exchangeable Preferred Stock Due 2010 and Qualifications, Limitations and Restrictions Thereof. 10.1 Credit Agreement dated as of August 11, 1998 among Harborside Healthcare Corporation and Chase Securities Inc., as Arranger, Morgan Stanley Senior Funding, Inc. and BT Alex Brown Incorporated, as Documentation Agent, Morgan Stanley Senior Funding, Inc., as Syndication Agent, The Chase Manhattan Bank, as Administrative Agent and the lenders named therein. 99.1 Press release dated August 11, 1998 announcing the closing of the merger and recapitalization transaction. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized. HARBORSIDE HEALTHCARE CORPORATION (Registrant) By: /s/Stephen Guillard --------------------------- Name: Stephen Guillard Title: Chairman, President, and Chief Executive Officer Dated: August 26, 1998 EX-4.1 2 INDENTURE, DATED AS OF JULY 31, 1998 EXHIBIT 4.1 EXECUTION COPY ================================================================================ HH ACQUISITION CORP., AS ISSUER AND UNITED STATES TRUST COMPANY OF NEW YORK, AS TRUSTEE, ______________________ INDENTURE DATED AS OF JULY 31, 1998 _______________________ 11% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2008 ================================================================================ CROSS-REFERENCE TABLE
TIA Section Indenture ----------- --------- 310 (a) (1) ...................................... 7.10 (a) (2) ...................................... 7.10 (a) (3) ...................................... N.A. (a) (4) ...................................... N.A. (b) ...................................... 7.08; 7.10 (c) ...................................... N.A. 311 (a) ...................................... 7.11 (b) ...................................... 7.11 (c) ...................................... N.A. 312 (a) ...................................... 2.04 (b) ...................................... 13.03 (c) ...................................... 13.03 313 (a) ...................................... 7.06 (b) (1) ...................................... N.A. (b) (2) ...................................... 7.06 (c) ...................................... 13.02 (d) ...................................... 7.06 314 (a) ...................................... 4.02; 4.09 (b) ...................................... N.A. (c) (1) ...................................... 13.04 (c) (2) ...................................... 13.04 (c) (3) ...................................... 13.04 (d) ...................................... N.A. (e) ...................................... 13.05 (f) ...................................... N.A. 315 (a) ...................................... 7.01 (b) ...................................... 7.05; 13.02 (c) ...................................... 7.01 (d) ...................................... 7.01 (e) ...................................... 6.11 316 (a) (last sentence) ...................................... 13.06 (a) (1) (A) ...................................... 6.05 (a) (1) (B) ...................................... 6.04 (a) (2) ...................................... N.A. (b) ...................................... 6.07 317 (a) (1) ...................................... 6.08 (a) (2) ...................................... 6.09 (b) ...................................... 2.05 318 (a) ...................................... 13.01
N.A. means Not Applicable ______________________ Note: This Cross-Reference Table shall not, for any purpose, be deemed to be part of this Indenture. TABLE OF CONTENTS
ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions............................................................................. 1 SECTION 1.02. Other Definitions....................................................................... 26 SECTION 1.03. Incorporation by Reference of Trust Indenture Act....................................... 27 SECTION 1.04. Rules of Construction................................................................... 27 ARTICLE II THE SECURITIES SECTION 2.01. Form and Dating......................................................................... 28 SECTION 2.02. Restrictive Legends..................................................................... 29 SECTION 2.03. Execution, Authentication and Denominations............................................. 31 SECTION 2.04. Registrar and Paying Agent.............................................................. 32 SECTION 2.05. Paying Agent to Hold Money in Trust..................................................... 33 SECTION 2.06. Transfer and Exchange................................................................... 33 SECTION 2.07. Book-Entry Provisions for Global Securities............................................. 34 SECTION 2.08. Special Transfer Provisions............................................................. 36 SECTION 2.09. Replacement Securities.................................................................. 40 SECTION 2.10. Outstanding Securities.................................................................. 40 SECTION 2.11. Temporary Securities.................................................................... 40 SECTION 2.12. Cancellation............................................................................ 41 SECTION 2.13. CUSIP Numbers........................................................................... 41 SECTION 2.14. Defaulted Interest...................................................................... 41 SECTION 2.15. Issuance of Additional Securities....................................................... 42 ARTICLE III REDEMPTION SECTION 3.01. Notices to Trustee...................................................................... 42 SECTION 3.02. Selection and Notice.................................................................... 42 SECTION 3.03. Notice.................................................................................. 42 SECTION 3.04. Effect of Notice of Redemption.......................................................... 43 SECTION 3.05. Deposit of Redemption Price............................................................. 44 SECTION 3.06. Securities Redeemed in Part............................................................. 44 SECTION 3.07. Optional Redemption..................................................................... 44 SECTION 3.08. Special Mandatory Redemption............................................................ 45 SECTION 3.09. Repurchase Offers....................................................................... 45
SECTION 3.10. No Sinking Fund......................................................................... 48 ARTICLE IV COVENANTS SECTION 4.01. Payment of Securities................................................................... 48 SECTION 4.02. Reports................................................................................. 49 SECTION 4.03. Incurrence of Debt and Issuance of Preferred Stock...................................... 49 SECTION 4.04. Restricted Payments..................................................................... 51 SECTION 4.05. Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries............................................................... 55 SECTION 4.06. Asset Sales............................................................................. 57 SECTION 4.07. Transactions with Affiliates............................................................ 58 SECTION 4.08. Change of Control....................................................................... 59 SECTION 4.09. Compliance Certificate.................................................................. 59 SECTION 4.10. Liens................................................................................... 60 SECTION 4.11. Additional Security Guarantees.......................................................... 60 SECTION 4.12. Restriction on Senior Subordinated Debt................................................. 60 ARTICLE V SUCCESSOR COMPANY SECTION 5.01. Merger, Consolidation or Sale of All or Substantially All Assets of the Company............................................................. 60 SECTION 5.02. Merger, Consolidation or Sale of All or Substantially All Assets of a Guarantor............................................................. 62 ARTICLE VI DEFAULTS AND REMEDIES SECTION 6.01. Events of Default and Remedies.......................................................... 62 SECTION 6.02. Acceleration............................................................................ 64 SECTION 6.03. Other Remedies.......................................................................... 64 SECTION 6.04. Waiver of Past Defaults................................................................. 65 SECTION 6.05. Control by Majority..................................................................... 65 SECTION 6.06. Limitation on Suits..................................................................... 65 SECTION 6.07. Rights of Holders to Receive Payment.................................................... 66 SECTION 6.08. Collection Suit by Trustee.............................................................. 66 SECTION 6.09. Trustee May File Proofs of Claim........................................................ 66 SECTION 6.10. Priorities.............................................................................. 66
-ii- SECTION 6.11. Undertaking for Costs................................................................... 67 SECTION 6.12. Waiver of Stay or Extension Laws........................................................ 67 ARTICLE VII TRUSTEE SECTION 7.01. Duties of Trustee....................................................................... 67 SECTION 7.02. Rights of Trustee....................................................................... 68 SECTION 7.03. Individual Rights of Trustee............................................................ 70 SECTION 7.04. Trustee's Disclaimer.................................................................... 70 SECTION 7.05. Notice of Defaults...................................................................... 70 SECTION 7.06. Reports by Trustee to Holders........................................................... 70 SECTION 7.07. Compensation and Indemnity.............................................................. 70 SECTION 7.08. Replacement of Trustee.................................................................. 72 SECTION 7.09. Successor Trustee by Merger............................................................. 73 SECTION 7.10. Eligibility; Disqualification........................................................... 73 SECTION 7.11. Preferential Collection of Claims Against Company....................................... 73 ARTICLE VIII DISCHARGE OF INDENTURE; DEFEASANCE SECTION 8.01. Legal Defeasance and Covenant Defeasance................................................ 73 SECTION 8.02. Conditions to Legal or Covenant Defeasance.............................................. 74 SECTION 8.03. Deposited Money and Government Securities to Be Held in Trust; Other Miscellaneous Provisions....................................... 76 SECTION 8.04. Repayment to Company.................................................................... 76 SECTION 8.05. Reinstatement........................................................................... 77 SECTION 8.06. Satisfaction and Discharge of Indenture................................................. 77 ARTICLE IX AMENDMENTS SECTION 9.01. Without Consent of Holders.............................................................. 78 SECTION 9.02. With Consent of Holders................................................................. 79 SECTION 9.03. Compliance with Trust Indenture Act..................................................... 80 SECTION 9.04. Revocation and Effect of Consents and Waivers........................................... 80 SECTION 9.05. Notation on or Exchange of Securities................................................... 81 SECTION 9.06. Trustee to Sign Amendments.............................................................. 81
ARTICLE X -iii- SUBORDINATION SECTION 10.01. Agreement To Subordinate............................................................... 81 SECTION 10.02. Liquidation, Dissolution, Bankruptcy................................................... 82 SECTION 10.03. Default on Senior Debt................................................................. 82 SECTION 10.04. Acceleration of Payment of Securities.................................................. 83 SECTION 10.05. When Distribution Must Be Paid Over.................................................... 83 SECTION 10.06. Subrogation............................................................................ 83 SECTION 10.07. Relative Rights........................................................................ 83 SECTION 10.08. Subordination May Not Be Impaired by Company........................................... 84 SECTION 10.09. Rights of Trustee and Paying Agent..................................................... 84 SECTION 10.10. Distribution or Notice to Representative............................................... 84 SECTION 10.11. Article X Not to Prevent Events of Default or Limit Right to Accelerate................................................................... 84 SECTION 10.12. Trust Moneys Not Subordinated.......................................................... 84 SECTION 10.13. Trustee Entitled to Rely............................................................... 85 SECTION 10.14. Trustee to Effectuate Subordination.................................................... 85 SECTION 10.15. Trustee Not Fiduciary for Holders of Senior Debt....................................... 85 SECTION 10.16. Reliance by Holders of Senior Debt on Subordination Provisions.............................................................. 85 SECTION 10.17. Trustee's Compensation Not Prejudiced.................................................. 86 ARTICLE XI SECURITY GUARANTEES SECTION 11.01. Security Guarantees.................................................................... 86 SECTION 11.02. Limitation on Liability................................................................ 88 SECTION 11.03. Successors and Assigns................................................................. 88 SECTION 11.04. No Waiver.............................................................................. 88 SECTION 11.05. Modification........................................................................... 89 ARTICLE XII SUBORDINATION OF THE SECURITY GUARANTEES SECTION 12.01. Agreement to Subordinate............................................................... 89 SECTION 12.02. Liquidation, Dissolution, Bankruptcy................................................... 89 SECTION 12.03. Default on Senior Debt of a Guarantor.................................................. 89 SECTION 12.04. Demand for Payment..................................................................... 90 SECTION 12.05. When Distribution Must Be Paid Over.................................................... 90 SECTION 12.06. Subrogation............................................................................ 91 SECTION 12.07. Relative Rights........................................................................ 91 SECTION 12.08. Subordination May Not Be Impaired by a Guarantor....................................... 91
-iv- SECTION 12.09. Rights of Trustee and Paying Agent..................................................... 91 SECTION 12.10. Distribution or Notice to Representative............................................... 92 SECTION 12.11. Article XII Not to Prevent Events of Default or Limit Right to Accelerate............................................................. 92 SECTION 12.12. Trustee Entitled to Rely............................................................... 92 SECTION 12.13. Trustee to Effectuate Subordination.................................................... 92 SECTION 12.14. Trustee Not Fiduciary for Holders of Senior Debt of a Guarantor........................................................................ 92 SECTION 12.15. Reliance by Holders of Senior Debt of a Guarantor on Subordination Provisions........................................................... 93 ARTICLE XIII MISCELLANEOUS SECTION 13.01. Trust Indenture Act Controls........................................................... 93 SECTION 13.02. Notices................................................................................ 93 SECTION 13.03. Communication by Holders with Other Holders............................................ 95 SECTION 13.04. Certificate and Opinion as to Conditions Precedent..................................... 95 SECTION 13.05. Statements Required in Certificate or Opinion.......................................... 95 SECTION 13.06. When Securities Disregarded............................................................ 96 SECTION 13.07. Rules by Trustee, Paying Agent and Registrar........................................... 96 SECTION 13.08. Legal Holidays......................................................................... 96 SECTION 13.09. GOVERNING LAW.......................................................................... 96 SECTION 13.10. No Recourse Against Others............................................................. 96 SECTION 13.11. Successors............................................................................. 97 SECTION 13.12. Multiple Originals..................................................................... 97 SECTION 13.13. Table of Contents; Headings............................................................ 97
-v- INDENTURE dated as of July 31, 1998, among HH ACQUISITION CORP., a Delaware corporation (the "Company"), and UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee (the "Trustee"). Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of (i) the Company's 11% Senior Subordinated Discount Notes due 2008 issued on the date hereof, (ii) any Additional Securities that may be issued on any other Issue Date (all such Securities in clauses (i) and (ii) being referred to collectively as the "Initial Securities") and (iii) if and when issued as provided in a Registration Rights Agreement of the Company's 11% Senior Subordinated Discount Notes due 2008 issued in a Registered Exchange Offer in exchange for any Initial Securities (the "Exchange Securities", and together with the Initial Securities and any Exchange Securities issued hereunder, the "Securities"). The Securities issued on the date hereof will be limited to $170,000,000 in aggregate principal amount at maturity. Subject to the conditions set forth herein, the Company may issue Additional Securities. WHEREAS, as of the date hereof, Harborside and the Guarantors are not parties to this Indenture. However, upon consummation of the Recapitalization, Harborside, each of the Guarantors and the Trustee will execute and deliver a supplemental indenture providing for (i) the assumption by Harborside of the Company's obligations under this Indenture and (ii) each of the Guarantors to become a party to this Indenture as a Guarantor. ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE ------------------------------------------ SECTION 1.01. Definitions. ----------- "Accreted Value" means, for any date, the amount calculated pursuant to clauses (i), (ii), (iii) or (iv) for each $1,000 principal amount at maturity of Securities: (i) if the date occurs on one of the following dates (each a "Semi- Annual Accrual Date"), the Accreted Value will equal the amount set forth below for such Semi-Annual Accrual Date:
SEMI-ANNUAL ACCRUAL DATE ACCRETED VALUE ------------------------ -------------- February 1, 1999...................... $ 617.62 August 1, 1999...................... $ 651.59 February 1, 2000...................... $ 687.43 August 1, 2000...................... $ 725.24 February 1, 2001...................... $ 765.13
August 1, 2001...................... $ 807.21 February 1, 2002...................... $ 851.61 August 1, 2002...................... $ 898.45 February 1, 2003...................... $ 947.86 August 1, 2003...................... $1000.00
(ii) if the date occurs before the first Semi-Annual Accrual Date, the Accreted Value will equal the sum of (a) the original issue price of the Securities per $1,000 principal amount and (b) an amount equal to the product of (1) the Accreted Value for the first Semi-Annual Accrual Date less the original issue price multiplied by (2) a fraction, the numerator of which is the number of days from the first Issue Date to the date, using a 360-day year of twelve 30-day months, and the denominator of which is the number of days from the first Issue Date to the first Semi-Annual Accrual Date, using a 360-day year of twelve 30-day months; (iii) if the date occurs between two Semi-Annual Accrual Dates, the Accreted Value will equal the sum of (a) the Accreted Value for the Semi- Annual Accrual Date immediately preceding such date and (b) an amount equal to the product of (1) Accreted Value for the immediately following Semi- Annual Accrual Date less the Accreted Value for the immediately preceding Semi-Annual Accrual Date multiplied by (2) a fraction, the numerator of which is the number of days from the immediately preceding Semi-Annual Accrual Date to the date, using a 360-day year of twelve 30-day months, and the denominator of which is 180; or (iv) if the date occurs after the last Semi-Annual Accrual Date, the Accreted Value will equal $1,000. "Acquired Debt" means, with respect to any specified Person, (i) Debt of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person, (ii) Debt incurred by such specified Person, its Restricted Subsidiaries or such other Person for the purpose of financing the acquisition of such other Person or its assets, provided that such other Person becomes or, in the case of an asset -------- purchase, the Person acquiring such assets is, a Restricted Subsidiary, and (iii) Debt secured by a Lien encumbering any asset acquired by such specified Person. "Additional Securities" shall mean Initial Securities initially issued subsequent to the date hereof pursuant to Article II and in compliance with Section 4.03. "Affiliate" of any specified Person means (i) any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person, (ii) any other Person that owns, directly or indirectly, 5% or more of such specified Person's Voting Stock or (iii) any Person who is a director or officer (a) of such Person, (b) of any Subsidiary of such Person or (c) of any Person described in clause (i) or (ii) 2 above. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. "Agent" means any Registrar, Paying Agent or Co-registrar. "Applicable Premium" means, with respect to a Security at any redemption date prior to August 1, 2003, the greater of (i) 1.0% of the Accreted Value of such Security or (ii) the excess of (A) the present value at such time of the redemption price of such Security at August 1, 2003 (such redemption price being set forth in the table in Section 3.07(a)), computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (B) the Accreted Value of such Security on the redemption date. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including by way of a sale and leaseback) (provided that the sale, lease, conveyance or other disposition of all or -------- substantially all of the assets of the Company will be governed by Article V and not by the provisions of Section 4.06), and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company's Subsidiaries (other than director's qualifying shares), in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of 2.5% of Total Assets or (b) for net proceeds in excess of 2.5% of Total Assets. Notwithstanding the foregoing, the following will not be Asset Sales: (i) a transfer of assets by the Company to a Restricted Subsidiary or by a Restricted Subsidiary to the Company or to another Restricted Subsidiary, (ii) an issuance of Equity Interests by a Restricted Subsidiary to the Company or to another Restricted Subsidiary, (iii) a Restricted Payment or Permitted Investment that is permitted by Section 4.04 (including any formation of or contribution of assets to a Subsidiary or joint venture), (iv) leases or subleases, in the ordinary course of business, to third parties of real property owned in fee or leased by the Company or its Subsidiaries, (v) a disposition, in the ordinary course of business, of a lease of real property, (vi) any disposition of property of the Company or any of its Subsidiaries that, in the reasonable judgment of the Company, has become uneconomic, obsolete or worn out, (vii) any disposition of property or assets (including any disposition of inventory, accounts receivable and any licensing agreements) in the ordinary course of business, (viii) the sale of Cash Equivalents and Investment Grade Securities or any disposition of cash, (ix) any exchange of property or assets by the Company or a Restricted Subsidiary in exchange for cash or Cash Equivalents or property or assets that will be used or useful in the business conducted by the Company or any of its Restricted Subsidiaries, provided any such cash and Cash -------- Equivalents are applied as if they were Net Proceeds of an Asset Sale, and (x) the sale or factoring of receivables on customary market terms pursuant to Credit Facilities but only if the proceeds thereof received by the Company and its Restricted Subsidiaries represent the fair market value of such receivables. 3 "Board of Directors" means, with respect to any Person, the Board of Directors of such Person, or any authorized committee of the Board of Directors of such Person. "Board Resolution" means a copy of a resolution certified by an Officer of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means a day other than a Saturday, Sunday or other day on which banking institutions in New York State are authorized or required by law to close. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any similar participation in profits and losses or equity of a Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any commercial bank or trust company having capital and surplus in excess of $300.0 million, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Services, a division of the McGraw-Hill Companies, Inc. ("S&P"), and in each case maturing within one year after the date of acquisition, (vi) investment funds investing 95% of their assets in securities of the types described in clauses (ii)-(v) above, (vii) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody's or S&P and (viii) Debt with a rating of "A" or higher from S&P or "A2" or higher from Moody's and having a maturity of not more than one year from the date of acquisition. "Change of Control" means the occurrence of any of the following events: (i) prior to the first public offering of Voting Stock of the Company, the Initial Control Group ceases to be the "beneficial owner" (as defined in Rules 13d-3 and 4 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the Company, whether as a result of the issuance of securities of the Company, any merger, consolidation, liquidation or dissolution of the Company, any direct or indirect transfer of securities by the Initial Control Group or otherwise (for purposes of this clause (i), the Initial Control Group shall be deemed to beneficially own all Voting Stock of an entity (the "specified entity") held by any other entity (the "parent entity") so long as the Initial Control Group beneficially owns (as so defined), directly or indirectly, in the aggregate a majority of the voting power of the Voting Stock of the parent entity); (ii) following the first public offering of Voting Stock of the Company (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more members of the Initial Control Group, is or becomes the beneficial owner (as defined in clause (i) above), directly or indirectly, of more than 40% of the total voting power of the Voting Stock of the Company and (B) the Initial Control Group "beneficially owns" (as defined in clause (i) above), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Company, than such other person and does not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors of the Company (for purposes of this clause (ii), such other person shall be deemed to beneficially own all Voting Stock of a specified entity held by a parent entity, if such other person "beneficially owns" (as defined in clause (i) above), directly or indirectly, in the aggregate more than 40% of the voting power of the Voting Stock of such parent entity and the Initial Control Group "beneficially owns" (as defined in clause (i) above), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent entity and does not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of such parent entity); or (iii) at any time after the first public offering of common stock of the Company, any person other than the Initial Control Group (or their designated board members), (A) (I) nominates one or more individuals for election to the Board of Directors of the Company and (II) solicits proxies, authorizations or consents in connection therewith and (B) such number of nominees elected to serve on the Board of Directors in such election and all previous elections after the Closing Date represents a majority of the Board of Directors of the Company following such election. "Closing Date" means the date on which the Company is merged with and into Harborside Healthcare Corporation. "Code" means the Internal Revenue Code of 1986, as amended. "Collateral Agent" means United States Trust Company of New York. 5 "Commodity Hedging Agreements" means any futures contract or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in commodities prices. "Company" means HH Acquisition Corp. and, upon consummation of the Recapitalization, Harborside, until a successor replaces it pursuant to this Indenture and thereafter shall mean such successor corporation. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period (A) plus (without duplication), to the extent deducted in computing such Consolidated Net Income, (i) Consolidated Interest Expense and the amortization of debt issuance costs, commissions, fees and expenses of such Person and its Restricted Subsidiaries for such period, (ii) provision for taxes based on income or profits (including franchise taxes) of such Person and its Restricted Subsidiaries for such period, (iii) depreciation and amortization expense, including amortization of inventory write-up under APB 16, amortization of intangibles (including goodwill and the noncash costs of Interest Rate Agreements, Commodity Hedging Agreements or Currency Agreements, license agreements and non-competition agreements), noncash amortization of Capital Lease Obligations, and organization costs, (iv) noncash expenses related to the amortization of management fees paid on or prior to the Closing Date, (v) expenses and charges related to any equity offering or Incurrence of Debt permitted to be Incurred by this Indenture (including any such expenses or charges relating to the Recapitalization), (vi) the amount of any restructuring charge or reserve, (vii) unrealized gains and losses from hedging, foreign currency or commodities translations and transactions, (viii) expenses consisting of internal software development costs that are expensed during the period but could have been capitalized in accordance with GAAP, (ix) any write- downs, write-offs, and other noncash charges, items and expenses, (x) the amount of expense relating to any minority interest in a Restricted Subsidiary, and (xi) costs of surety bonds in connection with financing activities, and (B) minus any cash payment for which a reserve or charge of the kind described in clauses (vi), (ix) or (x) of subclause (A) above was taken previously during such period. "Consolidated Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such period to the Consolidated Interest Expense of such Person and its Restricted Subsidiaries for such period. In the event that the Company or any of its Restricted Subsidiaries Incurs, assumes, Guarantees, redeems or repays any Debt (other than revolving credit borrowings) or issues or redeems Preferred Stock subsequent to the commencement of the period for which the Consolidated Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Consolidated Coverage Ratio is made (the "Calculation Date"), then the Consolidated Coverage Ratio shall be calculated giving pro forma effect to such Incurrence, assumption, Guarantee, --------- redemption or repayment of Debt, or such issuance or redemption of Preferred Stock, as if the same had occurred at the beginning of the applicable four- quarter reference period. For purposes of making the computation 6 referred to above, Investments, acquisitions, dispositions, mergers and consolidations that have been made by the Company or any of its Restricted Subsidiaries during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date, and discontinued operations determined in accordance with GAAP on or prior to the Calculation Date, shall be given effect on a pro forma basis assuming that all such --------- Investments, acquisitions, dispositions, mergers and consolidations or discontinued operations (and the reduction or increase of any associated Consolidated Interest Expense, and the change in Consolidated Cash Flow, resulting therefrom, including because of reasonably anticipated cost savings) had occurred on the first day of the four-quarter reference period. If since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Investment, acquisition, disposition, merger or consolidation or determined a discontinued operation, that would have required adjustment pursuant to this definition, then the Consolidated Coverage Ratio shall be calculated giving pro forma effect thereto --------- for such period as if such Investment, acquisition, disposition, merger or consolidation or discontinued operations had occurred at the beginning of the applicable four-quarter period. For purposes of this definition, whenever pro --- forma effect is to be given to a transaction, the pro forma calculations shall - ----- --------- be made in good faith by a financial or accounting officer of the Company. If any Debt to which pro forma effect is given bears interest at a floating rate, --------- the interest expense on such Debt shall be calculated as if the rate in effect on the Calculation Date had been the applicable interest rate for the entire period (taking into account any Interest Rate Agreement in effect on the Calculation Date). Interest on a Capital Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by a responsible financial or accounting officer of the Company to be the rate of interest implicit in such Capital Lease Obligation in accordance with GAAP. Interest on Debt that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as the Company may designate. "Consolidated Interest Expense" means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated net interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including amortization of original issue discount, noncash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges Incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations relating to Interest Rate Agreements or Currency Agreements with respect to Debt, excluding, however, (A) amortization --------- ------- of debt issuance costs, commissions, fees and expenses, (B) customary commitment, administrative and transaction fees and charges and (C) expenses attributable to letters of credit or similar arrangements supporting insurance certificates issued to customers in the ordinary course of business), (ii) any interest expense on Debt of another Person that is Guaranteed by or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries (but only to the extent such Guarantee or Lien has then been called 7 upon), and (iii) cash dividends paid in respect of any Preferred Stock of such Person or any Restricted Subsidiary of such Person held by Persons other than the Company or a Subsidiary, in each case, on a consolidated basis and in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income of any Person that is not a -------- Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Restricted Subsidiary of such Person, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, prohibited by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders unless such restriction with respect to the payment of dividends has been permanently waived, (iii) except for purposes of calculating "Consolidated Cash Flow," the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iv) the cumulative effect of a change in accounting principles shall be excluded (effected either through cumulative effect adjustment or a retroactive application, in each case, in accordance with GAAP), (v) to the extent deducted in determining Net Income, the fees, expenses and other costs Incurred in connection with the Recapitalization, including payments to management contemplated by the Recapitalization Agreement, shall be excluded, and (vi) to the extent deducted in determining Net Income, any noncash charges resulting from any write-up, write-down or write-off of assets, of the Company and its Restricted Subsidiaries in connection with the Recapitalization, shall be excluded. "Credit Facilities" means, with respect to the Company, one or more debt facilities (including the New Credit Facility) or commercial paper facilities with banks, insurance companies or other institutional lenders providing for revolving credit loans, term loans, synthetic lease financing, notes, receivables factoring or other financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from or issue securities to such lenders against such receivables) or letters of credit or other credit facilities, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement to which the Company or any Restricted Subsidiary is a party or of which it is a beneficiary. "Debt" means, with respect to any Person (without duplication), (i) any indebtedness of such Person, whether or not contingent, in respect of borrowed money or 8 evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property, which purchase price is due more than six months after the date of placing such property in final service or taking final delivery thereof, or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, (ii) all indebtedness under clause (i) of other Persons secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person), provided that the amount of -------- indebtedness of such Person shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such indebtedness of such other Persons, and (iii) to the extent not otherwise included, the Guarantee by such Person of any Debt under clause (i) of any other Person; provided, however, that Debt shall not include (a) obligations of the Company or - -------- ------- any of its Restricted Subsidiaries arising from agreements of the Company or a Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, Incurred or assumed in connection with the disposition of any business, assets or a Subsidiary, other than guarantees of Debt Incurred by any Person acquiring all or any portion of such business, assets or a Subsidiary for the purpose of financing such acquisition; provided, however, that (x) such obligations are not reflected on the balance - -------- ------- sheet of the Company or any Restricted Subsidiary (contingent obligations referred to in a footnote to financial statements and not otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this clause (x)) and (y) the maximum assumable liability in respect of all such obligations shall at no time exceed the gross proceeds including noncash proceeds (the fair market value of such noncash proceeds being measured at the time received and without giving effect to any subsequent changes in value) actually received by the Company and its Restricted Subsidiaries in connection with such disposition, (b) (A) obligations under (or constituting reimbursement obligations with respect to) letters of credit, performance bonds, surety bonds, appeal bonds, completion guarantees or similar instruments issued in connection with the ordinary course of business conducted by the Company, including letters of credit in respect of workers' compensation claims, security or lease deposits and self-insurance; provided, however, that upon the drawing -------- ------- of such letters of credit or other instrument, such obligations are reimbursed within 30 days following such drawing, and (B) obligations arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of day-light overdrafts) drawn against insufficient funds in the ordinary course of business; provided, -------- however, that such obligations are extinguished within three Business Days of - ------- Incurrence, or (c) retentions in connection with purchasing assets in the ordinary course of business of the Company and its Restricted Subsidiaries. The amount of any Debt outstanding as of any date shall be the lesser of (i) the accreted value thereof, and (ii) the principal amount thereof, provided that the -------- amount of Permitted Debt under clause (i) or (x) of the definition thereof, at the Company's election, but without duplication, may be reduced by the principal amount (not to exceed $7.5 million) 9 of the note receivable issued to Harborside before the Issue Date in connection with the leasing of certain nursing home facilities in the State of Connecticut. "Default" means any event that, with the passage of time or the giving of notice or both, would be an Event of Default. "Depositary" means The Depository Trust Company, its nominees, and their respective successors. "Designated Senior Debt" means (i) any Debt outstanding under the New Credit Facility and (ii) any other Senior Debt permitted under this Indenture the principal amount of which is $25.0 million or more and that has been designated by the Company as "Designated Senior Debt." "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event (other than as a result of a Change of Control), matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date on which the Securities mature; provided, however, that if such Capital Stock is issued to any plan for the - -------- ------- benefit of employees of the Company or its Subsidiaries or by any such plan to such employees, such Capital Stock shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Company in order to satisfy applicable statutory or regulatory obligations. For the avoidance of doubt, Exchangeable Preferred Stock shall not be considered "Disqualified Stock." "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Debentures" means the Exchange Debentures of the Company due 2010 issued in exchange for the Exchangeable Preferred Stock and any Exchange Debentures issued as payments in kind interest thereon. "Exchange Debenture Indenture" means the indenture pursuant to which the Exchange Debentures are to be issued, as it may from time to time be amended or supplemented. "Exchangeable Preferred Stock" means the Exchangeable Preferred Stock of the Company Due 2010 issued on the first Issue Date, any Exchangeable Preferred Stock issued as payment of dividends thereon and any Preferred Stock containing terms substantially identical 10 to the Exchangeable Preferred Stock that are issued in exchange for the Exchangeable Preferred Stock. "Existing Debt" means Debt of the Issuer and its Restricted Subsidiaries (other than Debt under the New Credit Facility) in existence on the first Issue Date, until such amounts are repaid. "Exchange Securities" means any securities of the Company containing terms identical to the Securities (except that such Exchange Securities shall be registered under the Securities Act) that are issued and exchanged for the Initial Securities pursuant to a Registration Rights Agreement and this Indenture. "Foreign Subsidiary" means any Subsidiary of the Company formed under the laws of any jurisdiction other than the United States or any political subdivision thereof substantially all of the assets of which are located outside of the United States or that conducts substantially all of its business outside of the United States. "Full Accretion Date" means August 1, 2003. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in this Indenture shall be computed in conformity with GAAP as in effect as of the first Issue Date. "Government Securities" means non-callable direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States is pledged. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including letters of credit and reimbursement agreements in respect thereof), of all or any part of any Debt. "Guarantors" means, at any time after the Closing Date, (i) each of the Company's Subsidiaries on the Closing Date, other than the Subsidiary Non- Guarantors on such date and (ii) each Restricted Subsidiary that executes and delivers a Security Guarantee after the Closing Date, and their respective successors and assigns, in each case until released from its Security Guarantee in accordance with the terms of this Indenture. 11 "Harborside" means Harborside Healthcare Corporation. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under Interest Rate Agreements, Currency Agreements or Commodity Hedging Agreements. "Holder" or "Securityholder" means a Person in whose name a Security is registered in the register for the Securities. "HRI" means Harborside of Rhode Island L.P., a Massachusetts limited partnership, or its successor. "Incur", "Incurring" and "Incurred" means to, directly or indirectly, create, Incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise; provided, however, that any Debt -------- ------- or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. "Indenture" means this Indenture, as amended or supplemented from time to time. "Initial Control Group" means Investcorp, its Affiliates, any Person acting in the capacity of an underwriter or initial purchaser in connection with a public or private offering of the Company's Capital Stock, any employee benefit plan of the Company or any of its Subsidiaries or any participant therein, a trustee or other fiduciary holding securities under any such employee benefit plan or any Permitted Transferee of any of the foregoing Persons. "Initial Purchasers" means Morgan Stanley & Co. Incorporated, Chase Securities Inc. and BT Alex.Brown Incorporated. "Institutional Accredited Investor" means an institution that is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement, repurchase agreement, futures contract or other financial agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in interest rates. "Investcorp" means Investcorp S.A. and certain affiliates thereof. "Investment Grade Securities" means (i) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality 12 thereof (other than Cash Equivalents) having maturities of not more than one year from the date of acquisition, (ii) debt securities or debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by Moody's or the equivalent of such rating by such rating organization, or, if no rating of S&P or Moody's then exists, the equivalent of such rating by any other nationally recognized securities rating agency, but excluding any debt securities or instruments constituting loans or advances among the Company and its Subsidiaries having maturities of not more than one year from the date of acquisition, and (iii) investments in any fund that invests exclusively in investments of the type described in clauses (i) and (ii), which fund may also hold immaterial amounts of cash pending investment and/or distribution. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including Guarantees of Debt or other obligations, but excluding advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such Person), advances or capital contributions (excluding commission, travel, payroll, entertainment, relocation and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Debt, Equity Interests or other securities. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of, in an amount determined as provided in the third to last paragraph of Section 4.04. "Investors" shall mean Investcorp and certain other international investors organized by Investcorp. "Issue Date" means the date on which any Securities are originally issued. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement or any lease in the nature thereof); provided that in no event shall an operating lease be -------- deemed to constitute a Lien. "Liquidated Damages" shall have the meaning set forth in a Registration Rights Agreement. "Net Income" means, with respect to any Person and any period, the net income (or loss) of such Person for such period, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends, excluding, however, (i) any extraordinary or non-recurring gains or losses or charges and gains or losses or charges from the sale of assets 13 outside the ordinary course of business, together with any related provision for taxes on such gain or loss or charges and (ii) deferred financing costs written off in connection with the early extinguishment of Debt; provided, however, that -------- ------- Net Income shall be deemed to include any increases during such period to shareholder's equity of such Person attributable to tax benefits from net operating losses and the exercise of stock options that are not otherwise included in Net Income for such period. "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including any cash received upon the sale or other disposition of any noncash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including legal, accounting and investment banking fees, and brokerage and sales commissions) and any relocation, redundancy and closing costs Incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts applied to the repayment of principal, premium (if any) and interest on Debt that is not subordinated to the Securities required (other than required by clause (a) of the second paragraph of Section 4.06) to be paid as a result of such transaction, all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Sale, and any deduction of appropriate amounts to be provided by the Company as a reserve, in accordance with GAAP, against any liabilities associated with the asset disposed of in such transaction and retained by the Company after such sale or other disposition thereof, including pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with such transaction. "New Credit Facility" means the collective reference to (a) the Credit Agreement among the Issuer and certain Subsidiaries of the Issuer named therein and the financial institutions named therein, any Credit Documents (as defined therein) and any related notes, collateral documents, letters of credit, participation agreements, guarantees and other documents part of or relating to the Credit Documents, including any appendices, exhibits or Schedules to any of the foregoing (as the same may be in effect from time to time), and (b) the Synthetic Lease Facility described in the Credit Agreement, including the Lease between a Subsidiary of the Issuer, as lessee, and the Delaware business trust named therein, as lessor (the "Lessor"), the Credit Agreement among the Lessor and the financial institutions named therein, the Participation Agreement among the parties to the Lease, the parties to the Credit Agreement, the Trustee of Lessor, and the Investors in Lessor, and the additional Operative Agreements described in the Participation Agreement, including any appendices, exhibits or schedules to any of the foregoing (as the same may be in effect from time to time), in each case, as such agreements may be amended, modified, supplemented or restated from time to time, or refunded, refinanced, restructured, replaced, renewed, repaid or extended from time to time (whether with the original agents and lenders or other agents or lenders or otherwise, and whether provided under the original credit agreements or other credit agreements or otherwise). For purposes of 14 this definition, capitalized terms used in this definition and not defined have the meanings given in the New Credit Facility. "Non-U.S. Person" means a Person who is not a "U.S. person" (as defined in Regulation S). "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages, Guarantees and other liabilities payable under the documentation governing any Debt, in each case whether now or hereafter existing, renewed or restructured, whether or not from time to time decreased or extinguished and later increased, created or Incurred, whether or not arising on or after the commencement of a proceeding under Title 11, U.S. Code or any similar federal or state law for the relief of debtors (including post-petition interest) and whether or not allowed or allowable as a claim in any such proceeding. "Offering" means the Security Offering and the offering of the Company's Exchangeable Preferred Stock. "Offering Memorandum" shall mean the offering memorandum dated July 29, 1998, relating to the sale by the Issuer of $170,000,000 aggregate principal amount at maturity of the Initial Securities and 40,000 shares of Exchangeable Preferred Stock. "Officers" means any of the following: Chairman, President, Chief Executive Officer, Treasurer, Chief Financial Officer, Executive Vice President, Senior Vice President, Vice President, Assistant Vice President, Secretary, Assistant Secretary or any other officer reasonably acceptable to the Trustee. "Officers' Certificate" means a certificate signed by two Officers. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. "Pari Passu Debt" means any Debt of the Company or any Guarantor that ranks pari passu with the Securities or the relevant Security Guarantee. ---- ----- "Paying Agent" has the meaning provided in Section 2.04, except that, for the purposes of Article Eight, the Paying Agent shall not be the Company or a Subsidiary of the Company or an Affiliate of any of them. The term "Paying Agent" includes any additional Paying Agent. "Payment" means, with respect to the Securities, any payment, whether in cash or other assets or property, of interest, principal (including redemption price and purchase price), premium, Liquidated Damages or any other amount on, of or in respect of the 15 Securities, any other acquisition of Securities and any deposit into the trust described in Article VIII. The verb "pay" has a correlative meaning. "Permitted Investments" means (a) any Investment in the Company or in a Restricted Subsidiary (including in any Equity Interests of a Restricted Subsidiary); (b) any Investment in cash, Cash Equivalents or Investment Grade Securities; (c) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Restricted Subsidiary or (ii) such Person, in one transaction or a series of substantially concurrent related transactions, is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary; (d) any securities or other assets received or other Investments made as a result of the receipt of noncash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.06 or in connection with any other disposition of assets not constituting an Asset Sale; (e) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (f) loans or advances to employees (or guarantees of third party loans to employees) in the ordinary course of business; (g) stock, obligations or securities received in satisfaction of judgments, foreclosure of liens or settlement of debts (whether pursuant to a plan of reorganization or similar arrangement); (h) receivables owing to the Company or any Restricted Subsidiary, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms (including such concessionary terms as the Company or such Restricted Subsidiary deems reasonable); (i) any Investment existing on the first Issue Date or made pursuant to legally binding written commitments in existence on the first Issue Date; (j) Investments in Interest Rate Agreements, Currency Agreements and Commodity Hedging Agreements otherwise permitted under this Indenture; and (k) additional Investments having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (k) that are at that time outstanding, not to exceed 15.0% of Total Assets at the time of such Investment (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value). "Permitted Junior Securities" shall mean debt or equity securities of the Company or any successor corporation issued pursuant to a plan of reorganization or readjustment of the Company that are subordinated to the payment of all Senior Debt at least to the same extent that the Securities are subordinated to the payment of all Senior Debt on the first Issue Date, so long as (i) the effect of the use of this defined term in the subordination provisions described in Article X is not to cause the Securities to be treated as part of (a) the same class of claims as the Senior Debt or (b) any class of claims pari passu with, or senior to, the Senior Debt for any payment or distribution in any case or proceeding or similar event relating to the liquidation, insolvency, bankruptcy, dissolution, winding-up or reorganization of the Company and (ii) to the extent that any Senior Debt outstanding on the date of consummation of any such plan of reorganization or readjustment is not paid in full in cash on such date, either (a) the holders of any such Senior Debt not so paid in full in cash have consented to the terms of such plan of reorganization or readjustment or (b) such holders 16 receive securities that constitute Senior Debt and that have been determined by the relevant court to constitute satisfaction in full in money or money's worth of any Senior Debt not paid in full in cash. "Permitted Liens" means (i) Liens securing Senior Debt of the Company and Guarantors and unsubordinated Debt of a Subsidiary Non-Guarantor (in each case including related Obligations) that was permitted by the terms of this Indenture to be Incurred; (ii) Liens in favor of the Company or any Restricted Subsidiary; (iii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Restricted Subsidiary of the Company, provided that such Liens were in existence prior to the -------- contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company or a Restricted Subsidiary, as the case may be; (iv) Liens on property existing at the time of acquisition thereof by the Company or any Restricted Subsidiary of the Company, provided that such Liens were in existence prior to the -------- contemplation of such acquisition and do not extend to any assets other than those acquired; (v) banker's Liens, rights of setoff and Liens to secure the performance of bids, tenders, trade or government contracts (other than for borrowed money), leases, licenses, statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature Incurred in the ordinary course of business; (vi) without limitation of clause (i), Liens to secure Acquired Debt; (vii) Liens existing on the Closing Date; (viii) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings, provided -------- that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (ix) Liens Incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $5.0 million at any one time outstanding and that (a) are not Incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Restricted Subsidiary; (x) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other like Liens arising in the ordinary course of business in respect of obligations that are not yet due or that are bonded or that are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company or such Restricted Subsidiary, as the case may be, in accordance with GAAP; (xi) pledges or deposits in connection with workmen's compensation, unemployment insurance and other social security legislation; (xii) easements (including reciprocal easement agreements), rights-of-way, building, zoning and similar restrictions, utility agreements, covenants, reservations, restrictions, encroachments, changes, and other similar encumbrances or title defects Incurred, or leases or subleases granted to others, in the ordinary course of business, that do not in the aggregate materially detract from the aggregate value of the properties of the Company and its Subsidiaries, taken as a whole, or in the aggregate materially interfere with or adversely affect in any material respect the ordinary conduct of the business of the Company and its Subsidiaries on the properties subject 17 thereto, taken as a whole; (xiii) Liens on goods (and the proceeds thereof) and documents of title and the property covered thereby securing Debt in respect of commercial letters of credit; (xiv) (A) mortgages, Liens, security interests, restrictions, encumbrances or any other matters of record that have been placed by any developer, landlord or other third party on property over which the Company or any Restricted Subsidiary of the Company has easement rights or on any real property leased by the Company or any Restricted Subsidiary on the first Issue Date and subordination or similar agreements relating thereto and (B) any condemnation or eminent domain proceedings affecting any real property; (xv) leases or subleases to third parties; (xvi) Liens in connection with workmen's compensation obligations and general liability exposure of the Company and its Restricted Subsidiaries; (xvii) Liens arising by reason of a judgment, decree or court order, to the extent not otherwise resulting in an Event of Default; (xviii) Liens securing Hedging Obligations entered into in the ordinary course of business; (xix) without limitation of clause (i), Liens securing Permitted Refinancing Debt permitted to be Incurred under this Indenture or amendments or renewals of Liens that were permitted to be Incurred, provided, in each case, that (A) such Liens do not extend to an additional property or asset of the Company or a Restricted Subsidiary and (B) such Liens do not secure Debt in excess of the amount of Permitted Refinancing Debt permitted to be Incurred under this Indenture or the principal amount of (or accreted value, if applicable), plus accrued interest on, the Debt (plus the amount of reasonable premium and fees and expenses Incurred in connection therewith) secured by the Lien being amended or renewed, as the case may be; (xx) Liens that secure Debt of a Person existing at the time such Person becomes a Restricted Subsidiary of the Company, provided that such Liens do not extend to any assets other than -------- those of the Person that became a Restricted Subsidiary of the Company, and (xxi) any provision for the retention of title to an asset by the vendor or transferor of such asset, which asset is acquired by the Company or any Restricted Subsidiary in a transaction entered into in the ordinary course of business of the Company or such Restricted Subsidiary and for which kind of transaction it is normal market practice for such retention of title provision to be included. "Permitted Refinancing Debt" means any Debt of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Debt of the Company or any of its Restricted Subsidiaries Incurred in compliance with this Indenture, provided that: (i) the principal amount (or accreted value, if -------- applicable) of such Permitted Refinancing Debt does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Debt so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable premium and fees and expenses Incurred in connection therewith); (ii) in the case of term Debt, (1) principal payments required under such Permitted Refinancing Debt have a Stated Maturity no earlier than the earlier of (A) the Stated Maturity of those under the Debt being refinanced and (B) the maturity date of the Securities and (2) such Permitted Refinancing Debt has a Weighted Average Life to Maturity equal to or greater than the lesser of the Weighted Average Life to Maturity of the Debt being extended, refinanced, renewed, replaced, defeased or refunded and the Weighted Average Life to Maturity of the Securities; (iii) if the 18 Debt being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Securities, such Permitted Refinancing Debt has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Securities on terms at least as favorable to the Holders of Securities as those contained in the documentation governing the Debt being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Debt is Incurred either by the Company or by its Restricted Subsidiary who is the obligor on the Debt being extended, refinanced, renewed, replaced, defeased or refunded. The Company may Incur Permitted Refinancing Debt not more than six months prior to the application of the proceeds thereof to repay the Debt to be refinanced; provided that, upon the -------- Incurrence of such Permitted Refinancing Debt, the Company shall provide written notice thereof to the Trustee, specifically identifying the Debt to be refinanced with Permitted Refinancing Debt. "Permitted Transferee" means, with respect to any Person, (i) any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person, (ii) the spouse, former spouse, lineal descendants, heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any such Person, (iii) a trust, the beneficiaries of which, or a corporation or partnership or limited liability company, the stockholders, general or limited partners or members of which, include only such Person or his or her spouse, lineal descendants or heirs, in each case to whom such Person has transferred, or through which it holds, the beneficial ownership of any securities of the Issuer and (iv) any investment fund or investment entity that is a subsidiary of such Person or a Permitted Transferee of such Person. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Placement Agreement" means (i) with respect to the Initial Securities issued on the date hereof, the Placement Agreement dated July 29, 1998, for the purchase of $170,000,000 principal amount at maturity of Initial Securities between the Company and the Initial Purchasers as such agreement may be amended, modified or supplemented from time to time in accordance with the terms thereof and (ii) with respect to any Additional Securities, any purchase or underwriting agreement entered into by the Company, any Guarantors and the initial purchasers or underwriters with respect thereto, as such agreement may be amended, modified or supplemented from time to time in accordance with the terms thereof. "Pledge Agreement" means the collateral pledge and security agreement dated as of the first Issue Date between the Company and the Collateral Agent. "Preferred Equity Interests" means Preferred Stock and all warrants, options or other rights to acquire Preferred Stock (but excluding any debt security that is convertible into, or exchangeable for, Preferred Stock). 19 "Preferred Stock" means, with respect to any Person, any Capital Stock of such Person (however designated) that is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. With respect to the Company, "Preferred Stock" includes the Exchangeable Preferred Stock. "principal" of a Security means the principal of the Security plus the premium, if any, payable on the Security that is due or overdue or is to become due at the relevant time. "Private Placement Legend" means the legend initially set forth on the Securities in the form set forth in Section 2.02. "Recapitalization" means the recapitalization of Harborside pursuant to which the Company will be merged with and into Harborside and the financing transactions related thereto. "Recapitalization Agreement" means the Agreement and Plan of Merger dated as of April 15, 1998 by and between the Company and Harborside Healthcare Corporation, as amended through the Closing Date. "Registered Exchange Offer" shall mean an offer made by the Company pursuant to a Registration Rights Agreement and under an effective registration statement under the Securities Act to exchange Exchange Securities for outstanding Initial Securities substantially identical in all material respects to such Initial Securities (except for the differences provided for therein). "Registration Statement" means the Registration Statement as defined and described in the Registration Rights Agreement. "Registration Rights Agreement" means (i) with respect to the Initial Securities issued on the date hereof, the Registration Rights Agreement dated July 31, 1998, among the Company, the Guarantors and the Initial Purchasers, as such agreement may be amended, modified or supplemented from time to time in accordance with the terms thereof and (ii) with respect to any Additional Securities, any registration rights agreement entered into among the Company, any Guarantors and the relevant initial purchasers or underwriters, as the same may be amended, modified or supplemented from time to time in accordance with the terms thereof. "Regulation S" means Regulation S under the Securities Act. "Representative" means any agent or representative in respect of any Designated Senior Debt; provided that if, and for so long as, any Designated -------- Senior Debt lacks such a representative, then the Representative for such Designated Senior Debt shall at all times 20 constitute the holders of a majority in outstanding principal amount of such Designated Senior Debt. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "Rule 144A" means Rule 144A under the Securities Act. "SEC" means the Securities and Exchange Commission. "Secured Debt" means any Debt of the Company or any Subsidiary secured by a Lien. "Securities" has the meaning stated in the recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture. For all purposes of this Indenture, the term "Securities" shall include any Exchange Securities to be issued and exchanged for any Initial Securities pursuant to a Registration Rights Agreement and this Indenture. From and after the issuance of any Additional Securities (but not for purposes of determining whether such issuance is permitted hereunder), "Securities" shall include such Additional Securities for purposes of this Indenture and all Exchange Securities from time to time issued with respect to any Initial Securities that constitute such Additional Securities. All Securities, including any such Additional Securities, shall vote together as one series of Securities under this Indenture. "Securities Act" means the Securities Act of 1933, as amended. "Securities Custodian" or "Custodian" means the custodian with respect to any Global Security (as appointed by the Depository), or any successor entity thereto covered in Section 2.03. "Security Offering" means the offering of the Company's 11% Senior Subordinated Discount Notes due 2008 as described in the Offering Memorandum. "Security Guarantee" means, upon consummation of the Recapitalization, the Guarantee by each Guarantor of the Company's Obligations under the Securities pursuant to Article XI. "Senior Debt" means (i) all Debt of the Company or any Guarantor outstanding under the New Credit Facility and all Hedging Obligations with respect thereto, (ii) any other Debt (including Acquired Debt) permitted to be Incurred by the Company or any Guarantor pursuant to Section 4.03, unless the instrument under which such Debt is Incurred expressly 21 provides that it is on a parity with or subordinated in right of payment to the Securities or the relevant Security Guarantee and (iii) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include (v) any liability for federal, state, local or other taxes owed or owing by the Company, (w) any Debt of the Company or any Guarantor to any of its Subsidiaries, officers, employees or other Affiliates (other than Debt under any Credit Facility to any such Affiliate), (x) any trade payables, (y) that portion of Debt Incurred in violation of Section 4.03 (but as to any such Debt under any Credit Facility, such violation shall be deemed not to exist for purposes of this clause (y) if the lenders have obtained a representation from a Senior Officer of the Company to the effect that the issuance of such Debt does not violate such covenant) or (z) any Debt or obligation of the Company or any Guarantor that is expressly subordinated in right of payment to any other Debt or obligation of the Company or such Guarantor, as applicable, including any Subordinated Debt of the Company. "Senior Officer" means the Chief Executive Officer or the Chief Financial Officer of the Company. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such regulation is in effect on the first Issue Date. "Specified Affiliate Payments" means: (i) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any future, present or former employee, director, officer or consultant of the Company (or any of its Restricted Subsidiaries) pursuant to any management equity subscription agreement, stock option agreement, put agreement, stockholder agreement or similar agreement that may be in effect from time to time; provided that the -------- aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $3.0 million in any calendar year (with unused amounts in any calendar year being carried over to succeeding calendar years, subject to a maximum amount of repurchases, redemptions or other acquisitions pursuant to this clause (i) (without giving effect to the immediately following proviso) of $10.0 million in any calendar year) and no payment default on Senior Debt or the Securities shall have occurred and be continuing; provided further that such amount in any calendar year -------- ------- may be increased by an amount not to exceed (A) the cash proceeds received by the Company (including by way of capital contribution) since the Issue Date from the sale of Equity Interests of the Company to employees, directors, officers or consultants of the Company or its Subsidiaries that occurs in such calendar year (it being understood that such cash proceeds shall be excluded from clause (c)(ii) of Section 4.04(a)) plus (B) the cash proceeds from key man life insurance policies received by the Company and its Restricted Subsidiaries in such calendar year (including proceeds from 22 the sale of such policies to the person insured thereby); and provided -------- further that cancellation of Debt owing to the Company from employees, ------- directors, officers or consultants of the Company or any of its Subsidiaries in connection with a repurchase of Equity Interests of the Company will not be deemed to constitute a Restricted Payment for purposes of this Indenture; (ii) repurchases of Equity Interests deemed to occur upon exercise of stock options or warrants as a result of the payment of all or a portion of the exercise price of such options or warrants with Equity Interests; (iii) payments by the Company to shareholders or members of management of the Company and its Subsidiaries in connection with the Recapitalization; and (iv) payments or transactions permitted under clause (5) of Section 4.07(b); "Stated Maturity" means, with respect to any installment of interest on or principal of, or any other amount payable in respect of, any series of Debt, the date on which such interest, principal or other amount was scheduled to be paid in the documentation governing such Debt, and shall not include any contingent obligations to repay, redeem or repurchase any such interest, principal or other amount prior to the date scheduled for the payment thereof. "Subordinated Debt" means any Debt of the Company or any Guarantor (whether outstanding on the first Issue Date or thereafter Incurred) that is subordinate or junior in right of payment to the Securities or the applicable Security Guarantee pursuant to written agreement. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). Unless the context otherwise requires, "Subsidiary" refers to a Subsidiary of the Company. "Subsidiary Non-Guarantors" means (i) each of the Subsidiaries of the Company on the Closing Date that do not issue or are released from a Security Guarantee, (ii) each Unrestricted Subsidiary, and (iii) each Restricted Subsidiary formed or acquired after the Closing Date that does not execute and deliver or is released from a Security Guarantee. 23 "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa- ------ 77bbbb) as in effect on the date of this Indenture; provided, however, that, in -------- ------- the event the Trust Indenture Act of 1939 is amended after such date, "TIA" means, to the extent required by any such amendments, the Trust Indenture Act of 1939 as so amended. "Temporary Offshore Global Notes" has the meaning provided in Section 2.01. "Total Assets" means, at any time, the total consolidated assets of the Company and its Restricted Subsidiaries at such time. "Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15(519) which has become publicly available at least two Business Days prior to the redemption date (or, if such Statistical Release is no longer published, any publicly available source or similar market data)) most nearly equal to the period from the redemption date to August 1, 2003, provided, however, that if the period -------- ------- from the redemption date to August 1, 2003 is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the redemption date to August 1, 2003 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. "Trustee" means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor. "Trust Officer" means any officer or assistant officer of the Trustee assigned by the Trustee to administer this Indenture. "Uniform Commercial Code" means the New York Uniform Commercial Code as in effect from time to time. "Unrestricted Subsidiary" means (i) any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, and (ii) any Subsidiary of an Unrestricted Subsidiary; but in the case of any Subsidiary referred to in clause (i) (or any Subsidiary of any such Subsidiary) only to the extent that such Subsidiary: (a) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; and (b) except in the case of a Foreign Subsidiary, is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such 24 Person's financial condition or to cause such Person to achieve any specified levels of operating results. Any such designation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions and was permitted by Section 4.04. If, at any time, any Unrestricted Subsidiary referred to in clause (ii) of the first sentence of this definition (or any Subsidiary thereof) would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Debt of such Subsidiary shall be deemed to be Incurred by a Restricted Subsidiary of the Company as of such date (and, if such Debt is not permitted to be Incurred as of such date pursuant to Section 4.03, the Company shall be in default of such covenant). The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall -------- be deemed to be an Incurrence of Debt by a Restricted Subsidiary of the Company of any outstanding Debt of such Unrestricted Subsidiary and such designation shall only be permitted if (i) such Debt is permitted by Section 4.03, calculated on a pro forma basis as if such designation had occurred at the --------- beginning of the four-quarter reference period, and (ii) no Default or Event of Default would be in existence following such designation. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the Company's option. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person, excluding, however, Exchangeable Preferred Stock. "Weighted Average Life to Maturity" means, when applied to any Debt at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Debt. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person. 25 SECTION 1.02. Other Definitions. -----------------
Term Defined in Section ---- ------------------ "Affiliate Transaction"............................ 4.07 "Agent Members".................................... 2.07(a) "Asset Sale Offer"................................. 4.06 "Bankruptcy Law"................................... 6.01 "Change of Control Offer".......................... 3.09(a) "Change of Control Payment"........................ 4.08(a) "Covenant Defeasance".............................. 8.01(c) "Custodian"........................................ 6.01 "estate"........................................... 8.02(f) "Event of Default"................................. 6.01 "Excess Proceeds".................................. 4.06 "Excess Proceeds Offer"............................ 3.09(a) "Global Securities"................................ 2.01 "Guaranteed Obligations"...........................11.01 "Guarantor non-payment default"....................12.03 "Guarantor Payment Blockage Notice"................12.03 "Guarantor payment default"........................12.03 "Indemnified Party"................................ 7.07 "Legal Defeasance"................................. 8.01(b) "Legal Holiday"....................................13.08 "non-payment default"..............................10.03 "Notice of Default"................................ 6.01 "Offer Amount"..................................... 3.09(a) "Offer Period"..................................... 3.09(a) "Offshore Global Security.......................... 2.01 "Offshore Physical Securities...................... 2.01 "Option of Holder to Elect Purchase"............... 3.09 "Payment Blockage Notice"..........................10.03 "payment default"..................................10.03 "Permanent Offshore Global Securities"............. 2.01 "Permitted Debt"................................... 4.03(b) "Physical Securities".............................. 2.01 "Purchase Date".................................... 3.09(a) "Registrar......................................... 2.04 "Repurchase Offer"................................. 3.09(a) "Restricted Payments".............................. 4.04(a) "Rule 144A"........................................ 2.01(b) "Security Register"................................ 2.04 "Trustee".......................................... 8.03
26 "U.S. Global Securities"........................... 2.01 "U.S. Physical Securities"......................... 2.01
SECTION 1.03. Incorporation by Reference of Trust Indenture Act. ------------------------------------------------- This Indenture is subject to the mandatory provisions of the TIA, which are incorporated by reference in and made a part of this Indenture. The following TIA terms have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture security holder" means a Security holder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on this Indenture securities means the Company, each Guarantor and any other obligor under this Indenture. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. SECTION 1.04. Rules of Construction. Unless the context otherwise --------------------- requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) "including" means including without limitation; (5) words in the singular include the plural and words in the plural include the singular; (6) unsecured Debt shall not be deemed to be subordinate or junior to Secured Debt merely by virtue of its nature as unsecured Debt; 27 (7) the principal amount of any noninterest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the Company dated such date prepared in accordance with GAAP and accretion of principal on such security shall be deemed to be the Incurrence of Debt; and (8) the principal amount of any Preferred Stock shall be (i) the maximum liquidation value of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock, whichever is greater. ARTICLE II THE SECURITIES -------------- SECTION 2.01. Form and Dating. The Securities and the Trustee's --------------- certificate of authentication shall be substantially in the form annexed hereto as Exhibit A with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange agreements to which the Company is subject or usage. The Company shall approve the form of the Securities and any notation, legend or endorsement on the Securities. Each Security shall be dated the date of its authentication. The terms and provisions contained in the form of the Securities annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a part of this Indenture. To the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Securities offered and sold in reliance on Rule 144A shall be issued initially in the form of one or more permanent global Securities in registered form, substantially in the form set forth in Exhibit A (the "U.S. Global ----------- Securities"), registered in the name of the nominee of the Depositary, deposited - ---------- with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount at maturity of the U.S. Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, in accordance with the instructions given by the Holder thereof, as hereinafter provided. Securities offered and sold in offshore transactions in reliance on Regulation S shall be issued initially in the form of one or more temporary global Securities in registered form substantially in the form set forth in Exhibit A (the "Temporary Offshore Global Securities"), registered in the name ------------------------------------ of the nominee of the Depositary, deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by 28 the Trustee as hereinafter provided. At any time on or after September 10, 1998, upon receipt by the Trustee and the Company of a certificate substantially in the form of Exhibit B hereto, one or more permanent global Securities in registered form substantially in the form set forth in Exhibit A (the "Permanent --------- Offshore Global Securities"; and together with the Temporary Offshore Global - -------------------------- Securities, the "Offshore Global Securities") duly executed by the Company and -------------------------- authenticated by the Trustee as hereinafter provided, shall be deposited with the Trustee, as custodian for the Depositary or its nominee, and the Registrar shall reflect on its books and records the date and a decrease in the principal amount at maturity of the Temporary Offshore Global Securities in an amount equal to the principal amount at maturity of the beneficial interest in the Temporary Offshore Global Securities transferred. Securities may not be originally offered or sold to Institutional Accredited Investors which are not QIBs (excluding Non-U.S. Persons). Securities resold or otherwise transferred to Institutional Accredited Investors as provided in Section 2.08(a) shall be issued in the form of permanent certificated Securities in registered form in substantially the form set forth in A (the "U.S. Physical Securities"). ------------------------ Securities issued pursuant to Section 2.07 in exchange for interests in the Offshore Global Securities shall be in the form of permanent certificated Securities in registered form substantially in the form set forth in A (the "Offshore Physical Securities"). - ----------------------------- The Offshore Physical Securities and U.S. Physical Securities are sometimes collectively herein referred to as the "Physical Securities." The ------------------- U.S. Global Securities and the Offshore Global Securities are sometimes referred to herein as the "Global Securities." ----------------- The definitive Securities shall be typed, printed, lithographed or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any securities exchange on which the Securities may be listed, all as determined by the Officers executing such Securities, as evidenced by their execution of such Securities. SECTION 2.02. Restrictive Legends. Unless and until a Security is ------------------- exchanged for an Exchange Security or sold in connection with an effective Registration Statement pursuant to the Registration Rights Agreement, (i) the U.S. Global Securities and U.S. Physical Securities shall bear the legend set forth below on the face thereof and (ii) the Offshore Physical Securities, until at least the 41st day after the Closing Date and receipt by the Company and the Trustee of a certificate substantially in the form of B hereto, and the Temporary Offshore Global Securities shall bear the legend set forth below on the face thereof. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH 29 IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE ACCRETED VALUE OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE 30 CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS. Each Global Security, whether or not an Exchange Security, shall also bear the following legend on the face thereof: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.08 OF THE INDENTURE. SECTION 2.03. Execution, Authentication and Denominations. Subject ------------------------------------------- to Section 4.03, the aggregate principal amount at maturity of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities shall be executed by one or more Officers of the Company. The signature of these Officers on the Securities may be by facsimile or manual signature in the name and on behalf of the Company. If an Officer whose signature is on a Security no longer holds that office at the time the Trustee or authenticating agent authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until the Trustee or authenticating agent manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. At any time and from time to time after the execution of this Indenture, the Trustee or an authenticating agent shall upon receipt of a written order of the Company 31 authenticate for original issue Securities in the aggregate principal amount at maturity specified in such order; provided that the Trustee shall be entitled to -------- receive an Officers' Certificate and an Opinion of Counsel of the Company in connection with such authentication of Securities. Such written order of the Company shall specify the amount of Securities to be authenticated and the date on which the original issue of Securities is to be authenticated and, in case of an issuance of Securities pursuant to Section 2.15, shall certify that such issuance is in compliance with Article Four. The Trustee may appoint an authenticating agent to authenticate Securities. Any such appointment shall be evidenced by an instrument signed by the Trustee, a copy of which shall be furnished to the Company. An authenticating agent may authenticate Securities whenever the Trustee may do so unless limited by the terms of such appointment. Each reference in this Indenture to authentication by the Trustee includes authentication by such authenticating agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 in principal amount at maturity and any integral multiple thereof. SECTION 2.04. Registrar and Paying Agent. The Company shall maintain -------------------------- an office or agency where Securities may be presented for registration of transfer or for exchange (the "Registrar"), an office or agency where Securities --------- may be presented for payment (the "Paying Agent") and an office or agency where ------------ notices and demands to or upon the Company in respect of the Securities and this Indenture may be served, which shall be in the Borough of Manhattan, The City of New York. The Company shall cause the Registrar to keep a register of the Securities and of their transfer and exchange (the "Security Register"). The ----------------- Security Register shall be in written form or any other form capable of being converted into written form within a reasonable time. The Company may have one or more co-Registrars and one or more additional Paying Agents. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall give prompt written notice to the Trustee of the name and address of any such Agent and any change in the address of such Agent. If the Company fails to maintain a Registrar, Paying Agent and/or agent for service of notices and demands, the Trustee shall act as such Registrar, Paying Agent and/or agent for service of notices and demands. The Company may remove any Agent upon written notice to such Agent and the Trustee; provided that no such removal shall become effective -------- until (i) the acceptance of an appointment by a successor Agent to such Agent as evidenced by an appropriate agency agreement entered into by the Company and such successor Agent and delivered to the Trustee or (ii) notification to the Trustee that the Trustee shall serve as such Agent until the appointment of a successor Agent in accordance with clause (i) of this proviso. The Company, 32 any domestically organized Wholly Owned Restricted Subsidiary of the Company, or any Affiliate of any of them may act as Paying Agent, Registrar or co-Registrar, and/or agent for service of notice and demands. The Company initially appoints the Trustee as Registrar, Paying Agent and agent for service of notice and demands. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders and shall otherwise comply with TIA (S) 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee as of each regular record date and at such other times as the Trustee may reasonably request the names and addresses of Holders as they appear in the Security Register, including the aggregate principal amount at maturity of Securities held by each Holder. SECTION 2.05. Paying Agent to Hold Money in Trust. Not later than ----------------------------------- 11:00 a.m. (New York City time) on each due date of the principal, premium and Liquidated Damages, if any, and interest on any Securities, the Company shall deposit with the Paying Agent money in immediately available funds sufficient to pay such principal, premium and Liquidated Damages, if any, and interest so becoming due. The Company shall require each Paying Agent other than the Trustee to agree in writing that such Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all money held by the Paying Agent for the payment of principal of, premium and Liquidated Damages, if any, and interest on the Securities (whether such money has been paid to it by the Company or any other obligor on the Securities), and such Paying Agent shall promptly notify the Trustee of any default by the Company (or any other obligor on the Securities) in making any such payment. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and account for any funds disbursed, and the Trustee may at any time during the continuance of any payment default, upon written request to a Paying Agent, require such Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed. Upon doing so, the Paying Agent shall have no further liability for the money so paid over to the Trustee. If the Company or any Subsidiary of the Company or any Affiliate of any of them acts as Paying Agent, it will, on or before each due date of any principal of, premium and Liquidated Damages, if any, or interest on the Securities, segregate and hold in a separate trust fund for the benefit of the Holders a sum of money sufficient to pay such principal, premium and Liquidated Damages, if any, or interest so becoming due until such sum of money shall be paid to such Holders or otherwise disposed of as provided in this Indenture, and will promptly notify the Trustee of its action or failure to act. SECTION 2.06. Transfer and Exchange. The Securities are issuable --------------------- only in registered form. A Holder may register the transfer of a Security only by written application to the Registrar stating the name of the proposed transferee and otherwise complying with the terms of this Indenture. No such registration of transfer shall be effected until, and such transferee shall succeed to the rights of a Holder only upon, final acceptance and registration of the transfer by the Registrar in the Security Register. Prior to the registration of any 33 transfer by a Holder as provided herein, the Company, the Trustee, and any agent of the Company or the Trustee shall treat the Person in whose name the Security is registered as the owner thereof for all purposes whether or not the Security shall be overdue, and neither the Company, the Trustee, nor any such agent shall be affected by notice to the contrary. Furthermore, any Holder of a Global Security shall, by acceptance of such Global Security, agree that transfers of beneficial interests in such Global Security may be effected only through a book entry system maintained by the Holder of such Global Security (or its agent) and that ownership of a beneficial interest in the Security shall be required to be reflected in a book entry. When Securities are presented to the Registrar or a co-Registrar with a request to register the transfer or to exchange them for an equal principal amount at maturity of Securities of other authorized denominations (including an exchange of Securities for Exchange Securities), the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met (including that such Securities are duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Trustee and Registrar duly executed by the Holder thereof or by an attorney who is authorized in writing to act on behalf of the Holder); provided that no exchanges of Securities for Exchange Securities shall occur until a Registration Statement shall have been declared effective by the Commission and that any Securities that are exchanged for Exchange Securities shall be cancelled by the Trustee. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's request. No service charge shall be made for any registration of transfer or exchange or redemption of the Securities, but the Company may require payment of a sum sufficient to cover any transfer tax assessments or similar governmental charge payable in connection therewith (other than any such transfer taxes or other similar governmental charge payable upon exchanges pursuant to Section 2.11, 3.06 or 9.05). The Registrar shall not be required (i) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities selected for redemption and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. SECTION 2.07. Book-Entry Provisions for Global Securities. (a) The ------------------------------------------- U.S. Global Securities and Offshore Global Securities initially shall (i) be registered in the name of the Depositary for such Global Securities or the nominee of such Depositary, (ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear legends as set forth in Section 2.02. Members of, or participants in, the Depositary ("Agent Members") shall ------------- have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary, or the Trustee as its custodian, or under such Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as 34 the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Security. (b) Transfers of a Global Security shall be limited to transfers of such Global Security in whole, but not in part, to the Depositary, its successors or their respective nominees. Interests of beneficial owners in Global Securities may be transferred in accordance with the rules and procedures of the Depositary and the provisions of Section 2.08. In addition, U.S. Physical Securities and Offshore Physical Securities shall be transferred to all beneficial owners in exchange for their beneficial interests in the U.S. Global Securities or the Offshore Global Securities, as the case may be, if (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for the U.S. Global Securities or the Offshore Global Securities, as the case may be, and a successor depositary is not appointed by the Company within 90 days of such notice, (ii) an Event of Default has occurred and is continuing and the Registrar has received a request from the Depositary or (iii) in accordance with the rules and procedures of the Depositary and the provisions of Section 2.08. (c) Any beneficial interest in one of the Global Securities that is transferred to a Person who takes delivery in the form of an interest in another Global Security will, upon transfer, cease to be an interest in such Global Security and become an interest in such other Global Security and, accordingly, will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to beneficial interests in such other Global Security for as long as it remains such an interest. (d) In connection with any transfer of a portion of the beneficial interests in a Global Security to beneficial owners pursuant to paragraph (b) of this Section 2.07, the Registrar shall reflect on its books and records the date and a decrease in the principal amount at maturity of such Global Security in an amount equal to the principal amount at maturity of the beneficial interest in such Global Security to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more U.S. Physical Securities or Offshore Physical Securities, as the case may be, of like tenor and amount. (e) In connection with the transfer of the U.S. Global Securities or the Offshore Global Securities, in whole, to beneficial owners pursuant to paragraph (b) of this Section 2.07, the U.S. Global Securities or Offshore Global Securities, as the case may be, shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depositary in exchange for its beneficial interest in the U.S. Global Securities or Offshore Global Securities, as the case may be, an equal aggregate principal amount at maturity of U.S. 35 Physical Securities or Offshore Physical Securities, as the case may be, of authorized denominations. (f) Any U.S. Physical Security delivered in exchange for an interest in the U.S. Global Securities pursuant to paragraph (b), (d) or (e) of this Section 2.07 shall, except as otherwise provided by paragraph (f) of Section 2.08, bear the legend regarding transfer restrictions applicable to the U.S. Physical Security set forth in Section 2.02. (g) Any Offshore Physical Security delivered in exchange for an interest in the Offshore Global Securities pursuant to paragraph (b), (d) or (e) of this Section 2.07 shall, except as otherwise provided by paragraph (f) of Section 2.08, bear the legend regarding transfer restrictions applicable to the Offshore Physical Security set forth in Section 2.02. (h) The registered holder of a Global Security may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. SECTION 2.08. Special Transfer Provisions. Unless and until a --------------------------- Security is exchanged for an Exchange Security or sold in connection with an effective Registration Statement pursuant to the Registration Rights Agreement, the following provisions shall apply: (a) Transfers to Non-QIB Institutional Accredited Investors. The ------------------------------------------------------- following provisions shall apply with respect to the registration of any proposed transfer of a Security to any Institutional Accredited Investor which is not a QIB (excluding Non-U.S. Persons): (i) The Registrar shall register the transfer of any Security, whether or not such Security bears the Private Placement Legend, if (x) the requested transfer is after the time period referred to in Rule 144(k) under the Securities Act or (y) the proposed transferee has delivered to the Registrar (A) a certificate substantially in the form of C hereto and (B) if the aggregate Accreted Value at the time of transfer of the Securities being transferred is less than $250,000, an Opinion of Counsel acceptable to the Company that such transfer is in compliance with the Securities Act. (ii) If the proposed transferor is an Agent Member holding a beneficial interest in the U.S. Global Securities, upon receipt by the Registrar of (x) the documents, if any, required by paragraph (i) above and (y) instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and a decrease in the principal amount at maturity of the U.S. Global Securities in an amount equal to the principal amount at maturity of the beneficial interest in the U.S. Global 36 Securities to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more U.S. Physical Securities of like tenor and amount. (b) Transfers to QIBs. The following provisions shall apply with ----------------- respect to the registration of any proposed transfer of a Security to a QIB (excluding Non-U.S. Persons): (i) If the Security to be transferred consists of (x) either Offshore Physical Securities prior to the removal of the Private Placement Legend or U.S. Physical Securities, the Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Security stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Security stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A or (y) an interest in the U.S. Global Securities, the transfer of such interest may be effected only through the book entry system maintained by the Depositary. (ii) If the proposed transferee is an Agent Member, and the Security to be transferred consists of U.S. Physical Securities, upon receipt by the Registrar of the documents referred to in paragraph (i) above and instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount at maturity of U.S. Global Securities in an amount equal to the principal amount at maturity of the U.S. Physical Securities to be transferred, and the Trustee shall cancel the U.S. Physical Securities so transferred. (c) Transfers of Interests in the Temporary Offshore Global ------------------------------------------------------- Securities. The following provisions shall apply with respect to registration of any proposed transfer of an interest in a Temporary Offshore Global Securities: (i) The Registrar shall register the transfer of any Security (x) if the proposed transferee is a Non-U.S. Person and the proposed transferor has 37 delivered to the Registrar a certificate substantially in the form of D hereto or (y) if the proposed transferee is a QIB and the proposed transferor has checked the box provided for on the form of Security stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Security stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A. (ii) If the proposed transferee is an Agent Member, upon receipt by the Registrar of the documents referred to in clause (i)(y) above and instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount at maturity of the U.S. Global Securities in an amount equal to the principal amount at maturity of the Temporary Offshore Global Securities to be transferred, and the Trustee shall decrease the amount of the Temporary Offshore Global Securities. (d) Transfers of Interests in the Permanent Offshore Global Securities ------------------------------------------------------------------ or Unlegended Offshore Physical Securities. The following provisions shall ------------------------------------------ apply with respect to any transfer of interests in Permanent Offshore Global Securities or unlegended Offshore Physical Securities. The Registrar shall register the transfer of any such Security without requiring any additional certification. (e) Transfers to Non-U.S. Persons at Any Time. The following ----------------------------------------- provisions shall apply with respect to any transfer of a Security to a Non- U.S. Person: (i) Prior to September 10, 1998, the Registrar shall register any proposed transfer of a Security to a Non-U.S. Person upon receipt of a certificate substantially in the form of D hereto from the proposed transferor. (ii) On and after September 10, 1998, the Registrar shall register any proposed transfer to any Non-U.S. Person if the Security to be transferred is a U.S. Physical Security or an interest in U.S. Global Securities, upon receipt of a certificate substantially in the form of D hereto from the proposed transferor. 38 (iii) (a) If the proposed transferor is an Agent Member holding a beneficial interest in the U.S. Global Securities, upon receipt by the Registrar of (x) the documents, if any, required by paragraph (ii) and (y) instructions in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and a decrease in the principal amount at maturity of the U.S. Global Securities in an amount equal to the principal amount at maturity of the beneficial interest in the U.S. Global Securities to be transferred, and (b) if the proposed transferee is an Agent Member, upon receipt by the Registrar of instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount at maturity of the Offshore Global Securities in an amount equal to the principal amount at maturity of the U.S. Physical Securities or the U.S. Global Securities, as the case may be, to be transferred, and the Trustee shall cancel the Physical Security, if any, so transferred or decrease the amount of the U.S. Global Securities. (f) Private Placement Legend. Upon the registration of transfer, ------------------------ exchange or replacement of Securities not bearing the Private Placement Legend, the Registrar shall deliver Securities that do not bear the Private Placement Legend. Upon the registration of transfer, exchange or replacement of Securities bearing the Private Placement Legend, the Registrar shall deliver only Securities that bear the Private Placement Legend unless (i) the Private Placement Legend is no longer required by Section 2.02, (ii) the circumstances contemplated by paragraph (a)(i)(x) of this Section 2.08 exist or (iii) there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (g) General. By its acceptance of any Security bearing the Private ------- Placement Legend, each Holder of such a Security acknowledges the restrictions on transfer of such Security set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Security only as provided in this Indenture. The Registrar shall not register a transfer of any Security unless such transfer complies with the restrictions on transfer of such Security set forth in this Indenture. In connection with any registration of transfer of Securities, each Holder agrees by its acceptance of the Securities to furnish the Registrar or the Company such certifications, legal opinions or other information as either of them may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act; provided that the -------- Registrar shall not be required to determine (but may rely on a determination made by the Company with respect to) the sufficiency of any such certifications, legal opinions or other information. 39 The Registrar shall retain in accordance with its customary procedures copies of all letters, notices and other written communications received pursuant to Section 2.07 or this Section 2.08. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. SECTION 2.09. Replacement Securities. If a mutilated Security is ---------------------- surrendered to the Trustee or if the Holder claims that the Security has been lost, destroyed or wrongfully taken, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall issue and the Trustee shall authenticate a replacement Security of like tenor and principal amount and bearing a number not contemporaneously outstanding; provided that the requirements of this Section -------- 2.09 are met. If required by the Trustee or the Company, an indemnity bond must be furnished that is sufficient in the judgment of both the Trustee and the Company to protect the Company, the Trustee or any Agent from any loss that any of them may suffer if a Security is replaced. The Company may charge such Holder for its expenses and the expenses of the Trustee in replacing a Security. In case any such mutilated, lost, destroyed or wrongfully taken Security has become or is about to become due and payable, the Company in its discretion may pay such Security instead of issuing a new Security in replacement thereof. Every replacement Security is an additional obligation of the Company and shall be entitled to the benefits of this Indenture. SECTION 2.10. Outstanding Securities. Securities outstanding at any ---------------------- time are all Securities that have been authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation and those described in this Section 2.10 as not outstanding. If a Security is replaced pursuant to Section 2.09, it ceases to be outstanding unless and until the Trustee and the Company receive proof satisfactory to them that the replaced Security is held by a protected purchaser. If the Paying Agent (other than the Company or an Affiliate of the Company) holds on the maturity date money sufficient to pay Securities payable on that date, then on and after that date such Securities cease to be outstanding and interest on them shall cease to accrue. A Security does not cease to be outstanding because the Company or one of its Affiliates holds such Security. SECTION 2.11. Temporary Securities. Until definitive Securities are -------------------- ready for delivery, the Company may prepare and execute and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have insertions, substitutions, omissions and other variations determined to be appropriate 40 by the Officers executing the temporary Securities, as evidenced by their execution of such temporary Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for such purpose pursuant to Section 2.04, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount at maturity of definitive Securities of authorized denominations. Until so exchanged, the temporary Securities shall be entitled to the same benefits under this Indenture as definitive Securities. SECTION 2.12. Cancellation. The Company at any time may deliver to ------------ the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee shall cancel all Securities surrendered for transfer, exchange, payment or cancellation and shall destroy them in accordance with its normal procedure. SECTION 2.13. CUSIP Numbers. The Company in issuing the Securities ------------- may use "CUSIP", "CINS" or "ISIN" numbers (if then generally in use), and the Company and the Trustee shall use CUSIP, CINS or ISIN numbers, as the case may be, in notices of redemption or exchange as a convenience to Holders; provided -------- that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of redemption or exchange and that reliance may be placed only on the other identification numbers printed on the Securities. The Company shall promptly notify the Trustee of any change in "CUSIP", "CINS" or "ISIN" numbers for the Securities. SECTION 2.14. Defaulted Interest. If the Company defaults in a ------------------ payment of interest on the Securities, it shall pay, or shall deposit with the Paying Agent money in immediately available funds sufficient to pay, the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date. The Company shall fix or cause to be fixed any such special record date and payment date to the reasonable satisfaction of the Trustee and shall promptly mail or cause to be mailed to each Securityholder a notice that states the special record date, the payment date and the amount of defaulted interest to be paid. The Company may make payment of any defaulted interest in any other lawful manner not inconsistent with the requirements (if applicable) of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this paragraph, such manner of payment shall be deemed practicable by the Trustee. 41 SECTION 2.15. Issuance of Additional Securities. The Company may, --------------------------------- subject to Section 4.03 of this Indenture and applicable law, issue Additional Securities under this Indenture. The Initial Securities issued on the Closing Date and any Additional Securities subsequently issued shall be treated as a single class for all purposes under this Indenture. ARTICLE III REDEMPTION ---------- SECTION 3.01. Notices to Trustee. If the Company elects to redeem ------------------ Securities pursuant to Section 3.07, it shall notify the Trustee in writing of the redemption date, the principal amount of Securities to be redeemed and the paragraph of the Securities pursuant to which the redemption will occur. The Company shall give each notice to the Trustee provided for in this Section at least 60 days before the redemption date unless the Trustee consents to a shorter period. Such notice shall be accompanied by an Officers' Certificate and an Opinion of Counsel from the Company to the effect that such redemption will comply with the conditions herein. If fewer than all the Securities are to be redeemed, the record date relating to such redemption shall be selected by the Company and given to the Trustee, which record date shall be not fewer than 15 days after the date of notice to the Trustee. Any such notice may be canceled at any time prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect. SECTION 3.02. Selection and Notice. If less than all of the -------------------- Securities are to be redeemed at any time, selection of Securities for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Securities are listed, or, if the Securities are not so listed, on a pro rata basis (among the Securities and any Additional Securities as one class), by lot or by such method as the Trustee shall deem fair and appropriate; provided that no Securities in a -------- principal amount at maturity of $1,000 or less shall be redeemed in part. If any Security is to be redeemed in part only, the notice of redemption that relates to such Security shall state the portion of the principal amount thereof to be redeemed. On and after the redemption date, interest and Liquidated Damages, if any, cease to accrue on Securities or portions of them called for redemption (or, if such redemption date is prior to the Full Accretion Date, Accreted Value of the Securities will cease to accrete). SECTION 3.03. Notice. Notices of redemption shall be mailed by first ------ class mail at least 30 (or in the case of a "Special Mandatory Redemption" described in Section 3.08, 15 days), but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at its registered address. Notices of redemption may not be conditional. The Trustee shall notify the Company promptly of the Securities or portions of Securities to be redeemed. 42 The notice shall identify the Securities to be redeemed and shall state: (1) the redemption date; (2) the redemption price; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (5) if fewer than all the outstanding Securities are to be redeemed, the certificate numbers and principal amounts of the particular Securities to be redeemed; (6) that, unless the Company defaults in making such redemption payment or the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture, interest on Securities (or portion thereof) called for redemption ceases to accrue on and after the redemption date; (7) the paragraph of the Securities pursuant to which the Securities called for redemption are being redeemed; (8) the CUSIP number, if any, printed on the Securities being redeemed; and (9) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Securities. At the Company's request (which may be revoked at any time in writing prior to the time at which the Trustee shall have given such notice to the Holders), the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. In such event, the Company shall provide the Trustee with the information required by this Section. SECTION 3.04. Effect of Notice of Redemption. Once notice of ------------------------------ redemption is mailed, Securities called for redemption become due and payable on the redemption date and at the redemption price stated in the notice. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price stated in the notice, plus accrued interest and Liquidated Damages, if any, to the redemption date; provided that if the redemption date is after a -------- regular record date and on or prior to the interest payment date, the accrued interest shall be payable to the Securityholder of the redeemed Securities registered on the relevant record date. If mailed in the manner herein, the notice shall be conclusively presumed to have been given whether or not the Holder receives such notice. Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder. 43 SECTION 3.05. Deposit of Redemption Price. Prior to 10:00 a.m., New --------------------------- York City time, on the redemption date, the Company shall deposit with the Paying Agent (or, if the Company or a Wholly Owned Restricted Subsidiary is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued interest and Liquidated Damages, if any, on all Securities to be redeemed on the redemption date other than Securities or portions of Securities called for redemption that have been delivered by the Company to the Trustee for cancellation. SECTION 3.06. Securities Redeemed in Part. Upon surrender of a --------------------------- Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate for the Holder (at the Company's expense) a new Security equal in principal amount to the unredeemed portion of the Security surrendered. SECTION 3.07. Optional Redemption. (a) Except as described in ------------------- Section 3.07(b) or (c), the Securities will not be redeemable at the Company's option prior to August 1, 2003. Thereafter, the Securities will be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the applicable redemption date (subject to the right of Holders on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the twelve-month period beginning on August 1 of the years indicated below: YEAR PERCENTAGE ---- ---------- 2003........................ 105.500% 2004........................ 103.667% 2005........................ 101.883% 2006 and thereafter......... 100.000 (b) In addition, at any time and from time to time, prior to August 1, 2001, the Company may redeem up to 35% of the sum of (i) the aggregate principal amount at maturity of Securities and (ii) the aggregate principal amount at maturity of any Additional Securities, at a redemption price of 111% of the Accreted Value thereof (determined at the redemption date) plus Liquidated Damages thereon, if any, to the redemption date, with the net cash proceeds received by the Company of a public offering of common stock of the Company, provided that at least 65% of the sum of (i) the aggregate principal amount at - -------- maturity of Securities and (ii) the aggregate principal amount at maturity of any Additional Securities remains outstanding immediately after the occurrence of such redemption; and provided, further, that such redemption shall occur -------- ------- within 60 days of the date of the closing of such public offering. (c) At any time on or prior to August 1, 2003, the Securities may be redeemed as a whole but not in part at the option of the Company upon the occurrence of a 44 Change of Control, upon not less than 30 nor more than 60 days' prior notice (but in no event may any such redemption occur more than 90 days after the occurrence of such Change of Control) mailed by first-class mail to each Holder's registered address, at a redemption price equal to 100% of the Accreted Value thereof (determined at the redemption date) plus the Applicable Premium and Liquidated Damages thereon, if any, to the redemption date (subject to the right of Holders on the relevant record date to receive interest due on the relevant interest payment date). SECTION 3.08. Special Mandatory Redemption. In the event that the ---------------------------- Merger is not consummated prior to the earlier to occur of (i) January 10, 1999 and (ii) if it appears, in the sole judgment of the Company, that the Merger shall not be consummated, the date on which notice of same is delivered by the Company to the Collateral Agent and the Trustee, the Company shall be required to redeem the Securities, in whole, on at least 15 days' prior written notice mailed by first class mail to each Holder's last address as it appears in the Security Register, at a redemption price equal to 101% of the Accreted Value plus Liquidated Damages, if any, of the Securities on the date of repurchase to the redemption date (the "Special Redemption Payment"). SECTION 3.09. Repurchase Offers. (a) In the event that the Company ----------------- shall be required to commence an offer to all Holders to purchase Securities (a "Repurchase Offer") pursuant to Section 4.06 hereof (an "Excess Proceeds Offer") or pursuant to Section 4.08 hereof (a "Change of Control Offer") the Company shall follow the procedures specified in this Section 3.09: (i) Within 30 days after (A) a Change of Control (unless (1) the Company is not required to make such offer pursuant to Section 4.08(c) or (2) all Securities have been called for redemption pursuant to Section 3.07(a), 3.07(c) and 3.08 or (B) the Company is required to make an Asset Sale Offer pursuant to Section 4.06, the Company shall (x) commence a Repurchase Offer, which shall remain open for a period of at least 20 Business Days following its commencement (the "Offer Period") and (y) send, by first class mail, a notice to the Trustee and each of the Holders which shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to such Repurchase Offer. The notice, which shall govern the terms of the Repurchase Offer, shall describe the transaction or transactions that constitute the Change of Control or Asset Sale requiring an Asset Sale Offer, as the case may be, and shall state: (A) that the Repurchase Offer is being made pursuant to this Section 3.09 and Section 4.06 or 4.08, as the case may be, as applicable; (B) the principal amount of Securities required to be purchased pursuant to Section 4.06, in case of an Excess Proceeds Offer, or that the Company is required to offer to purchase all of the outstanding principal amount of Securities, in the case of a Change of Control Offer (such amount, the "Offer 45 Amount"), the purchase price and, that on the date specified in such notice (the "Purchase Date"), which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed, the Company shall repurchase all Securities validly tendered and not withdrawn pursuant to this Section 3.09 and Section 4.06 or 4.08, as applicable; (C) that any Security not tendered or accepted for payment shall continue to accrue interest; (D) that, unless the Company defaults in making such payment, Securities accepted for payment pursuant to the Repurchase Offer shall cease to accrue interest after the Purchase Date; (E) that Holders electing to have a Security purchased pursuant to a Repurchase Offer may elect to have all or any portion of such Security purchased; (F) that Holders electing to have a Security purchased pursuant to any Repurchase Offer shall be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security, or such other customary documents of surrender and transfer as the Company may reasonably request, duly completed, or transfer by book-entry transfer, to the Company, the Depositary or the Paying Agent at the address specified in the notice prior to the Purchase Date; (G) that Holders shall be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security the Holder delivered for purchase and a statement that such Holder is withdrawing its election to have such Security purchased; (H) that, in the case of an Excess Proceeds Offer, if the aggregate principal amount of Securities surrendered by Holders thereof exceeds the Offer Amount, the Company shall select the Securities to be purchased on a pro rata basis (based upon the outstanding principal amount thereof), with such adjustments as may be deemed appropriate by the Company so that only Securities in denominations of $1,000, or integral multiples thereof, shall be purchased; (I) that Holders whose Securities are purchased only in part shall be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered (or transferred by book-entry transfer); and 46 (J) the CUSIP number, if any, printed on the Securities being repurchased and that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Securities. (ii) On (or at the Company's election, before) the Purchase Date, the Company shall, (A) to the extent lawful, accept for payment, on a pro rata basis to the extent necessary in the case of an Excess Proceeds Offer, the Securities or portions thereof tendered pursuant to the Repurchase Offer and not theretofore withdrawn, or if Securities aggregating less than the Offer Amount have been tendered, all Securities tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Securities or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09, (B) deposit with the Paying Agent an amount equal to the payment required in respect of all Securities or portions thereof so tendered and (C) deliver or cause to be delivered to the Trustee the Securities so accepted together with an Officers' Certificate stating the aggregate principal amount of Securities or portions thereof being purchased by the Company. The Company, the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the Change of Control Payment or the payment due to each respective Holder in respect of the Excess Proceeds Offer, as applicable, with respect to the Securities tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Security, and the Trustee, upon written request from the Company, shall authenticate and mail or deliver such new Security to such Holder, in a principal amount equal to any unpurchased portion of the Securities so surrendered, provided that each such new Security shall be in -------- a principal amount of $1,000 or an integral multiple thereof. Any Security not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. On the Purchase Date, all Securities purchased by the Company shall be delivered to the Trustee for cancellation. All Securities or portions thereof purchased pursuant to the Repurchase Offer will be canceled by the Trustee. The Company shall publicly announce the results of the Repurchase Offer on or as soon as practicable after the Purchase Date, but in no case more than five Business Days thereafter. If the Company complies with the provisions of the preceding paragraph, on and after the Purchase Date interest shall cease to accrue on the Securities or the portions of Securities repurchased. If a Security is repurchased on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Security was registered at the close of business on such record date. If any Security called is not repurchased upon surrender because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the Purchase Date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Securities and in Section 4.01 hereof. 47 (b) The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations to the extent such laws and regulations are applicable in connection with the Repurchase Offer. To the extent that the provisions of any applicable securities laws or regulations conflict with provisions of this Section 3.09, the Company shall comply with such securities laws and regulations and shall not be deemed to have breached its obligations under this Section by virtue thereof. (c) Prior to complying with the provisions of this Section 3.09, but in any event within 90 days following a Change of Control Offer or Asset Sale Offer, as applicable, the Company shall either repay all outstanding Senior Debt of the Company or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt of the Company to permit the repurchase of Securities required by this Section 3.09 and Section 4.06 or 4.08, as applicable. (d) Once notice of repurchase is mailed in accordance with this Section 3.09, all Securities validly tendered and not withdrawn (or, in the case of an Excess Proceeds Offer, if the Company is not required to repurchase all of such Securities then the pro rata portion of such Securities that the Company may be required to purchase pursuant to Section 3.02 and/or 4.06 hereof, as applicable) become irrevocably due and payable on the Purchase Date at the purchase price specified herein. A notice of repurchase may not be conditional. (e) Other than as specifically provided in this Section 3.09 or Section 4.06 or 4.08, as applicable, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.02 and 3.06 hereof. SECTION 3.10. No Sinking Fund. There shall be no sinking fund for --------------- the payment of principal on the Securities to the Securityholders. ARTICLE IV COVENANTS --------- SECTION 4.01. Payment of Securities. The Company shall promptly pay --------------------- the principal of and interest on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Unless otherwise specified in the relevant Placement Agreement and set forth in an Officers' Certificate delivered to the Trustee, principal and interest shall be considered paid on the date due if on such date the Trustee or the Paying Agent (but only if other than the Company or a Wholly Owned Restricted Subsidiary) holds by 11:00 a.m., New York City time, in accordance with this Indenture available funds sufficient to pay all principal and interest then due and the Trustee or the Paying Agent, as the case may 48 be, is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture. The Company shall pay interest on overdue principal at the rate specified therefor in the Securities, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. SECTION 4.02. Reports. Notwithstanding that the Company may not be ------- required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, to the extent permitted by the Exchange Act, the Company will file with the SEC, and provide within 15 days after the Company is required to file the same with the SEC, the Trustee and the Holders with the annual reports and the information, documents and other reports that are specified in Sections 13 and 15(d) of the Exchange Act. In the event the Company is not permitted to file such reports, documents and information with the SEC, the Company will provide substantially similar information to the Trustee and the Holders, as if the Company were subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. The Company also shall comply with the other provisions of TIA (S) 314(a). SECTION 4.03. Incurrence of Debt and Issuance of Preferred Stock. -------------------------------------------------- (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, Incur any Debt and the Company and Guarantors shall not issue any Disqualified Stock and shall not permit any of its Restricted Subsidiaries that are not Guarantors to issue any shares of Preferred Stock; provided, -------- however, that the Company and its Restricted Subsidiaries may Incur Debt or - ------- issue shares of Disqualified Stock, if the Consolidated Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Debt is Incurred or such Disqualified Stock is issued would have been at least 1.75 to 1.00 if such four-quarter period ends on or prior to the second anniversary of the Issue Date and 2.00 to 1.00 if it ends thereafter, determined on a pro forma basis (including a pro forma application of the net proceeds --------- --------- therefrom), as if the additional Debt had been Incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. (b) The provisions of Section 4.03(a) shall not apply to the Incurrence of any of the following items of Debt (collectively, "Permitted Debt"): (i) the Incurrence of term and revolving Debt, letters of credit (with letters of credit being deemed to have a principal amount equal to the undrawn face amount thereof) and other Debt under Credit Facilities (including Guarantees by the Company or any of its Subsidiaries of synthetic lease drawings and other loans under the New Credit Facility or of other Debt under Credit Facilities); provided that the aggregate -------- principal amount of such Debt outstanding pursuant to this clause (i) does not exceed an amount equal to $250.0 million; 49 (ii) the Incurrence by the Company and its Restricted Subsidiaries of Existing Debt; (iii) the Incurrence by the Company of Debt represented by the Securities and by the Guarantors of Debt represented by the Security Guarantees; (iv) the Incurrence by the Company or any of its Restricted Subsidiaries of Acquired Debt; (v) the Incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Debt in exchange for, or the net proceeds of which are used to refund, refinance or replace Debt (other than intercompany Debt) that was permitted by this Indenture to be Incurred; (vi) the Incurrence by the Company or any of its Restricted Subsidiaries of intercompany Debt or Preferred Stock owed or issued to and held by the Company and any of its Restricted Subsidiaries, provided, -------- however, that (X) any such Debt of the Company shall be subordinated and ------- junior in right of payment to the Securities and (Y) (A) any subsequent issuance or transfer of Equity Interests or other action that results in any such Debt or Preferred Stock being held by a Person other than the Company or a Restricted Subsidiary and (B) any sale or other transfer of any such Debt or Preferred Stock to a Person that is neither the Company nor a Restricted Subsidiary shall be deemed, in each case, to constitute an Incurrence of such Debt or issuance of such Preferred Stock by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (vi); (vii) the Incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations that are Incurred (A) principally for the purpose of fixing or hedging interest rate risk with respect to any floating rate Debt that is permitted by the terms of this Indenture to be outstanding or (B) principally for the purpose of fixing or hedging currency exchange rate risk or commodity price risk Incurred in the ordinary course of business; (viii) the guarantee by the Company or any Guarantor of Debt of the Company or a Restricted Subsidiary of the Company that was permitted to be Incurred by another provision of this Section 4.03; (ix) Debt of the Company in respect of Exchange Debentures issued as payment in kind interest on Exchange Debentures issued upon the exchange of Exchangeable Preferred Stock, to the extent such interest payments are made pursuant to the terms of the Exchange Debenture Indenture; provided the issuance of the Exchange Debentures upon such exchange was permitted by this covenant at the time of such exchange; and 50 (x) the Incurrence by the Company or any of its Restricted Subsidiaries of additional Debt (which may comprise Debt under the New Credit Facility) in an aggregate principal amount (or accreted value, as applicable) at any time outstanding pursuant to this clause (x) not to exceed an amount equal to $20.0 million. For purposes of determining compliance with this Section 4.03, in the event that an item of Debt meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (x) above or is entitled to be Incurred pursuant to Section 4.03(a), the Company shall, in its sole discretion, classify such item of Debt in any manner that complies with this covenant and such item of Debt will be treated as having been Incurred pursuant to only one of such clauses or pursuant to Section 4.03(a); provided that all -------- outstanding Debt under the New Credit Facility immediately following the Recapitalization shall be deemed to have been Incurred pursuant to clause (i) of the definition of Permitted Debt. Accrual of interest and the accretion of accreted value will be deemed not to be an Incurrence of Debt for purposes of this Section 4.03. SECTION 4.04. Restricted Payments. (a) The Company shall not, and ------------------- will not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other distribution (including any payment in connection with any merger or consolidation) on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) and dividends payable to the Company or any Restricted Subsidiary); (ii) purchase, redeem or otherwise acquire or retire for value (including in connection with any merger or consolidation) any Equity Interests of the Company (or any Restricted Subsidiary held by Persons other than the Company or any Restricted Subsidiary); (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value, any Subordinated Debt of the Company, except (A) a payment of interest, principal or other related Obligations at Stated Maturity and (B) the purchase, repurchase or other acquisition or retirement of Subordinated Debt of the Company in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of purchase, repurchase or other acquisition or retirement; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of, and after giving effect to, such Restricted Payment: 51 (1) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof, (2) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had --------- been made at the beginning of the applicable four-quarter period, have been permitted to Incur at least $1.00 of additional Debt pursuant to the Consolidated Coverage Ratio test set forth in Section 4.03(a), and (3) such Restricted Payment, together with (without duplication) the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the first Issue Date (excluding Restricted Payments permitted by Section 4.04(b)(ii), Section 4.04(b)(iii)(A), Section 4.04(b)(iv), Section 4.04(b)(v), Section 4.04(b)(vi)(A) and Section 4.04(b)(vii), but including all other Restricted Payments permitted by Section 4.04(b)), is less than the sum (without duplication) of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the fiscal quarter during which the first Issue Date occurs to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds received by the Company from the issue or sale (other than to a Subsidiary) of, or from capital contributions with respect to, Equity Interests of the Company (other than Disqualified Stock), in either case after the first Issue Date, plus (iii) the aggregate principal amount (or accreted value, if less) of Debt or Disqualified Stock of the Company or any Restricted Subsidiary issued since the first Issue Date (other than to a Restricted Subsidiary) that has been converted into Equity Interests (other than Disqualified Stock) of the Company, plus (iv) 100% of the aggregate net cash received by the Company or a Restricted Subsidiary of the Company since the first Issue Date from (A) Restricted Investments, whether through interest payments, principal payments, dividends or other distributions or payments, or the sale or other disposition (other than to the Company or a Restricted Subsidiary) thereof made by the Company and its Restricted Subsidiaries and (B) a 52 cash dividend from, or the sale (other than to the Company or a Restricted Subsidiary) of the stock of, an Unrestricted Subsidiary, plus (v) upon the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair market value of the Investments of the Company and its Restricted Subsidiaries (other than such Subsidiary) in such Subsidiary. (b) The provisions of Section 4.04(a) shall not prohibit: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at such date of declaration such payment would have complied with the provisions of this Section 4.04; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any Equity Interests or Subordinated Debt in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of, other Equity Interests (other than any Disqualified Stock) of, or a capital contribution to, the Company; provided that the amount of any such net cash proceeds that are -------- utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from Section 4.04(a)(iv)(3)(ii); (iii) the redemption, repurchase, retirement, defeasance or other acquisition of (A) Subordinated Debt made by an exchange for, or with the net cash proceeds from an Incurrence of, Permitted Refinancing Debt or (B) Subordinated Debt (including Exchange Debentures) or Preferred Equity Interests (other than Subordinated Debt or Preferred Equity Interests held by Affiliates of the Company) upon a Change of Control or Asset Sale to the extent required by the agreement governing such Subordinated Debt or the certificate of designation governing such Preferred Equity Interests, as the case may be, but only (x) if the Company shall have complied with Section 4.06 or 4.08, as the case may be, and repurchased all Securities tendered pursuant to the offer required by such covenants prior to purchasing or repaying such Subordinated Debt or Preferred Equity Interests, as the case may be, (y) in the case of an Asset Sale, to the extent of the remaining Excess Proceeds offered to Holders pursuant to the Asset Sale Offer and (z) within six months after the date such offer is consummated; (iv) the payment of any dividend by a Restricted Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis; (v) to the extent constituting Restricted Payments, the Specified Affiliate Payments; (vi) (A) the payment of any regular quarterly dividends in respect of the Exchangeable Preferred Stock in the form of additional shares of Exchangeable 53 Preferred Stock having the terms and conditions set forth in the Certificate of Designation for the Exchangeable Preferred Stock as in effect on the first Issue Date; and (B) commencing November 1, 2003, the payment of regular quarterly cash dividends (in the amount no greater than that provided for in the Certificate of Designation for the Exchangeable Preferred Stock as in effect on the first Issue Date), out of funds legally available therefor, on any of the shares of Exchangeable Preferred Stock issued on the first Issue Date or subsequently issued in payment of dividends in respect of such shares of Exchangeable Preferred Stock issued on the first Issue Date, provided that, at the time of and immediately -------- after giving effect to the payment of such cash dividend, no Default or Event of Default shall have occurred and be continuing; (vii) the exchange of Exchangeable Preferred Stock for Exchange Debentures in accordance with the terms of the Certificate of Designation for such Exchangeable Preferred Stock as in effect on the Issue Date, provided that such exchange is permitted by Article 4; and -------- (viii) Restricted Payments in an aggregate amount not to exceed $10.0 million. The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default or an Event of Default. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated, to the extent they do not constitute Permitted Investments at the time such Subsidiary became an Unrestricted Subsidiary, will be deemed to be Restricted Payments made at the time of such designation. The amount of such outstanding Investments will be equal to the portion of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary that is represented by the interest of the Company and its Restricted Subsidiaries in such Subsidiary, in each case as determined in good faith by the Board of Directors of the Company. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any noncash Restricted Payment shall be determined in good faith by the Board of Directors of the Company. In making the computations required by this covenant, (i) the Company or the relevant Restricted Subsidiary may use audited financial statements for the portions of the relevant period for which audited financial statements are available on the date of determination and unaudited financial statements and other current financial data based on the books and records of the Company for the remaining portion of such period and (ii) the Company or the relevant Restricted Subsidiary will be permitted to rely in good faith on the 54 financial statements and other financial data derived from the books and records of the Company and the Restricted Subsidiary that are available on the date of determination. If the Company makes a Restricted Payment that, at the time of the making of such Restricted Payment, would, in the good faith determination of the Company or any Restricted Subsidiary, be permitted under the requirements of this Indenture, such Restricted Payment will be deemed to have been made in compliance with this Indenture notwithstanding any subsequent adjustments made in good faith to the Company's or any Restricted Subsidiary's financial statements affecting Consolidated Net Income of the Company for any period. For the avoidance of doubt, it is expressly agreed that no payment or other transaction permitted by Sections 4.07(b)(3), 4.07(b)(4) and 4.07(b)(5) shall be considered a Restricted Payment for purposes of, or otherwise restricted by, this Indenture. SECTION 4.05. Dividend and Other Payment Restrictions Affecting ------------------------------------------------- Restricted Subsidiaries. The Company shall not, and shall not permit any of its - ----------------------- Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any Debt owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or advances to the Company or any of its Restricted Subsidiaries or (iii) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of: (1) Existing Debt, (2) this Indenture, the Securities, the Additional Securities, the Exchangeable Preferred Stock and any Additional Exchangeable Preferred Stock (as defined in the Certificate of Designation for the Exchangeable Preferred Stock), the Exchange Debentures or the Exchange Debenture Indenture and any other agreement entered into after the first Issue Date, provided that the encumbrances or restrictions in such agreements are not -------- materially more restrictive than those contained in the foregoing agreements, (3) any agreement or other instrument of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (but not created in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, (4) purchase money obligations (including Capital Lease Obligations) for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, 55 (5) in the case of clause (iii) above, any encumbrance or restriction (1) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease, license or similar contract, (2) by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by this Indenture or (3) contained in security agreements or mortgages securing Debt to the extent such encumbrance or restriction restricts the transfer of the property subject to such security agreements or mortgages, (6) contracts for the sale of assets, including any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition, (7) contractual encumbrances or restrictions in effect on the Closing Date, including pursuant to the New Credit Facility and its related documentation, (8) restrictions on cash or other deposits or net worth imposed by leases, credit agreements or other agreements entered into in the ordinary course of business, (9) customary provisions in joint venture agreements and other similar agreements, (10) any encumbrances or restrictions created with respect to (i) Debt of Guarantors permitted to be Incurred subsequent to the first Issue Date pursuant to Section 4.03 and (ii) Debt of Subsidiary Non-Guarantors permitted to be Incurred subsequent to the Issue Date pursuant to Section 4.03 or operating leases, provided that in the case of this clause (ii) the -------- Board of Directors of the Company determines (as evidenced by a Board Resolution of the Board of Directors) in good faith at the time such encumbrances or restrictions are created that such encumbrances or restrictions would not reasonably be expected to impair the ability of the Company to make payments of interest, Liquidated Damages (if any) and scheduled payments of principal on the Securities, in each case as and when due; and (11) any encumbrances or restrictions of the type referred to in clauses (1), (2) and (3) above imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (1) through (10), provided that such amendments, modifications, -------- restatements, renewals, increases, supplements, refundings, replacements or refinancings, taken as a whole, are, in the good faith judgment of the Company, not materially more restrictive with respect to such encumbrances or restrictions than those contained in the contracts, instruments or obligations prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing. 56 SECTION 4.06. Asset Sales. The Company shall not, and shall not ----------- permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents; provided -------- that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet) of the Company or any Restricted Subsidiary (other than liabilities that are by their terms subordinated to the Securities or, in the case of liabilities of a Guarantor, the Security Guarantee of such Guarantor) that are assumed by the transferee of any such assets, or from which the Company and its Restricted Subsidiaries are released in writing by the creditor with respect thereto, and (y) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are converted by the Company or such Restricted Subsidiary into cash (to the extent of the cash received) within 180 days after receipt shall be deemed, in each case, to be cash for purposes of this provision; provided, further, however, that this clause (ii) shall not -------- ------- ------- apply to any sale of Equity Interests of or other Investments in Unrestricted Subsidiaries. Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds, at its option, (a) to repay Senior Debt, Debt of any Restricted Subsidiary or Pari Passu Debt (other than Debt owed to the Company or a Subsidiary of the Company, and provided that if the Company -------- shall so reduce Pari Passu Debt, it will equally and ratably make an Asset Sale Offer (in accordance with the procedures set forth in Section 3.09 for an Asset Sale Offer) to all Holders), (b) to invest in properties and assets that will be used or useful in the business of the Company or any of its Subsidiaries or (c) to the acquisition of a controlling interest in another business, the making of a capital expenditure or the acquisition of other assets, in each case, that will be used or useful in the business of the Company or any of its Restricted Subsidiaries; provided that if during such 360-day period the Company or a -------- Restricted Subsidiary enters into a definitive agreement committing it to apply such Net Proceeds in accordance with the requirements of clause (b) or (c) such 360-day period will be extended for a period not to exceed 180 days with respect to the amount of Net Proceeds so committed until required to be paid in accordance with such agreement (or, if earlier, until termination of such agreement). Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10 million, the Company shall (i) make an offer to all Holders of Securities, and (ii) prepay, purchase or redeem (or make an offer to do so) any other Pari Passu Debt of the Company in accordance with provisions requiring the Company to prepay, purchase or redeem such Debt with the proceeds from any Asset Sales (or offer to do so), pro rata in proportion to the respective principal amounts (or accreted value, as applicable) of the Securities and such other Debt required to be prepaid, purchased or redeemed or tendered for, in the case of the Securities pursuant to such offer (an "Asset Sale Offer"), to purchase the maximum principal amount of Securities that may be purchased out of such pro rata portion of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of their principal amount plus 57 accrued and unpaid interest and Liquidated Damages (or, if prior to the Full Accretion Date, 100% of the Accreted Value thereof on the date of purchase, plus Liquidated Damages (if any) to the date of purchase subject to the right of Holders of record on a record date to receive interest on the relevant interest payment date, in accordance with the procedures set forth in Section 3.09). To the extent that the aggregate principal amount (or, if prior to the Full Accretion Date, the aggregate Accreted Value) of Securities and Pari Passu Debt tendered pursuant to an Asset Sale Offer or other offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount (or Accreted Value, as the case may be) of Securities surrendered by Holders thereof exceeds the pro rata portion of such Excess Proceeds to be used to purchase Securities, the Trustee shall select the Securities to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. SECTION 4.07. Transactions with Affiliates. (a) The Company shall ---------------------------- not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless: (i) such Affiliate Transaction is on terms that, taken as a whole, are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person; and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction entered into after the first Issue Date involving aggregate consideration in excess of $3.0 million, a Board Resolution certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the members of the Board of Directors and (b) with respect to any Affiliate Transaction involving aggregate consideration in excess of $10.0 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an investment banking, appraisal or accounting firm of national standing. (b) The provisions of Section 4.07(a) shall not prohibit (and, the following shall not be deemed to be Affiliate Transactions): (1) transactions between or among the Company and/or its Restricted Subsidiaries; (2) Permitted Investments and Restricted Payments that are permitted by Section 4.04; 58 (3) employment agreements, employee benefit plans and related arrangements entered into in the ordinary course of business and all payments and other transactions contemplated thereby; (4) any payments to Investcorp and its Affiliates (whether or not such Persons are Affiliates of the Company) (A) for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including in connection with acquisitions or divestitures, which payments are approved by the Board of Directors of the Company in good faith and (B) of annual management, consulting and advisory fees and related expenses; (5) any agreement in effect on the Closing Date (including the Recapitalization Agreement, the Services Agreement (as amended on April 15, 1998) between the Berkshire Companies Limited Partnership and the Company and the Brevard lease agreement) or any amendment thereto (so long as any such amendment is not disadvantageous to the Holders in any material respect) or any payment or other transaction contemplated by any of the foregoing; and (6) Debt permitted by Section 4.03(b)(x) to the extent such Debt is on terms that, taken as a whole, are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction with an unrelated Person. SECTION 4.08. Change of Control. (a) Upon the occurrence of a ----------------- Change of Control, unless all Securities have been called for redemption pursuant to the provisions in Section 3.07 or 3.08, each Holder of Securities shall have the right to require the Company to repurchase all or any part (equal to a principal amount at maturity of $1,000 or an integral multiple thereof) of such Holder's Securities pursuant to a Change of Control Offer made pursuant to Section 3.09 at an offer price in cash (the "Change of Control Payment") equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (or, if such Change of Control Offer occurs prior to the Full Accretion Date, 101% of the Accreted Value thereof on the date of repurchase plus Liquidated Damages thereon, if any). (b) The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes and consummates a Change of Control Offer. SECTION 4.09. Compliance Certificate. The Company and each Guarantor ---------------------- shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company an Officers' Certificate stating that in the course of the performance by the signers of their duties as Officers of the Company they would normally have knowledge of any Default or Event of Default and whether or not the signers know of any Default or Event of Default that occurred during such period. If they do have such knowledge, the certificate shall describe the Default 59 or Event of Default, its status and what action the Company is taking or proposes to take with respect thereto. The Company also shall comply with Section 314(a)(4) of the TIA. SECTION 4.10. Liens. The Company shall not, and shall not permit any ----- of its Restricted Subsidiaries to, create, Incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind securing Debt or trade payables (other than Permitted Liens) upon any of their property or assets, now owned or hereafter acquired, unless all payments due under this Indenture and the Securities are secured on an equal and ratable basis with the obligations so secured until such time as such obligations are no longer secured by a Lien; provided that (i) if such other Debt constitutes Subordinated Debt or is - -------- otherwise subordinate or junior in right of payment to the Obligations under this Indenture, the Securities or any Security Guarantee, as the case may be, such Lien is expressly made prior and senior in priority to the Lien securing such other Debt, or (ii) in any other case, such Lien ranks equally and ratably with or prior to the Lien securing the other Debt or obligations so secured. SECTION 4.11. Additional Security Guarantees. All future ------------------------------ Subsidiaries of the Company who guarantee any Debt of the Company under the New Credit Facility, other than Subsidiaries that have been properly designated as Unrestricted Subsidiaries in accordance with this Indenture for so long as they continue to constitute Unrestricted Subsidiaries, shall be Guarantors in accordance with the terms of this Indenture until released from such Guarantee of the New Credit Facility. Each future Security Guarantee shall be limited to an amount not to exceed the maximum amount that can be Guaranteed by that Subsidiary without rendering the Security Guarantee, as it relates to such Subsidiary, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. Each future Security Guarantee shall be subordinated to Senior Debt of the respective Guarantor on the same basis and to the same extent as the Securities are subordinated to Senior Debt of the Company. SECTION 4.12. Restriction on Senior Subordinated Debt. The Company --------------------------------------- shall not Incur any Debt that is expressly subordinate in right of payment to any Senior Debt and senior in any respect in right of payment to the Securities and no Guarantor shall Incur any Debt that is expressly subordinate in right of payment to any Senior Debt and senior in any respect in right of payment to the Security Guarantee of such Guarantor. ARTICLE V SUCCESSOR COMPANY ----------------- SECTION 5.01. Merger, Consolidation or Sale of All or Substantially ----------------------------------------------------- All Assets of the Company. The Company shall not consolidate or merge with or - ------------------------- into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or 60 otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another Person unless: (i) the Company is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Securities and this Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; (iv) except in the case of a merger of the Company with or into a Wholly Owned Restricted Subsidiary of the Company, the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made shall, at the time of such transaction and after giving pro forma effect thereto as if such --------- transaction had occurred at the beginning of the applicable four-quarter period, either (x) be permitted to Incur at least $1.00 of additional Debt pursuant to the Consolidated Coverage Ratio test set forth in Section 4.03(a) or (y) have a Consolidated Coverage Ratio at least equal to the Consolidated Coverage Ratio of the Company for such four-quarter reference period; and (v) the Company or the surviving corporation, as the case may be, shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of this Indenture and that all conditions precedent in this Indenture relating to such transaction have been satisfied. Notwithstanding the foregoing clauses (iii) and (iv) above, (a) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company, (b) the Company may merge with an Affiliate incorporated solely for the purpose of reincorporating the Company in another jurisdiction and (c) the Company may merge with and into Harborside. 61 SECTION 5.02. Merger, Consolidation or Sale of All or Substantially ----------------------------------------------------- All Assets of a Guarantor. No Guarantor may consolidate with or merge with or - ------------------------- into (whether or not such Guarantor is the surviving Person) another Person (other than the Company or another Guarantor) unless (i) subject to the provisions of Section 11.02(b), the Person formed by or surviving any such consolidation or merger (if other than such Guarantor), assumes all the obligations of such Guarantor under the Securities and this Indenture pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, and (ii) immediately after giving effect to such transaction, no Default or Event of Default exists. Notwithstanding the foregoing clause (ii), (a) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to any Guarantor and (b) any Guarantor may merge with an Affiliate incorporated solely for the purpose of reincorporating such Guarantor in another jurisdiction. ARTICLE VI DEFAULTS AND REMEDIES --------------------- SECTION 6.01. Events of Default and Remedies. ------------------------------ Each of the following constitutes an Event of Default with respect to the Securities if: (1) the Company defaults for 30 days in the payment when due of interest on, or Liquidated Damages with respect to, the Securities (whether or not prohibited by the provisions of Article X); (2) the Company defaults in payment when due of the principal of or premium, if any, on the Securities (whether or not prohibited by the provisions of Article X); (3) the Company fails for 30 days after receipt of a Notice of Default to comply with the provisions in Sections 4.03, 4.04, 4.06, 4.08 and 5.01; (4) the Company fails for 60 days after receipt of a Notice of Default specifying such failure to comply with any of its other agreements in this Indenture or the Securities; (5) the Company or any Restricted Subsidiary that is a Significant Subsidiary fails to pay any Debt within any applicable grace period after final maturity or acceleration by the holders thereof because of a default if the total amount of such Debt unpaid or accelerated at the time exceeds $15.0 million; 62 (6) any judgment or decree for the payment of money in excess of $15.0 million (net of any insurance or indemnity payments actually received in respect thereof prior to or within 90 days from the entry thereof, or to be received in respect thereof in the event any appeal thereof shall be unsuccessful) shall be entered against the Company or any Significant Subsidiary that is a Restricted Subsidiary and is not discharged, waived or stayed and either (A) an enforcement proceeding has been commenced by any creditor upon such judgment or decree or (B) there shall be a period of 90 days following the entry of such judgment or decree during which such judgment or decree is not discharged, waived or the execution thereof stayed; (7) except as permitted by this Indenture, any Security Guarantee by a Guarantor that is a Significant Subsidiary shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Security Guarantee; (8) the Company or any Restricted Subsidiary that is a Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case; (C) consents to the appointment of a Custodian of it or for any substantial part of its property; (D) makes a general assignment for the benefit of its creditors; or takes any comparable action under any foreign laws relating to insolvency; or (9) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Restricted Subsidiary that is a Significant Subsidiary in an involuntary case; (B) appoints a Custodian of the Company or any Restricted Subsidiary that is a Significant Subsidiary or for any substantial part of its property; or (C) orders the winding-up or liquidation of the Company or any Restricted Subsidiary that is a Significant Subsidiary; 63 or any similar relief is granted under any foreign laws and the order or decree relating thereto remains unstayed and in effect for 60 days: The foregoing shall constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. The term "Bankruptcy Law" means Title 11, United States Code, or any ------------------ similar federal or state law for the relief of debtors. For purposes of this Section, the term "Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. A Default under clause (3) or (4) is not an Event of Default until the Trustee or the Holders of at least 25% in aggregate principal amount of the outstanding Securities notify the Company (and the Trustee, in the case of notices to the Company by Holders) in writing by registered or certified mail, return receipt requested, of the Default and the Company does not cure such Default within the time specified in clauses (3) or (4) after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default". The Company shall deliver to the Trustee, forthwith upon any Senior Officer obtaining actual knowledge of any Default, written notice in the form of an Officers' Certificate of any Event of Default, its status and what action the Company is taking or proposes to take with respect thereto. SECTION 6.02. Acceleration. If any Event of Default occurs and is ------------ continuing, the Trustee by notice to the Company or the Holders of at least 25% in principal amount of the then outstanding Securities by notice to the Company and the Trustee may declare all the Securities to be due and payable. Upon such a declaration, such amounts shall be due and payable immediately; provided, -------- however, that if upon such declaration there are any amounts outstanding under - ------- the New Credit Facility and the amounts thereunder have not been accelerated, such amounts shall be due and payable upon the earlier of the time such amounts are accelerated or five Business Days after receipt by the Company and the Representative of the lenders under the New Credit Facility of such declaration. Notwithstanding the foregoing, in the case of an Event of Default under clause (8) or (9) with respect to the Company, all outstanding Securities will become due and payable without further action or notice. The Holders of a majority in aggregate principal amount of the Securities by written notice to the Trustee may, on behalf of all the Holders, rescind an acceleration and its consequences if the recession would not conflict with any judgment or decree and if all existing Defaults or Events of Default have been cured or waived except nonpayment of principal or interest that has become due because of such acceleration. No such rescission shall affect any subsequent Default or impair any right consequent thereto. 64 SECTION 6.03. Other Remedies. If an Event of Default occurs and is -------------- continuing, the Trustee may pursue any available remedy to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative (to the extent permitted by law). SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in ----------------------- aggregate principal amount of the Securities then outstanding by written notice to the Trustee may on behalf of the Holders of all of the Securities waive any existing Default or Event of Default and its consequences except (i) a continuing Default or Event of Default in the payment of interest on, or the principal of, the Securities or (ii) a Default in respect of a provision that under Section 9.02 cannot be amended without the consent of each Securityholder affected. When a Default is waived, it is deemed cured and ceases to exist and any Event of Default arising therefrom shall be deemed to have been cured and waived for every purpose under this Indenture, but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any consequent right. SECTION 6.05. Control by Majority. The Holders of a majority in ------------------- aggregate principal amount of the Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee by this Indenture. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or, subject to Section 7.01, that the Trustee determines is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability; provided, however, that the Trustee may take any -------- ------- other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. SECTION 6.06. Limitation on Suits. Except to enforce the right to ------------------- receive payment of principal, premium (if any), interest or Liquidated Damages when due, a Security holder may not pursue any remedy with respect to this Indenture or the Securities unless: (1) such Holder has previously given the Trustee written notice that an Event of Default is continuing; (2) Holders of at least 25% in principal amount at maturity of the outstanding Securities have requested the Trustee to pursue the remedy; 65 (3) such Holder has offered the Trustee reasonable security or indemnity against any loss, liability or expense; (4) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity; and (5) the Holders of a majority in principal amount at maturity of the outstanding Securities have not given the Trustee a direction inconsistent with such request within such 60-day period. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding ------------------------------------ any other provision of this Indenture, the right of any Holder to receive payment of principal of and Liquidated Damages and interest on the Securities held by such Holder, on or after the respective due dates expressed in the Securities, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. Collection Suit by Trustee. If an Event of Default -------------------------- specified in Section 6.01(a)(1) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount then due and owing (together with interest on any unpaid interest to the extent lawful) and the amounts provided for in Section 7.07. SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file -------------------------------- such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Securityholders allowed in any judicial proceedings relative to the Company, any Subsidiary or any Guarantor, their creditors or their property and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 7.07. SECTION 6.10. Priorities. If the Trustee collects any money or ---------- property pursuant to this Article VI, it shall pay out the money or property in the following order: FIRST: to the Trustee for amounts due under Section 7.07; 66 SECOND: to the holders of Senior Debt to the extent required by Article X; THIRD: to Securityholders for amounts due and unpaid on the Securities for principal and interest, ratably, and any Liquidated Damages without preference or priority of any kind, according to the amounts due and payable on the Securities for principal, any Liquidated Damages and interest, respectively; and FOURTH: to the Company. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section. At least 15 days before such record date, the Trustee shall mail to each Securityholder and the Company a notice that states the record date, the payment date and amount to be paid. SECTION 6.11. Undertaking for Costs. In any suit for the enforcement --------------------- of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in principal amount of the Securities. SECTION 6.12. Waiver of Stay or Extension Laws. Neither the Company -------------------------------- nor any Guarantor (to the extent they may lawfully do so) shall at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company and each Guarantor (to the extent that they may lawfully do so) hereby expressly waive all benefit or advantage of any such law, and shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE VII TRUSTEE ------- SECTION 7.01. Duties of Trustee. (a) If an Event of Default has ----------------- occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent Person would exercise or use under the circumstances in the conduct of such Person's own affairs. 67 (b) Except during the continuance of an Event of Default: (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (1) this paragraph does not limit the effect of Section 7.01(b); (2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section. (e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. (f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise Incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (h) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section and to the provisions of the TIA. 68 SECTION 7.02. Rights of Trustee. Subject to Section 7.01: ----------------- (a) 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 any such document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; provided, however, that the Trustee's conduct does not -------- ------- constitute willful misconduct or negligence. (e) The Trustee may consult with counsel, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Securities shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (f) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other paper or document unless requested in writing to do so by the Holders of not less than a majority in principal amount of the Securities at the time outstanding, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney. (g) The Trustee shall not be required to give any note, bond or surety in respect of the execution of the trusts and powers under this Indenture. (h) The permissive rights of the Trustee to take any action enumerated in this Indenture shall not be construed as a duty to take such action. (i) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have 69 offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. (j) The Trustee shall not be charged with knowledge of any Default or Event of Default, of the identity of any Restricted Subsidiary or the existence of any Change of Control or Asset Sale unless either (i) a Trust Officer shall have received notice thereof or (ii) the Trustee shall have received written notice thereof from the Company or any Holder. SECTION 7.03. Individual Rights of Trustee. The Trustee in its ---------------------------- individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be -------------------- responsible for and makes no representation as to the validity or adequacy of this Indenture, any Subsidiary Guarantee or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement of the Company in this Indenture or in any document issued in connection with the sale of the Securities or in the Securities other than the Trustee's certificate of authentication. SECTION 7.05. Notice of Defaults. If a Default occurs and is ------------------ continuing and is known to the Trustee, the Trustee shall mail to each Holder notice of the Default within the earlier of 90 days after it occurs or 30 days after it is known to a Trust Officer or written notice of it is received by the Trustee. Except in the case of a Default in the payment of principal of, premium (if any), interest or Liquidated Damages on any Security, the Trustee may withhold notice if and so long as a committee of its trust officers in good faith determines that withholding notice is in the interests of Securityholders. Notwithstanding anything to the contrary expressed in this Indenture, the Trustee shall not be deemed to have knowledge of any Default or Event of Default hereunder, except in the case of an Event of Default under Section 6.01(a) and (b) hereof (provided that the Trustee is Paying Agent), unless and until a Trust Officer receives written notice thereof at its Corporate Trust Office specified in Section 13.02, from the Company or a Holder that such Default or Event of Default has occurred. SECTION 7.06. Reports by Trustee to Holders. The Trustee shall ----------------------------- transmit to the Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the TIA at the times and in the manner provided pursuant thereto. To the extent that any such report is required by the TIA with respect to any 12-month period, such report shall cover the 12-month period ending December 31 and shall be transmitted by the next succeeding March 1. 70 A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC and each stock exchange (if any) on which the Securities are listed. The Company agrees to notify promptly the Trustee whenever the Securities become listed on any stock exchange and of any delisting thereof. SECTION 7.07. Compensation and Indemnity. The Company shall pay to -------------------------- the Trustee from time to time such compensation as is agreed to in writing by the Trustee and Company for the Trustee's services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket disbursements, advances and expenses Incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee's agents, counsel, accountants and experts. The Company and each Guarantor, jointly but not severally, shall indemnify the Trustee and its officers, directors, shareholders, agents and employees (each, an "Indemnified Party") for and hold each Indemnified Party harmless against any and all loss, liability or expense (including reasonable attorneys' fees) Incurred by them without negligence or bad faith on their part arising out of or in connection with the acceptance or administration of this Indenture or the Securities and the performance of their duties hereunder, including the cost and expense of enforcing this Indenture against the Company or any Guarantor (including this Section 7.07), and defending itself against any claim (whether asserted by a Holder or any other person). The Trustee and its officers, directors, shareholders, agents and employees in its capacity as Paying Agent, Registrar, Custodian and agent for service of notice and demands shall have the full benefit of the foregoing indemnity as well as all other benefits, rights and privileges accorded to the Trustee in this Indenture when acting in such other capacity. The Trustee shall notify the Company of any claim for which it may seek indemnity promptly upon obtaining actual knowledge thereof; provided that any failure so to notify the Company shall not relieve -------- the Company or any Guarantor of its indemnity obligations hereunder. The Company shall defend the claim and the Indemnified Party shall provide reasonable cooperation at the Company's expense in the defense. Such Indemnified Parties may have separate counsel and the Company shall pay the fees and expenses of such counsel; provided that the Company shall not be required to -------- pay such fees and expenses if it assumes such Indemnified Parties' defense and, in such Indemnified Parties' reasonable judgment, there is no conflict of interest between the Company and such parties in connection with such defense. The Company need not reimburse any expense or indemnify against any loss, liability or expense Incurred by an Indemnified Party through such party's own willful misconduct, negligence or bad faith. The Company need not pay any settlement made without its consent (which consent shall not be unreasonably withheld). To secure the Company's payment obligations in this Section and all other obligations to the Trustee pursuant to this Indenture, including all fees, expenses and rights to indemnification, the Trustee shall have a lien on all money or property held or collected by the Trustee other than money or property held in trust to pay principal of and interest and any Liquidated Damages on particular Securities. Such lien shall survive the satisfaction and 71 discharge of this Indenture and the resignation or removal of the Trustee. The Trustee's right to receive payment of any amounts due under this Indenture shall not be subordinated to any other indebtedness of the Company and the Securities shall be subordinate to the Trustee's rights to receive such payment. The Company's payment obligations pursuant to this Section shall survive the satisfaction or discharge of this Indenture, any rejection or termination of this Indenture under any Bankruptcy Law or the resignation or removal of the Trustee. When the Trustee Incurs expenses after the occurrence of a Default specified in Section 6.01(a)(8) or (9) with respect to the Company, the expenses are intended to constitute expenses of administration under the Bankruptcy Law. SECTION 7.08. Replacement of Trustee. The Trustee may resign at any ---------------------- time by so notifying the Company in writing. The Holders of a majority in principal amount of the Securities may remove the Trustee by so notifying the Trustee and the Company in writing and may appoint a successor Trustee. The Company shall remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. If the Trustee resigns, is removed by the Company or by the Holders of a majority in principal amount of the Securities and such Holders do not, within a reasonably prompt period, appoint a successor Trustee, or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Company shall promptly appoint a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of at least 10% in aggregate principal amount of the Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. 72 If the Trustee fails to comply with Section 7.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding the replacement of the Trustee pursuant to this Section, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09. Successor Trustee by Merger. If the Trustee --------------------------- consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation, without any further act, shall be the successor Trustee, provided that such Person shall be -------- qualified and eligible under this Article VII. In case at the time such successor or successors, by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have. SECTION 7.10. Eligibility; Disqualification. The Trustee shall at ----------------------------- all times satisfy the requirements of TIA (S) 310(a). The Trustee shall have a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA (S) 310(b); provided, however, that there shall be excluded from the operation -------- ------- of TIA (S) 310(b)(1) any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Company are out standing if the requirements for such exclusion set forth in TIA (S) 310(b)(1) are met. SECTION 7.11. Preferential Collection of Claims Against Company. The ------------------------------------------------- Trustee shall comply with TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to the extent indicated therein. ARTICLE VIII DISCHARGE OF INDENTURE; DEFEASANCE ---------------------------------- SECTION 8.01. Legal Defeasance and Covenant Defeasance. (a) The ---------------------------------------- Company may, at the option of its Board of Directors evidenced by a Board Resolution, at any 74 time, elect to have either Section 8.01(b) or 8.01(c) hereof be applied to all outstanding Securities upon compliance with the conditions set forth below in this Article VIII. (b) Upon the Company's exercise under Section 8.01(a) hereof of the option applicable to this Section 8.01(b), the Company and each Guarantor shall, subject to the satisfaction of the conditions set forth in Section 8.02 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Securities and any Security Guarantee on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company and each Guarantor shall be deemed to have paid and discharged the entire Debt represented by the outstanding Securities and any Security Guarantee, which Securities and Security Guarantees shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.03 hereof and the other Sections of this Indenture referred to in clauses (i) and (ii) below, and to have satisfied all their other obligations under such Securities and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions, which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of outstanding Securities to receive, solely from the trust fund described in Article VIII hereof, as more fully set forth in such Article, payments in respect of the principal of, premium, if any, and interest and Liquidated Damages, if any, on such Securities when such payments are due, (ii) the Company's obligations with respect to the Securities under Sections 2.04, 2.06 and 2.09 and the rights, powers, trusts, duties and immunities of the Trustee, and (iii) the Company's obligations in connection therewith and this Article VIII. Subject to compliance with this Article VIII, the Company may exercise its option under this Section 8.01(b) notwithstanding the prior exercise of its option under Section 8.01(c) hereof. (c) Upon the Company's exercise under Section 8.01(a) hereof of the option applicable to this Section 8.01(c), the Company and each Guarantor shall, subject to the satisfaction of the conditions set forth in Section 8.02 hereof, be released from their obligations under Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12 and 5.01(iv) hereof with respect to the outstanding Securities on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Securities shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration of act of Holders (and the consequences of any thereof) in connection with such Sections, but shall continue to be deemed "outstanding" for all the other purposes hereunder (it being understood that such Securities and the related Security Guarantees shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to any term, condition or limitation set forth in any such Section, whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or by reason of any reference in any such Section to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01(a) hereof of the option applicable to this Section 8.01(c) hereof, subject to the 74 satisfaction of the conditions set forth in Section 8.02, Sections 6.01(4), 6.01(5) (with respect to compliance with Section 4.09 only), 6.01(6), 6.01(7) (with respect to Subsidiaries of the Company only), 6.01(8) (with respect to Subsidiaries of the Company only), 6.01(9) and 6.01(10) shall not constitute Events of Default. SECTION 8.02. Conditions to Legal or Covenant Defeasance. The ------------------------------------------ following shall be the conditions to the application of either Section 8.01(b) or 8.01(c) hereof to the outstanding Securities: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company or the Guarantors must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Securities cash in U.S. dollars, Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest and Liquidated Damages on the outstanding Securities on the stated maturity or on the applicable redemption date, as the case may be, and the Company and the Guarantors must specify whether the Securities are being defeased to maturity or to a particular redemption date; (b) in the case of Legal Defeasance, the Company or the Guarantors shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that, subject to customary assumptions and exclusions, (1) the Company and the Guarantors have received from, or there has been published by, the Internal Revenue Service a ruling or (2) since the Issue Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and, based thereon, such Opinion of Counsel shall confirm that, subject to customary assumptions and exclusions, the Holders of the outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of Covenant Defeasance, the Company or the Guarantors shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that, subject to customary assumptions and exclusions, the Holders of the outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the 75 borrowing of funds to be applied to such deposit and the grant of any Lien securing such borrowing) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company or the Guarantors must have delivered to the Trustee an Opinion of Counsel, subject to customary assumptions and exclusions, to the effect that after the 91st day following the deposit, the trust funds will not be part of any "estate" formed by the bankruptcy or reorganization of the Company or subject to the "automatic stay" under the Bankruptcy Code or, in the case of Covenant Defeasance, will be subject to a first priority Lien in favor of the Trustee for the benefit of the Holders; (g) the Company or the Guarantors must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company or the Guarantors with the intent of preferring the Holders of Securities over the other creditors of the Company or the Guarantors, as applicable, with the intent of defeating, hindering, delaying or defrauding creditors of the Company or the Guarantors, as applicable, or others; and (h) the Company must deliver to the Trustee an Officers' Certificate and an Opinion of Counsel (which opinion of counsel may be subject to customary assumptions and exclusions), each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with. SECTION 8.03. Deposited Money and Government Securities to Be Held in ------------------------------------------------------- Trust; Other Miscellaneous Provisions. Subject to Section 8.04 hereof, all - ------------------------------------- money and Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.03, the "Trustee") pursuant to Section 8.02 hereof in respect of the outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium and Liquidated Damages if any, and interest but such money need not be segregated from other funds except to the extent required by law. Anything in this Article VIII to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time, upon the request of the Company, any money or Government Obligations held by it as provided in Section 8.02 hereof that, in the 76 opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.02(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 8.04. Repayment to Company. Any money deposited with the -------------------- Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium and Liquidated Damages, if any, or interest on any Security and remaining unclaimed for two years after such principal, premium and Liquidated Damages, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such -------- ------- Paying Agent, before being required to make any such repayment, may, at the expense of the Company, cause to be published once, in the Wall Street Journal ------------------- (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 8.05. Reinstatement. If the Trustee or Paying Agent is ------------- unable to apply any United States dollars or Government Obligations in accordance with this Article VIII by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Securities and the Guarantors obligations under this Indenture and the Security Guarantees shall be revived and reinstated as though no deposit had occurred pursuant to this Article VIII until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with this Article VIII; provided, however, that if the Company or any Guarantor makes any payment of - -------- ------- principal of, premium and Liquidated Damages, if any, or interest on any Security following the reinstatement of its obligations, the Company or any Guarantor, as the case may be, shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or Paying Agent. SECTION 8.06. Satisfaction and Discharge of Indenture. Upon the --------------------------------------- request of the Company, this Indenture will cease to be of further effect (except as to surviving rights of registration of transfer or exchange of the Securities, as expressly provided for herein or pursuant hereto), the Company and the Guarantors will be discharged from their obligations under the Securities and Security Guarantees and the Trustee, at the expense of the Company, will execute proper instruments acknowledging satisfaction and discharge of this Indenture, any security agreements relating thereto, the Securities and the Security Guarantees when: (a) either (i) all the Securities theretofore authenticated and delivered (other than mutilated, destroyed, lost or stolen Securities that have been replaced or paid and 77 Securities that have been subject to defeasance under this Article VIII) have been delivered to the Trustee for cancellation or (ii) all Securities not theretofore delivered to the Trustee for cancellation (A) have become due and payable, (B) shall become due and payable at maturity within one year or (C) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and the expense, of the Company, and the Company has irrevocably deposited or caused to be deposited with the Trustee funds in trust for the purpose in an amount sufficient to pay and discharge the entire Debt on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium and Liquidated Damages, if any, on) and interest on the Securities to the date of such deposit (in case of Securities that have become due and payable) or to the Stated Maturity or redemption date, as the case may be; (b) the Company has paid or caused to be paid all sums payable under this Indenture by this Company; or (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided in this Indenture relating to the satisfaction and discharge of this Indenture, the security agreements relating thereto, the Securities and the Security Guarantees have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 7.07 and, if money shall have been deposited with the Trustee pursuant to clause (a)(ii) of this Section, the obligations of the Trustee under Section 8.06 and Section 2.04 shall survive. ARTICLE IX AMENDMENTS ---------- SECTION 9.01. Without Consent of Holders. Notwithstanding Section -------------------------- 9.02, the Company and the Trustee may amend or supplement this Indenture, the Securities, the Security Guarantees or the Pledge Agreement without notice to or the consent of any Securityholder: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated Securities in addition to or in place of certificated Securities (provided that the uncertificated -------- Securities are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code); 78 (3) to provide for the assumption of the Company's or any Guarantor's obligations to Holders of Securities in the case of a merger, consolidation or sale of assets; (4) to release any Security Guarantee or collateral in accordance with the provisions of this Indenture or the Pledge Agreement; (5) to provide for additional Guarantors; (6) to make any change that would provide any additional rights or benefits to the Holders of Securities or that, as determined by the Board of Directors in good faith, does not have a material adverse effect on the legal rights under this Indenture of any such Holder; (7) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; or (8) to make any change to Article II, Section 4.01 or the Exhibits hereto that applies only to Additional Securities (other than a change relating to other provisions of this Indenture incorporated or referenced in Article II, Section 4.01 or any such Exhibit). An amendment under this Section may not make any change that adversely affects the rights under Article X of any holder of Senior Debt then outstanding unless the holders of such Senior Debt (or any group or representative thereof authorized to give a consent) consent to such change. After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 9.02. With Consent of Holders. Except as provided in this ----------------------- Section 9.02 and Section 9.01, this Indenture, the Securities, the Security Guarantees and the Pledge Agreement may be amended or supplemented without notice to any Securityholders but with the consent of the Holders of at least a majority in principal amount at maturity of the Securities then outstanding (including consents obtained in connection with a purchase of, or tender offer or exchange offer for, Securities), and any existing default or noncompliance with any provision of this Indenture or the Securities may be waived with the consent of the Holders of a majority in principal amount at maturity of the then outstanding Securities (including consents obtained in connection with a tender offer or exchange offer for Securities). However, without the consent of each Holder affected thereby, an amendment or waiver may not (with respect to any Securities held by a non-consenting Holder): 79 (i) reduce the principal amount at maturity of Securities whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of, change the fixed maturity of any Security, reduce any premium payable upon optional redemption of the Securities or otherwise alter the provisions with respect to the redemption or repurchase of the Securities (other than provisions relating to the covenants described in Sections 3.09, 4.06 and 4.08, (iii) reduce the rate of or change the time for payment of interest on any Security, or reduce the rate of accretion on the Accreted Value or extend the period during which no interest accrues on the Securities, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Securities (except a rescission of acceleration of the Securities by the Holders of at least a majority in aggregate principal amount of the Securities and a waiver of the payment default that resulted from such acceleration), (v) make any Security payable in money other than that stated in the Securities, (vi) impair the rights of Holders of the Securities to receive payments of principal of or premium, if any, on the Securities, (vii) make any change to Section 6.04 or 6.07 or this 9.02, or (viii) except as permitted by this Indenture, release any Security Guarantee or any collateral under the Pledge Agreement. It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 9.03. Compliance with Trust Indenture Act. Every amendment ----------------------------------- to this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.04. Revocation and Effect of Consents and Waivers. A --------------------------------------------- consent to an amendment or a waiver by a Holder of a Security shall bind the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent or waiver is not made on the 80 Security. However, any such Holder or subsequent Holder may revoke the consent or waiver as to such Holder's Security or portion of the Security if the Trustee receives written notice of revocation before the date the amendment or waiver becomes effective. After an amendment or waiver becomes effective, it shall bind every Securityholder. Except if otherwise specified in such amendment or waiver, an amendment or waiver becomes effective once the requisite number of consents are received by the Company or the Trustee. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Securityholders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Securityholders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. SECTION 9.05. Notation on or Exchange of Securities. If an amendment ------------------------------------- changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security regarding the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment. SECTION 9.06. Trustee to Sign Amendments. The Trustee shall sign any -------------------------- amendment authorized pursuant to this Article IX if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and to receive, and (subject to Section 7.01) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture that such amendment is the legal, valid and binding obligation of the Company and the Guarantors enforceable against them in accordance with its terms, subject to customary exceptions, and complies with the provisions hereof (including Section 9.03). ARTICLE X SUBORDINATION ------------- SECTION 10.01. Agreement To Subordinate. The Company agrees, and ------------------------ each Securityholder by accepting a Security agrees, that the Debt evidenced by the Securities is subordinated in right of payment, to the extent and in the manner provided in this Article X, to the prior payment in full in cash or Cash Equivalents of all existing and future Senior Debt of the Company and that the subordination is for the benefit of and enforceable by the holders of Senior Debt of 81 the Company. The Securities shall rank pari passu in right of payment with all ---- ----- existing and future Pari Passu Debt of the Company and shall be senior in right of payment to all existing and future Subordinated Debt of the Company. The Securities shall also be effectively subordinated to any Secured Debt of the Company to the extent of the value of the assets securing such Debt. However, payment from the money or the proceeds of Government Securities held in any defeasance trust described in Article VIII is not subordinated to any Senior Debt or subject to the restrictions described in this Section 10.01, so long as the payments into the defeasance trust were not prohibited pursuant to the subordination provisions described at the time when so paid. For purposes of these subordination provisions, the Debt evidenced by the Securities is deemed to include the Liquidated Damages payable pursuant to the provisions set forth in the Securities and the applicable Registration Rights Agreement. All provisions of this Article X shall be subject to Section 10.12. SECTION 10.02. Liquidation, Dissolution, Bankruptcy. Upon any ------------------------------------ payment or distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, an assignment for the benefit of creditors or any marshaling of the Company's assets and liabilities, the holders of Senior Debt of the Company shall be entitled to receive payment in full, in cash or Cash Equivalents, of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt, whether or not allowed or allowable in such proceeding) before the Holders of Securities will be entitled to receive any payment with respect to the Securities, and until all Obligations with respect to such Senior Debt are paid in full, in cash or Cash Equivalents, any payment or distribution to which the Holders of Securities would be entitled shall be made to the holders of such Senior Debt (except that Holders of Securities may receive and retain (i) Permitted Junior Securities and (ii) payments made from the trust described in Article VIII so long as, on the date or dates the respective amounts were paid into the trust, such payments were made with respect to the Securities without violating this Article X). The term "payment" means, with respect to the Securities, any payment, whether in cash or other assets or property, of interest, principal (including redemption price and purchase price), premium, Liquidated Damages or any other amount on, of or in respect of the Securities, any other acquisition of Securities and any deposit into the trust described in Article VIII. The verb "pay" has a correlative meaning. SECTION 10.03. Default on Senior Debt. The Company shall not make ---------------------- any payment or distribution upon or in respect of the Securities (except from the trust described in Article VIII) if (i) a default in the payment of any Obligations with respect to Designated Senior Debt of the Company occurs and is continuing (a "payment default") or any other default on Designated Senior Debt of the Company occurs and the maturity of such Designated Senior Debt is accelerated in accordance with its terms or (ii) a default, other than a payment default, occurs and is continuing with respect to Designated Senior Debt of the Company that permits holders of the Designated Senior Debt of the Company as to which such default relates to accelerate its maturity (a "non-payment default") and, in the case of this clause (ii) only, the 82 Trustee receives a notice of such default (a "Payment Blockage Notice") from the Company, a Representative for, or the holders of a majority of the outstanding principal amount, of any such issue of Designated Senior Debt of the Company. Payments on the Securities may and shall be resumed (a) in the case of a payment default, upon the date on which such default is cured or waived and, in the case of Designated Senior Debt of the Company that has been accelerated, such acceleration has been rescinded, and (b) in case of a non-payment default, the earlier of the date on which such non-payment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt of the Company has been accelerated. No new period of payment blockage may be commenced on account of any non-payment default unless and until 360 days have elapsed since the initial effectiveness of the immediately prior Payment Blockage Notice. No non-payment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee, shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of not less than 90 days. Notwithstanding any other provision in this Section 10.03, during any 365 day period, there must be at least 180 days where there is no Payment Blockage Notice in effect. SECTION 10.04. Acceleration of Payment of Securities. If payment of ------------------------------------- the Securities is accelerated because of an Event of Default, the Company shall promptly notify the Representative of the lenders under the New Credit Facility of the acceleration. If any Debt under the New Credit Facility is outstanding, the Company may not make any payment on account of such accelerated Securities until five Business Days after such holders of such Debt receive notice of such acceleration and, thereafter, may pay the Securities only if this Article X otherwise permits payment at that time. SECTION 10.05. When Distribution Must Be Paid Over. If a ----------------------------------- distribution is made to Securityholders that because of this Article X should not have been made to them, the Securityholders who receive such distribution shall hold it in trust for holders of Senior Debt of the Company and pay it over to them as their interests may appear. SECTION 10.06. Subrogation. After all Senior Debt of the Company is ----------- paid in full and until the Securities are paid in full, Securityholders shall be subrogated to the rights of holders of Senior Debt of the Company to receive distributions applicable to Senior Debt of the Company. A distribution made under this Article X to holders of Senior Debt of the Company which otherwise would have been made to Securityholders is not, as between the Company and Securityholders, a payment by the Company on Senior Debt of the Company. SECTION 10.07. Relative Rights. This Article X defines the relative --------------- rights of Securityholders and holders of Senior Debt of the Company. Nothing in this Indenture shall: 83 (1) impair, as between the Company and Securityholders, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Securities in accordance with their terms; or (2) prevent the Trustee or any Securityholder from exercising its available remedies upon an Event of Default, subject to the rights of holders of Senior Debt of the Company to receive distributions otherwise payable to Securityholders. SECTION 10.08. Subordination May Not Be Impaired by Company. No -------------------------------------------- right of any holder of Senior Debt of the Company to enforce the subordination of the Debt evidenced by the Securities shall be impaired by any act or failure to act by the Company or by its failure to comply with this Indenture. SECTION 10.09. Rights of Trustee and Paying Agent. Notwithstanding ---------------------------------- Section 10.03, the Trustee or Paying Agent may continue to make payments on the Securities and shall not be charged with knowledge of the existence of facts that would prohibit the making of any such payments unless, not less than two Business Days prior to the date of such payment, a Trust Officer of the Trustee receives written notice satisfactory to it that payments may not be made under this Article X. The Company, the Registrar or co-registrar, the Paying Agent, a Representative or a holder of Senior Debt of the Company may give the notice; provided, however, that, if an issue of Senior Debt of the Company has a - -------- ------- Representative, only the Representative may give the notice. The Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself or itself to be a holder of any Senior Debt of the Company (or a Representative of such holder) to establish that such notice has been given by a holder of such Senior Debt of the Company or Representative thereof. The Trustee in its individual or any other capacity may hold Senior Debt of the Company with the same rights it would have if it were not Trustee. The Registrar and co-registrar and the Paying Agent may do the same with like rights. The Trustee shall be entitled to all the rights set forth in this Article X with respect to any Senior Debt of the Company which may at any time be held by it, to the same extent as any other holder of Senior Debt of the Company; and nothing in Article VII shall deprive the Trustee of any of its rights as such holder. Nothing in this Article X shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07. SECTION 10.10. Distribution or Notice to Representative. Whenever a ---------------------------------------- distribution is to be made or a notice given to holders of Senior Debt of the Company, the distribution may be made and the notice given to their Representative (if any). SECTION 10.11. Article X Not to Prevent Events of Default or Limit --------------------------------------------------- Right to Accelerate. The failure to make a payment pursuant to the Securities - ------------------- by reason of any provision in this Article X shall not be construed as preventing the occurrence of an Event of Default. Nothing in this Article X shall have any effect on the right of the Securityholders or the Trustee to accelerate the maturity of the Securities. 84 SECTION 10.12. Trust Moneys Not Subordinated. Notwithstanding ----------------------------- anything contained herein to the contrary, payments from money or the proceeds of Government Obligations held in trust under Article VIII by the Trustee for the payment of principal of and interest on the Securities shall not be subordinated to the prior payment of any Senior Debt or subject to the restrictions set forth in this Article X, and none of the Securityholders shall be obligated to pay over any such amount to the Company or any holder of Senior Debt of the Company or any other creditor of the Company. SECTION 10.13. Trustee Entitled to Rely. Upon any payment or ------------------------ distribution pursuant to this Article X, the Trustee and the Securityholders shall be entitled to rely (i) upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in Section 10.02 are pending, (ii) upon a certificate of the liquidating trustee or agent or other Person making such payment or distribution to the Trustee or to the Securityholders or (iii) upon the Representative for the holders of Senior Debt of the Company for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Debt of the Company and other Debt of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article X. In the event that the Trustee determines, in good faith, that evidence is required with respect to the right of any Person as a holder of Senior Debt of the Company to participate in any payment or distribution pursuant to this Article X, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Debt of the Company held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and other facts pertinent to the rights of such Person under this Article X, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. The provisions of Sections 7.01 and 7.02 shall be applicable to all actions or omissions of actions by the Trustee pursuant to this Article X. SECTION 10.14. Trustee to Effectuate Subordination. Each ----------------------------------- Securityholder by accepting a Security authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the Securityholders and the holders of Senior Debt of the Company as provided in this Article X and appoints the Trustee as attorney-in-fact for any and all such purposes. SECTION 10.15. Trustee Not Fiduciary for Holders of Senior Debt. ------------------------------------------------ With respect to the holders of Senior Debt of the Company, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article X. The Trustee shall not be deemed to owe any fiduciary or other duty to the holders of Senior Debt of the Company and shall not be liable to any such holders if it shall mistakenly pay over or distribute to Securityholders or the Company or any other Person, money or assets to which any holders of Senior Debt of the Company shall be entitled by virtue of this Article X or otherwise. 85 SECTION 10.16. Reliance by Holders of Senior Debt on Subordination --------------------------------------------------- Provisions. Each Securityholder by accepting a Security acknowledges and agrees - ---------- that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Debt of the Company, whether such Senior Debt was created or acquired before or after the issuance of the Securities, to acquire and continue to hold, or to continue to hold, such Senior Debt and such holder of Senior Debt shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Debt. SECTION 10.17. Trustee's Compensation Not Prejudiced. Nothing in ------------------------------------- this Article shall apply to amounts due to the Trustee pursuant to other sections of this Indenture. ARTICLE XI SECURITY GUARANTEES ------------------- SECTION 11.01. Security Guarantees. Each Guarantor hereby jointly ------------------- and severally unconditionally and irrevocably guarantees as a primary obligor and not merely as a surety, to each Holder and to the Trustee and its successors and assigns (a) the full and punctual payment of principal of, premium, if any, and interest and Liquidated Damages, if any, on the Securities when due, whether at maturity, by acceleration, by redemption or otherwise, subject to any applicable grace period, and all other monetary obligations of the Company under this Indenture (including obligations to the Trustee) and the Securities and (b) the full and punctual performance within applicable grace periods of all other obligations of the Company whether for expenses, indemnification or otherwise under this Indenture and the Securities (all of the foregoing being hereinafter collectively called the "Guaranteed Obligations"). Each Guarantor further agrees that the Guaranteed Obligations may be extended or renewed, in whole or in part, without notice or further assent from each such Guarantor, and that each such Guarantor shall remain bound under this Article XI notwithstanding any extension or renewal of any Guaranteed Obligation. Each Guarantor waives presentation to, demand of, payment from and protest to the Company of any of the Guaranteed Obligations and also waives notice of protest for nonpayment. Each Guarantor waives notice of any default under the Securities or the Guaranteed Obligations. The obligations of each Guarantor hereunder shall not be affected by (a) the failure of any Holder or the Trustee to assert any claim or demand or to enforce any right or remedy against the Company or any other Person under this Indenture, the Securities or any other agreement or otherwise; (b) any extension or renewal of any Guaranteed Obligations; (c) any rescission, waiver, amendment or modification of any of the terms or provisions of this Indenture, the Securities or any other agreement; (d) the release of any security held by any Holder or the Trustee for the Guaranteed Obligations or any of them; (e) the failure of any Holder or Trustee to exercise any right or remedy against any other 86 Guarantor of the Guaranteed Obligations; or (f) any change in the ownership of such Guarantor, except as provided in Section 11.02(b). Each Guarantor further agrees that its Security Guarantee herein constitutes a Guarantee of payment, performance and compliance when due (and not a guarantee of collection) and waives any right to require that any resort be had by any Holder or the Trustee to any security held for payment of the Guaranteed Obligations. The obligations of each Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Guaranteed Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Guarantor herein shall not be discharged or impaired or otherwise affected by the failure of any Holder or the Trustee to assert any claim or demand or to enforce any remedy under this Indenture, the Securities or any other agreement, by any waiver or modification of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the Guaranteed Obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of any Guarantor or would otherwise operate as a discharge of any Guarantor as a matter of law or equity. Each Guarantor further agrees that its Security Guarantee herein shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Guaranteed Obligation is rescinded or must otherwise be restored by any Holder or the Trustee upon the bankruptcy or reorganization of the Company or otherwise. In furtherance of the foregoing and not in limitation of any other right which any Holder or the Trustee has at law or in equity against any Guarantor by virtue hereof, upon the failure of the Company to pay the principal of or interest, premium or Liquidated Damages, if any, on any Guaranteed Obligation when and as the same shall become due, whether at maturity, by acceleration, by redemption or otherwise, or to perform or comply with any other Guaranteed Obligation, each Guarantor hereby promises to and shall, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal to the sum of (i) the unpaid principal amount of such Guaranteed Obligations, (ii) accrued and unpaid interest, premium and Liquidated Damages, if any, on such Guaranteed Obligations (but only to the extent not prohibited by law) and (iii) all other monetary Guaranteed Obligations of the Company to the Holders and the Trustee. Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any Guaranteed Obligations guaranteed hereby until payment in full of all Guaranteed Obligations. Each Guarantor further agrees that, as between it, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the 87 Guaranteed Obligations guaranteed hereby may be accelerated as provided in Article VI for the purposes of any Security Guarantee herein, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Guaranteed Obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such Guaranteed Obligations as provided in Article VI, such Guaranteed Obligations (whether or not due and payable) shall forthwith become due and payable by such Guarantor for the purposes of this Section. Each Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys' fees and expenses) Incurred by the Trustee or any Holder in enforcing any rights under this Section. SECTION 11.02. Limitation on Liability. (a) Any term or provision ----------------------- of this Indenture to the contrary notwithstanding, the maximum, aggregate amount of the obligations guaranteed hereunder by any Guarantor shall not exceed the maximum amount that can be guaranteed (after giving effect to all its Guarantees of Debt under the New Credit Facility) without rendering this Indenture, as it relates to any such Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally, provided, however, that the Security Guarantee by -------- ------- HRI shall be limited to an amount not to exceed, together with any Debt outstanding under the New Credit Facility, 80% of the aggregate purchase price paid by HRI (which purchase price was approximately $17 million) for the Harborside Healthcare - Pawtuxet Village Nursing and Rehabilitation Center and the Harborside Healthcare - Greenwood Nursing and Rehabilitation Center. (b) This Guarantee as to any Guarantor shall terminate and be of no further force or effect upon (i) the designation (in accordance with the provisions of this Indenture) of such Guarantor as an Unrestricted Subsidiary or (ii) the sale or other disposition of all of the assets of such Guarantor in accordance with the terms of this Indenture, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the Capital Stock of any Guarantor then held by the Company and its Restricted Subsidiaries; provided -------- that the Net Proceeds of such sale or other disposition are applied in accordance with Section 4.06, to the extent such Section is applicable to such disposition and is required thereby, or (iii) the sale or other disposition of Capital Stock of any Guarantor if (A) as a result of such disposition, such Person ceases to be a Subsidiary of the Company and (B) the Net Proceeds of such sale are applied in accordance with Section 4.06, to the extent such Section is applicable to such disposition. If the Security Guarantee of any Guarantor terminates pursuant to the foregoing provisions, such Person shall cease to be a Subsidiary, a Guarantor or otherwise a party to this Indenture and, upon request by the Company, the Trustee shall execute appropriate instruments acknowledging such termination and the release of such Person from its obligations hereunder. SECTION 11.03. Successors and Assigns. This Article XI shall be ---------------------- binding upon each Guarantor and its successors and assigns and shall enure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges conferred upon 88 that party in this Indenture and in the Securities shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of this Indenture. SECTION 11.04. No Waiver. Neither a failure nor a delay on the part --------- of either the Trustee or the Holders in exercising any right, power or privilege under this Article XI shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, remedies and benefits of the Trustee and the Holders herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which either may have under this Article XI at law, in equity, by statute or otherwise. SECTION 11.05. Modification. No modification, amendment or waiver of ------------ any provision of this Article XI, nor the consent to any departure by any Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on any Guarantor in any case shall entitle such Guarantor to any other or further notice or demand in the same, similar or other circumstances. ARTICLE XII SUBORDINATION OF THE SECURITY GUARANTEES ---------------------------------------- SECTION 12.01. Agreement to Subordinate. Each Guarantor agrees, and ------------------------ each Securityholder by accepting a Security agrees, that such Guarantor's obligations under its Security Guarantee are subordinated in right of payment, to the extent and in the manner provided in this Article XII, to the prior payment in full in cash or Cash Equivalents of all existing and future Senior Debt of such Guarantor and that the subordination is for the benefit of and enforceable by the holders of Senior Debt of such Guarantor. The obligations of a Guarantor under this Article XII shall rank pari passu in right of payment ---------- with all existing and future Pari Passu Debt of such Guarantor, and shall be senior in right of payment to all existing and future Subordinated Debt of such Guarantor. Each Security Guarantee will also be effectively subordinated to any Secured Debt of the applicable Guarantor to the extent of the value of the assets securing such Debt. SECTION 12.02. Liquidation, Dissolution, Bankruptcy. Upon any ------------------------------------ payment or distribution to creditors of any Guarantor in a liquidation or dissolution of such Guarantor or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to such Guarantor or its property, an assignment for the benefit of creditors or any marshaling of such Guarantor's assets and liabilities, the holders of Senior Debt of such Guarantor shall be entitled to receive payment in full, in cash or Cash Equivalents, of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt, whether or not allowed or allowable in such 89 proceeding) before the Holders of Securities will be entitled to receive any payment with respect to the Security Guarantee and until all Obligations with respect to such Senior Debt are paid in full, in cash or Cash Equivalents, any payment or distribution to which the Holders of Securities would be entitled shall be made to the holders of such Senior Debt (except that Holders of Securities may receive and retain (i) Permitted Junior Securities and (ii) payments made from the trust described in Article VII so long as, on the date or dates the respective amounts were paid into the trust, such payments were made with respect to the Securities without violating this Article XII). SECTION 12.03. Default on Senior Debt of a Guarantor. A Guarantor ------------------------------------- shall not make any payment or distribution upon or in respect of its Security Guarantee if (i) a default in the payment of any Obligations with respect to Designated Senior Debt of such Guarantor occurs and is continuing (a "Guarantor payment default") or any other default on Designated Senior Debt of such Guarantor occurs and the maturity of such Designated Senior Debt of such Guarantor is accelerated in accordance with its terms or (ii) a default, other than a Guarantor payment default, occurs and is continuing with respect to Designated Senior Debt of such Guarantor that permits holders of the Designated Senior Debt of such Guarantor as to which such default relates to accelerate its maturity (a "Guarantor non-payment default") and, in the case of this clause (ii) only, the Trustee receives a notice of such default (a "Guarantor Payment Blockage Notice") from the Company, a Representative for, or the holders of a majority of the outstanding principal amount of, any issue of Designated Senior Debt of such Guarantor. Payments on the Security Guarantee of such Guarantor may and shall be resumed (a) in the case of a Guarantor payment default, upon the date on which such default is cured or waived and, in the case of Designated Senior Debt of such Guarantor that has been accelerated, such acceleration has been rescinded, and (b) in case of a Guarantor non-payment default, the earlier of the date on which such Guarantor non-payment default is cured or waived or 179 days after the date on which the applicable Guarantor Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt of such Guarantor has been accelerated. No new period of payment blockage may be commenced on account of any Guarantor non-payment default unless and until 360 days have elapsed since the initial effectiveness of the immediately prior Guarantor Payment Blockage Notice. No Guarantor non-payment default that existed or was continuing on the date of delivery of any Guarantor Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Guarantor Payment Blockage Notice unless such default shall have been cured or waived for a period of not less than 90 days. Notwithstanding any other provision in this Section 12.03, during any 365-day period, there must be at least 180 days in which there is no Guarantor Payment Blockage Notice. SECTION 12.04. Demand for Payment. If payment of the Securities is ------------------ accelerated because of an Event of Default and a demand for payment is made on a Guarantor pursuant to Article XI, the Trustee shall promptly notify the Company, and the Company shall promptly (and in no event more than five Business Days after receipt of such notice) notify the 90 Representative of the lenders under the New Credit Facility of the acceleration. If any Debt under the New Credit Facility is outstanding, such Guarantor may not pay its Obligations under its Security Guarantee until five Business Days after the holders of such Debt receive notice of such demand and, thereafter, may pay its Obligations under its Security Guarantee only if this Article XII otherwise permits payment at that time. SECTION 12.05. When Distribution Must Be Paid Over. If a ----------------------------------- distribution is made to Securityholders that because of this Article XII should not have been made to them, the Securityholders who receive the distribution shall hold it in trust for holders of Senior Debt of the relevant Guarantor and pay it over to them as their interests may appear. SECTION 12.06. Subrogation. After all Senior Debt of a Guarantor is ----------- paid in full and until the Securities are paid in full, Securityholders shall be subrogated to the rights of holders of Senior Debt of such Guarantor to receive distributions applicable to Senior Debt of such Guarantor. A distribution made under this Article XII to holders of Senior Debt of such Guarantor which otherwise would have been made to Securityholders is not, as between such Guarantor and Securityholders, a payment by such Guarantor on Senior Debt of such Guarantor. SECTION 12.07. Relative Rights. This Article XII defines the --------------- relative rights of Securityholders and holders of Senior Debt of a Guarantor. Nothing in this Indenture shall: (1) impair, as between a Guarantor and Securityholders, the obligation of a Guarantor, which is absolute and unconditional, to pay its Obligations under its Security Guarantee to the extent set forth in Article XI; or (2) prevent the Trustee or any Securityholder from exercising its available remedies upon a default by a Guarantor under its Obligations under its Security Guarantee, subject to the rights of holders of Senior Debt of such Guarantor to receive distributions otherwise payable to Securityholders. SECTION 12.08. Subordination May Not Be Impaired by a Guarantor. No ------------------------------------------------ right of any holder of Senior Debt of a Guarantor to enforce the subordination of the Obligations under the Security Guarantee of such Guarantor shall be impaired by any act or failure to act by such Guarantor or by its failure to comply with this Indenture. SECTION 12.09. Rights of Trustee and Paying Agent. Notwithstanding ---------------------------------- Section 12.03, the Trustee or Paying Agent may continue to make payments on the Securities and shall not be charged with knowledge of the existence of facts that would prohibit the making of any such payments unless, not less than two Business Days prior to the date of such payment, a Trust Officer of the Trustee receives notice satisfactory to it that payments may not be made under this Article XII. A Guarantor, the Registrar or co-registrar, the Paying Agent, a Representative or a holder of Senior Debt of a Guarantor may give the notice; provided, however, that, if an issue of Senior Debt of a Guarantor has a - -------- ------- Representative, only the 91 Representative may give the notice. The Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself or itself to be a holder of any Senior Debt of a Guarantor (or a Representative of such holder) to establish that such notice has been given by a holder of such Senior Debt or Representative thereof. The Trustee in its individual or any other capacity may hold Senior Debt of a Guarantor with the same rights it would have if it were not Trustee. The Registrar and co-registrar and the Paying Agent may do the same with like rights. The Trustee shall be entitled to all the rights set forth in this Article XII with respect to any Senior Debt of a Guarantor which may at any time be held by it, to the same extent as any other holder of Senior Debt of such Guarantor; and nothing in Article VII shall deprive the Trustee of any of its rights as such holder. Nothing in this Article XII shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07. SECTION 12.10. Distribution or Notice to Representative. Whenever a ---------------------------------------- distribution is to be made or a notice given to holders of Senior Debt of a Guarantor, the distribution may be made and the notice given to their Representative (if any). SECTION 12.11. Article XII Not to Prevent Events of Default or Limit ----------------------------------------------------- Right to Accelerate. The failure of a Guarantor to make a payment on any of its - ------------------- Obligations under its Security Guarantee by reason of any provision in this Article XII shall not be construed as preventing the occurrence of a default by such Guarantor under its Security Guarantee. Nothing in this Article XII shall have any effect on the right of the Securityholders or the Trustee to make a demand for payment on a Guarantor pursuant to Article XII. SECTION 12.12. Trustee Entitled to Rely. Upon any payment or ------------------------ distribution pursuant to this Article XII, the Trustee and the Securityholders shall be entitled to rely (i) upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in Section 12.02 are pending, (ii) upon a certificate of the liquidating trustee or agent or other Person making such payment or distribution to the Trustee or to the Securityholders or (iii) upon the Representatives for the holders of Senior Debt of a Guarantor for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Debt of a Guarantor and other Debt of a Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XII. In the event that the Trustee determines, in good faith, that evidence is required with respect to the right of any Person as a holder of Senior Debt of a Guarantor to participate in any payment or distribution pursuant to this Article XII, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Debt of such Guarantor held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and other facts pertinent to the rights of such Person under this Article XII, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. The provisions 92 of Sections 7.01 and 7.02 shall be applicable to all actions or omissions of actions by the Trustee pursuant to this Article XII. SECTION 12.13. Trustee to Effectuate Subordination. Each ----------------------------------- Securityholder by accepting a Security authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the Securityholders and the holders of Senior Debt of each of the Guarantors as provided in this Article XII and appoints the Trustee as attorney-in-fact for any and all such purposes. SECTION 12.14. Trustee Not Fiduciary for Holders of Senior Debt of a ----------------------------------------------------- Guarantor. The Trustee shall not be deemed to owe any fiduciary or other duty - --------- to the holders of Senior Debt of a Guarantor and shall not be liable to any such holders if it shall mistakenly pay over or distribute to Securityholders or the relevant Guarantor or any other Person, money or assets to which any holders of Senior Debt of such Guarantor shall be entitled by virtue of this Article XII or otherwise. SECTION 12.15. Reliance by Holders of Senior Debt of a Guarantor on ---------------------------------------------------- Subordination Provisions. Each Securityholder by accepting a Security - ------------------------ acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Debt of a Guarantor, whether such Senior Debt was created or acquired before or after the issuance of the Securities, to acquire and continue to hold, or to continue to hold, such Senior Debt and such holder of Senior Debt shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Debt. ARTICLE XIII MISCELLANEOUS ------------- SECTION 13.01. Trust Indenture Act Controls. If any provision of ---------------------------- this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. SECTION 13.02. Notices. Any notice or communication shall be in ------- writing and delivered in person or mailed by first-class mail addressed as follows: 93 if to the Company prior to the Recapitalization: HH Acquisition Corp. c/o Gibson, Dunn & Crutcher LLP 200 Park Avenue, 48/th/ Floor New York, NY 10166 Attention: Joerg H. Esdorn, Esq. and Investcorp International Inc. 280 Park Avenue, 37 West Floor New York, NY 10017 Attention: Christopher J. O'Brien if to the Company after the Recapitalization: Harborside Healthcare Corporation 470 Atlantic Avenue Boston, MA 02210 Attention: William H. Stephan Gibson, Dunn & Crutcher LLP 200 Park Avenue, 48/th/ Floor New York, NY 10166 Attention: Joerg H. Esdorn, Esq. and Investcorp International Inc. 280 Park Avenue, 37 West Floor New York, NY 10017 Attention: Christopher J. O'Brien And with respect to notices pursuant to Article VI, with copies to: Gibson, Dunn & Crutcher, LLP 200 Park Avenue New York, NY 10166 Attention: Joerg H. Esdorn, Esq. 94 if to the Trustee: United States Trust Company of New York 114 West 47/th/ Street New York, NY 10036 telecopier no.: (212) 852-1626 Attention: Corporate Trust Administration The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Securityholder shall be made in compliance with Section 313(c) of the TIA and mailed to the Securityholder at the Securityholder's address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 13.03. Communication by Holders with Other Holders. ------------------------------------------- Securityholders may communicate pursuant to TIA (S) 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Guarantors, the Trustee, the Registrar and anyone else shall have the protection of TIA (S) 312(c). SECTION 13.04. Certificate and Opinion as to Conditions Precedent. -------------------------------------------------- Upon any request or application by the Company to the Trustee to take or refrain from taking any action under this Indenture, at the request of the Trustee the Company shall furnish to the Trustee: (1) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 13.05 hereof) stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 13.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent have been complied with. To the extent applicable, the Company shall comply with the provisions of Section 314(c)(3) of the TIA. 95 SECTION 13.05. Statements Required in Certificate or Opinion. Each --------------------------------------------- certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture shall include: (1) a statement that the individual making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with. SECTION 13.06. When Securities Disregarded. In determining whether --------------------------- the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which the Trustee actually knows are so owned shall be so disregarded. Also, subject to the foregoing, only Securities outstanding at the time shall be considered in any such determination. SECTION 13.07. Rules by Trustee, Paying Agent and Registrar. The -------------------------------------------- Trustee may make reasonable rules for action by or a meeting of Securityholders. The Registrar and the Paying Agent may make reasonable rules for their functions. SECTION 13.08. Legal Holidays. A "Legal Holiday" is a Saturday, a -------------- Sunday or a day on which banking institutions are not required to be open in the State of New York. If a payment date is a Legal Holiday, payment shall be made on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. If a regular record date is a Legal Holiday, the record date shall not be affected. SECTION 13.09. GOVERNING LAW. THIS INDENTURE, THE SECURITIES AND THE ------------- SECURITY GUARANTEES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 96 SECTION 13.10. No Recourse Against Others. A director, officer, -------------------------- incorporator, employee, stockholder or Affiliate as such, of the Company or any Guarantor shall not have any liability for any obligations of the Company or any Guarantor under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. SECTION 13.11. Successors. All agreements of the Company and each ---------- Guarantor in this Indenture and the Securities shall bind their successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 13.12. Multiple Originals. The parties may sign any number ------------------ of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture. SECTION 13.13. Table of Contents; Headings. The table of contents, --------------------------- cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. 97 IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. HH ACQUISITION CORP. By: /s/ Christopher J. O'Brien -------------------------------------- Name: Christopher J. O'Brien Title: President UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee, By: _____________________________________ Name: Title: IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. HH ACQUISITION CORP. By: ____________________________________ Name: Title: UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee, By: /s/ James E. Logan ______________________________________ Name: James E. Logan Title: Vice President EXHIBIT A --------- THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE ACCRETED VALUE OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A-2 A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS. [For Global Securities only: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.08 OF THE INDENTURE.] A-3 [FORM OF FACE OF SECURITY] HH ACQUISITION CORP. 11% SENIOR SUBORDINATED DISCOUNT NOTE DUE 2008 No. ___ CUSIP No. _________ $____________ The following information is supplied for purposes of Sections 1273 and 1275 of the Internal Revenue Code: Issue Date: [__________],____] Original issue discount under Section Yield to maturity for period from 1273 of the Internal Revenue Code Issue Date to [__________,_____]: (for each $1,000 principal amount): [____]%, compounded semi-annually on $[_______] [__________ and _______], commencing [_________, ____] (computed without Issue Price (for each $1,000 giving effect to the additional principal amount): $[_____] payments of interest in the event the issuer fails to commence the exchange offer or cause the registration statement to be declared effective, each as described on the reverse hereof) HH ACQUISITION CORP., a Delaware corporation (the "Company"), promises to pay to _______________,or registered assigns, the principal sum of _____________________ ($________________) on August 1, 2008. Interest Payment Dates: February 1 and August 1, commencing February 1, 2003 Regular Record Dates: January 15 and July 15 Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Dated: HH ACQUISITION CORP. By: _______________________________________ Name: Title: A-4 TRUSTEE'S CERTIFICATE OF AUHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By: _______________________ Authorized Signatory A-5 [FORM OF REVERSE SIDE OF SECURITY] 11% Senior Subordinated Discount Note due 2008 1. Interest -------- HH ACQUISITION CORP., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above and shall pay Liquidated Damages, if any, payable pursuant to the relevant Registration Rights Agreement. The Company will pay interest and Liquidated Damages, if any, semiannually on August 1 and February 1 of each year commencing February 1, 2004; provided that no interest shall accrue on the principal amount of this -------- Security prior to August 1, 2003 (the "Full Accretion Date"), and no interest shall be paid on this Security prior to the Full Accretion Date except for Liquidated Damages, if any, payable pursuant to the relevant Registration Rights Agreement. The Holder of this Security is entitled to the benefit of such Registration Rights Agreement. Interest will be computed on the basis of a 360-day year of twelve 30- day months. The Company shall pay interest on overdue principal at the rate borne by the Securities, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. 2. Method of Payment ----------------- The Company will pay interest (except defaulted interest) on and Liquidated Damages, if any, in respect of the Securities to the Persons who are registered holders of Securities at the close of business on the January 15 or July 15 next preceding the interest payment date even if Securities are cancelled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal and interest by check payable in such money or by wire transfer of federal funds. 3. Paying Agent and Registrar -------------------------- Initially, UNITED STATES TRUST COMPANY OF NEW YORK (the "Trustee") will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice to the Holders. The Company or any domestically organized Wholly Owned Restricted Subsidiary may act as Paying Agent, Registrar or co-registrar. A-6 4. Indenture --------- The Company issued the Securities under an Indenture dated as of July 31, 1998 (the "Indenture"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) ------ 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Securities are unsecured senior subordinated obligations of the Company. Subject to the conditions set forth in the Indenture, the Company may issue Additional Securities. 5. Optional Redemption ------------------- Except as set forth in the next two paragraphs, the Securities may not be redeemed at the Company's option prior to August 1, 2003. Thereafter, the Securities will be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the applicable redemption date (subject to the right of Holders on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the twelve-month period beginning on August 1 of the years indicated below: Redemption Year Price - ---- ---------- 2003 105.500% 2004 103.667% 2005 101.883% 2006 and thereafter 100.000% In addition, at any time and from time to time, prior to August 1, 2001, the Company may redeem up to 35% of the sum of (i) the aggregate principal amount at maturity of Securities and (ii) the aggregate principal amount at maturity of any Additional Securities at a redemption price of 111% of the Accreted Value thereof (determined at the redemption date) plus Liquidated Damages thereon, if any, to the redemption date, with the net cash proceeds received by the Company of a public offering of common stock of the Company, provided that at least 65% of the sum of (i) the aggregate principal amount at - -------- maturity of Securities and (ii) the aggregate principal amount at maturity of any Additional Securities remains outstanding immediately after the occurrence of such redemption; and provided, further, that such redemption shall occur -------- ------- within 60 days of the date of the closing of such public offering. A-7 At any time on or prior to August 1, 2003, the Securities may be redeemed as a whole but not in part at the option of the Company upon the occurrence of a Change of Control, upon not less than 30 nor more than 60 days' prior notice (but in no event may any such redemption occur more than 90 days after the occurrence of such Change of Control) mailed by first-class mail to each Holder's registered address, at a redemption price equal to 100% of the Accreted Value thereof (determined at the redemption date) plus the Applicable Premium and Liquidated Damages thereon, if any, to the redemption date (subject to the right of Holders on the relevant record date to receive interest due on the relevant interest payment date). 6. Special Mandatory Redemption ---------------------------- In the event that the Merger is not consummated prior to the earlier to occur of (i) January 10, 1999 and (ii) if it appears, in the sole judgment of the Company, that the Merger shall not be consummated, the date on which notice of same is delivered by the Company to the Escrow Agent and the Trustee, the Company shall be required to redeem the Securities, in whole, on at least 15 days' prior written notice mailed by first class mail to each Holder's last address as it appears in the Securities Register, at a redemption price equal to 101% of the Accreted Value plus Liquidated Damages, if any, of the Securities on the date of repurchase to the redemption date. 7. Notice of Redemption -------------------- Notice of redemption will be mailed by first-class mail at least 30 days (or in the case of a Special Mandatory Redemption described in paragraph 6 hereof, 15 days) but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at its registered address all in accordance with the Indenture. If less than all of the Securities are to be redeemed at any time, selection of Securities for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Securities are listed, or, if the Securities are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that no Securities in an aggregate principal -------- amount at maturity of $1,000 or less shall be redeemed in part. If money sufficient to pay the redemption price of and accrued interest (if any) on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 8. Repurchase at the Option of the Holder -------------------------------------- Upon a Change of Control, any Holder of Securities will have the right, subject to certain conditions set forth in the Indenture, to cause the Company to repurchase all or any part of A-8 the Securities of such Holder at a purchase price equal to 101% of the aggregate principal amount of the Securities to be repurchased plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of repurchase) as provided in, and subject to the terms of, the Indenture. 9. Subordination ------------- The Securities are subordinated to Senior Debt of the Company, as defined in the Indenture. To the extent provided in the Indenture, Senior Debt of the Company must be paid before the Securities may be paid. The Company agrees, and each Securityholder by accepting a Security agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give it effect and appoints the Trustee as attorney-in-fact for such purpose. 10. Denominations; Transfer; Exchange --------------------------------- The Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. Upon any registration of transfer or exchange, the Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or to transfer or exchange any Securities for a period of 15 days prior to a selection of Securities to be redeemed or 15 days before an interest payment date. 11. Persons Deemed Owners --------------------- The registered Holder of this Security may be treated as the owner of it for all purposes. 12. Unclaimed Money --------------- If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its written request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. A-9 13. Discharge and Defeasance ------------------------ Subject to certain conditions set forth in the Indenture, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 14. Amendment, Waiver ----------------- Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount outstanding of the Securities and (ii) any past default or noncompliance with any provision of the Indenture may be waived with the consent of the Holders of a majority in principal amount then outstanding of the Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, defect or inconsistency, to provide for uncertificated Securities in addition to or in place of certificated Securities (provided that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code), to provide for the assumption of the Company's or any Guarantor's obligations to Holders of Securities in the case of a merger, consolidation or sale of assets, to release any Security Guarantee or collateral in accordance with the provisions of the Indenture or Pledge Agreement, as the case may be, to provide for additional Guarantors, to make any change that would provide any additional rights or benefits to the Holders of Securities or that, as determined by the Board of Directors in good faith, does not have a material adverse effect on the legal rights under this Indenture of any such Holder, to comply with requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA or to provide for the issuance of Additional Securities in compliance with Article II and Section 4.03 of the Indenture. 15. Defaults and Remedies --------------------- Under the Indenture, an Event of Default occurs if: (i) the Company defaults in any payment of interest on, or Liquidated Damages with respect to, any Security when the same becomes due and payable, whether or not such payment shall be prohibited by Article X of the Indenture, and such default continues for a period of 30 days; (ii) the Company defaults in the payment of the principal of or premium, if any, on the Securities, whether or not such payment shall be prohibited by Article X of the Indenture; (iii) the Company fails to comply with other covenants and agreements in the Indenture, subject to applicable grace periods as set forth in the Indenture; (iv) certain accelerations (including failure to pay within any grace period after final maturity) of other Debt of the Company or any Restricted Subsidiary that is a Significant Subsidiary occur if the amount A-10 accelerated (or so unpaid) exceeds $15,000,000; (v) certain events of bankruptcy, insolvency or reorganization with respect to the Company and any Restricted Subsidiary which is a Significant Subsidiary; (vi) certain judgments or decrees for the payment of money in excess of $15,000,000 against the Company or any Restricted Subsidiary that is a Significant Subsidiary; and (vii) except as is permitted by the Indenture, a Security Guarantee by a Guarantor that is a Significant Subsidiary shall be held in any judicial proceeding to be unenforceable or invalid or shall for any reason cease to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, denies or disaffirms its obligations under the Indenture or its Security Guarantee. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of principal, premium, if any, or interest) if and so long as a committee of its trust officers in good faith determines that withholding notice is in the interest of the Holders. 16. Trustee Dealings with the Company --------------------------------- Subject to certain limitations imposed by the Act, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 17. No Personal Liability of Directors, Officers, Employees and Stockholders ------------------------------------------------------------------------ No director, officer, employee, incorporator, stockholder or Affiliate of the Company, as such, will have any liability for any obligations of the Company under the Securities, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. No director, officer, employee, incorporator, stockholder or Affiliate of any of the Guarantors, as such, will have any liability for any obligations of the Guarantors under the Security Guarantees, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Securities and Security Guarantees by accepting a Security and a Security Guarantee waives and releases all such liabilities. The waiver and release are part of the consideration for issuance of the Securities and the Security Guarantees. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy. A-11 18. Governing Law ------------- THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, ---------------------------------------------------------------------- THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES - -------------------------------------------------------------------------------- OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER - ----------------------------------------------------------------------------- JURISDICTION WOULD BE REQUIRED THEREBY. - --------------------------------------- 19. Authentication -------------- This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Security. 20. Abbreviations ------------- Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 21. CUSIP Numbers ------------- Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Company has caused CUSIP numbers to be printed on the Securities and have directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. A-12 THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST AND WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE WHICH HAS IN IT THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO: C/O GIBSON, DUNN & CRUTCHER LLP HH ACQUISITION CORP. 200 PARK AVENUE, 48/TH/ FLOOR NEW YORK, NEW YORK 10166 ATTENTION: JOERG H. ESDORN, ESQ. A-13 [FORM OF TRANSFER NOTICE] FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto Insert Taxpayer Identification No. - ---------------------------------- - ------------------------------------------------------------------------ Please print or typewrite name and address including zip code of assignee - ------------------------------------------------------------------------ the within Security and all rights thereunder, hereby irrevocably constituting and appointing _____________________________________________ attorney to transfer said Security on the books of the Company with full power of substitution in the premises. [THE FOLLOWING PROVISION TO BE INCLUDED ON ALL SECURITIES OTHER THAN EXCHANGE SECURITIES, UNLEGENDED OFFSHORE GLOBAL SECURITIES AND UNLEGENDED OFFSHORE PHYSICAL SECURITIES] In connection with any transfer of this Security occurring prior to the date which is the earlier of (i) the date the Shelf Registration Statement is declared effective or (ii) the end of the period referred to in Rule 144(k) under the Securities Act, the undersigned confirms that without utilizing any general solicitation or general advertising that: [Check One] --------- [ ] (a) this Security is being transferred in compliance with the exemption from registration under the Securities Act of 1933 provided by Rule 144A thereunder. or -- [ ] (b) this Security is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Security and the Indenture. A-14 If none of the foregoing boxes is checked, the Trustee or other Registrar shall not be obligated to register this Security in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.08 of the Indenture shall have been satisfied. Date:__________ ________________________________________________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within- mentioned instrument in every particular, without alteration or any change whatsoever. TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933 and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated:_____________ ________________________________________________________ NOTICE: To be executed by an executive officer A-15 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 4.06 or 4.08 of the Indenture, check the box: [_] 4.06 Asset Sale [_] 4.08 Change of Control If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.06 or 4.08 of the Indenture, state the amount: $__________. Date: __________________ Your Signature: _________________________________ (Sign exactly as your name appears on the other side of the Security) __________________ Tax I.D. number Signature Guarantee: ______________________________________________ (Signature must be guaranteed by a participant in a recognized signature guarantee medallion program) EXHIBIT B --------- FORM OF CERTIFICATE ------------------- _______, ____ UNITED STATES TRUST COMPANY OF NEW YORK 114 West 47/th/ Street New York, New York 10036 Attention: Corporate Trust Administration Re: HH Acquisition Corp.(the "Company") 11% Senior Subordinated Securities due 2008 (the "Securities") -------------------------------------------------------------- Dear Sirs: This letter relates to U.S. $_______________ principal amount at maturity of Securities represented by a Security (the "Legended Security") which bears a legend outlining restrictions upon transfer of such Legended Security. Pursuant to Section 2.02 of the Indenture dated as of July 31, 1998 (the "Indenture") relating to the Securities, we hereby certify that we are (or we will hold such securities on behalf of) a person outside the United States to whom the Securities could be transferred in accordance with Rule 904 of Regulation S promulgated under the U.S. Securities Act of 1933. Accordingly, you are hereby requested to exchange the legended certificate for an unlegended certificate representing an identical principal amount at maturity of Securities, all in the manner provided for in the Indenture. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Holder] By: ____________________________________ Authorized Signature EXHIBIT C --------- [FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS TO NON-QIB ACCREDITED INVESTORS] ____________, ____ UNITED STATES TRUST COMPANY OF NEW YORK 114 West 47/th/ Street New York, New York 10036 Attention: Corporate Trust Administration Re: HH Acquisition Corp. (the "Company") 11% Senior Subordinated Securities due 2008 (the "Securities") -------------------------------------------------------------- Dear Sirs: In connection with our proposed purchase of $__________________ aggregate principal amount at maturity of the Securities, we confirm that: 1. We understand that any subsequent transfer of the Securities is subject to certain restrictions and conditions set forth in the Indenture dated as of July 31, 1998 (the "Indenture") relating to the Securities and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Securities except in compliance with such restrictions and conditions and the Securities Act of 1933, amended (the "Securities Act"). 2. We understand that the offer and sale of the Securities have not been registered under the Securities Act, and that the Securities may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell any Securities within the time period referred to in Rule 144(k) of the Securities Act, we will do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and, if such transfer is in respect of an aggregate accreted value of Securities at the time of transfer of less than $250,000, an opinion of counsel acceptable to the Company that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available) or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing any of the Securities from us a notice advising such purchaser that resales of the Securities are restricted as stated herein. C-2 3. We understand that, on any proposed resale of any Securities, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Securities purchased by us will bear a legend to the foregoing effect. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Securities, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Securities purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Very truly yours, [Name of Transferee] By:______________________________________________ Authorized Signature EXHIBIT D --------- [FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S] _______ __, 19__ UNITED STATES TRUST COMPANY OF NEW YORK 114 West 47/th/ Street New York, New York 10036 Attention: Corporate Trust Administration Re: HH Acquisition Corp. (the "Company") 11% Senior Subordinated Securities due 2008 (the "Securities") -------------------------------------------------------------- Dear Sirs: In connection with our proposed sale of U.S.$__________________ aggregate principal amount at maturity of the Securities, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the Securities Act of 1933 and, accordingly, we represent that: (1) the offer of the Securities was not made to a person in the United States; (2) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States; (3) no directed selling efforts have been made by us in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; and (4) the transaction is not part of a plan or scheme to evade the registration requirements of the U.S. Securities Act of 1933. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal D-2 proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By:______________________________ Authorized Signature EXHIBIT E FORM OF FIRST SUPPLEMENTAL INDENTURE This FIRST SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") ---------------------- dated as of __________, 199_, among HARBORSIDE HEALTHCARE CORPORATION, a Delaware corporation ("Harborside"), the subsidiaries of Harborside listed on ---------- the signature pages hereto, as guarantors (collectively, the "Initial ------- Guarantors"), and UNITED STATES TRUST COMPANY OF NEW YORK, as trustee under the - ---------- indenture referred to below (the "Trustee"). ------- R E C I T A L S WHEREAS, HH Acquisition Corp., a Delaware corporation ("MergerCo"), -------- has heretofore executed and delivered to the Trustee an Indenture dated as of July 31, 1998 (the "Indenture"), providing for the initial issuance of --------- $170,000,000 million in aggregate principal amount at maturity of its 11% Senior Subordinated Discount Notes due 2008 (the "Securities"); ---------- WHEREAS, MergerCo has merged with and into Harborside and, in connection therewith, Harborside has assumed by operation of law all of MergerCo's debts, liabilities, duties and obligations, including MergerCo's obligations in respect of the Securities and under the Indenture; WHEREAS, each of the Initial Guarantors is required pursuant to the Indenture to become a party thereto and as Guarantors under the Indenture to guarantee the obligations of MergerCo in respect of the Securities and under the Indenture; WHEREAS, Harborside desires by this Supplemental Indenture, pursuant to and as contemplated by Sections 5.01 and 9.01 of the Indenture, to expressly, irrevocably and unconditionally assume the covenants, agreements, obligations and undertakings of MergerCo in the Indenture and under the Securities; and WHEREAS, all conditions and requirements necessary to make each of this Supplemental Indenture and the Securities valid, binding and legal instruments in accordance with their respective terms upon Harborside, and each of this Supplemental Indenture and each of the Security Guarantees valid, binding and legal instruments in accordance with their terms upon each of the Initial Guarantors, have been performed and fulfilled by the applicable parties hereto and the execution and delivery thereof have been in all respects duly authorized by the applicable parties hereto. 2 WHEREAS, MergerCo and Harborside authorize the Trustee to cancel the 11% Senior Subordinated Discount Notes due 2008 of MergerCo and to authenticate the 11% Senior Subordinated Discount Notes due 2008 of Harborside, as guaranteed by the Initial Guarantors. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, each party agrees, for the benefit of the others and for the equal and ratable benefit of the holders of the Notes as follows: ARTICLE ONE DEFINITIONS ----------- SECTION 1.01. Definitions. For all purposes of this Supplemental ----------- Indenture, except as otherwise herein expressly provided or unless the context otherwise requires: (i) the terms and expressions used herein shall have the same meanings as corresponding terms and expressions used in the Indenture; and (ii) the words "herein," "hereof" and "hereby" and other words of similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular section hereof. ARTICLE TWO ASSUMPTION OF OBLIGATIONS AND AGREEMENT TO GUARANTEE ---------------------------------------------------- SECTION 2.01. Assumption of Obligations of MergerCo. (a) Harborside ------------------------------------- hereby expressly, irrevocably and unconditionally assumes each and every covenant, agreement, obligation and undertaking of MergerCo in the Indenture as if Harborside had been named the Company in the Indenture and the original issuer of the Securities, and also hereby expressly, irrevocably and unconditionally assumes each and every covenant, agreement, obligation and undertaking of MergerCo in each Security outstanding on the date of this Supplemental Indenture. (b) Promptly following the execution and delivery of this Supplemental Indenture, the Trustee shall, upon the written order of Harborside in the form of an Officers' Certificate of Harborside, authenticate and deliver Initial Securities substantially in the form of Exhibit A hereto in exchange for the outstanding Initial Securities. SECTION 2.02. Security Guarantee of the Initial Guarantors. Each of -------------------------------------------- the Initial Guarantors hereby expressly, irrevocably and unconditionally agrees, (i) that its shall be a "Guarantor" under the Indenture and shall, jointly and severally with all other Guarantors, guarantee Harborside's obligations under the Securities and the Indenture on the terms and subject to the conditions set forth in Articles XI and XII of the Indenture and (ii) to be bound by all other applicable provisions of the Indenture and the Securities. 3 SECTION 2.03. Replacement of Exhibits to Indenture. Exhibits A, B, C ------------------------------------ and D to the Indenture are hereby deleted and replaced in their entirety by Exhibits A, B, C and D, respectively, hereto. ARTICLE THREE MISCELLANEOUS PROVISIONS ------------------------ SECTION 3.01. Effect of Supplemental Indenture. Upon the execution --------------------------------- and delivery of this Supplemental Indenture by Harborside, each of the Initial Guarantors and the Trustee, the Indenture shall be supplemented in accordance herewith, and this Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of a Security heretofore or hereafter authenticated and delivered under the Indenture shall be bound thereby. SECTION 3.02. Indenture Remains in Full Force and Effect. Except as ------------------------------------------ expressly amended and supplemented hereby, the Indenture is in all respects ratified and confirmed and all terms, conditions and provisions of the Indenture shall remain in full force and effect. SECTION 3.03. Indenture and Supplemental Indenture Construed ----------------------------------------------- Together. This Supplemental Indenture is an indenture supplemental to and in implementation of the Indenture, and the Indenture and this Supplemental Indenture shall henceforth be read and construed together. SECTION 3.04. Conflict with Trust Indenture Act. If any provision of --------------------------------- this Supplemental Indenture limits, qualifies or conflicts with any provision of the Trust Indenture Act that is required under such Act to be part of and govern any provision of this Supplemental Indenture, the provision of such Act shall control. If any provision of this Supplemental Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the provision of such Act shall be deemed to apply to the Indenture as so modified or to be excluded by this Supplemental Indenture, as the case may be. SECTION 3.05. Separability Clause. In case any provision in this ------------------- Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 3.06. Effect of Headings. The Article and Section headings ------------------ herein are for convenience only and shall not affect the construction hereof. SECTION 3.07. Benefits of Supplemental Indenture, Etc. Nothing in --------------------------------------- this Supplemental Indenture, the Indenture or the Securities express or implied, shall give to any Person, other than the parties hereto and thereto and their successors hereunder and thereunder 4 and the Holders, any benefit of any legal or equitable right, remedy or claim under the Indenture, this Supplemental Indenture or the Securities. SECTION 3.08. Successors and Assigns. All covenants and agreements ---------------------- in this Supplemental Indenture by Harborside and by each Initial Guarantor shall bind their respective successors and assigns, whether so expressed or not. SECTION 3.09. Certain Duties and Responsibilities of Trustee. In ---------------------------------------------- entering into this Supplemental Indenture, the Trustee shall be entitled to the benefit of every provision of the Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee, whether or not elsewhere herein so provided. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Company. SECTION 3.10. Governing Law. This Supplemental Indenture shall be ------------- governed by and construed in accordance with the laws of the State of New York. SECTION 3.11. Counterparts. This Supplemental Indenture may be ------------ executed in counterparts, each of which, when so executed, shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. [REMAINDER OF PAGE INTENTIONALLY BLANK] 5 IN WITNESS WHEREOF, the parties have caused this Supplemental Indenture to be duly executed as of the date first written above. HARBORSIDE HEALTHCARE CORPORATION By: ___________________________ Name: Title: UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By: ___________________________ Name: Title: HARBORSIDE HEALTHCARE LIMITED PARTNERSHIP By: KHI CORPORATION, its general partner By: ___________________________ Name: Title: BELMONT NURSING CENTER CORP. By: ___________________________ Name: Title: 6 ORCHARD RIDGE NURSING CENTER CORP. By: ___________________________ Name: Title: OAKHURST MANOR NURSING CENTER CORP. By: ___________________________ Name: Title: RIVERSIDE RETIREMENT LIMITED PARTNERSHIP By: HARBORSIDE HEALTH I CORPORATION, its general partner By: ___________________________ Name: Title: HARBORSIDE TOLEDO LIMITED PARTNERSHIP By: HARBORSIDE TOLEDO CORP., its general partner By: ___________________________ Name: Title: 7 HARBORSIDE CONNECTICUT LIMITED PARTNERSHIP By: HARBORSIDE HEALTH I CORPORATION, its general partner By: ___________________________ Name: Title: HARBORSIDE OF FLORIDA LIMITED PARTNERSHIP By: HARBORSIDE HEALTH I CORPORATION, its general partner By: ___________________________ Name: Title: HARBORSIDE OF OHIO LIMITED PARTNERSHIP By: HARBORSIDE HEALTH I CORPORATION, its general partner By: ___________________________ Name: Title: 8 HARBORSIDE HEALTHCARE BALTIMORE LIMITED PARTNERSHIP By: HARBORSIDE HEALTH I CORPORATION, its general partner By: ___________________________ Name: Title: HARBORSIDE OF CLEVELAND LIMITED PARTNERSHIP By: HARBORSIDE HEALTH I CORPORATION, its general partner By: ___________________________ Name: Title: HARBORSIDE OF DAYTON LIMITED PARTNERSHIP By: HARBORSIDE HEALTH I CORPORATION, its general partner By: ___________________________ Name: Title: 9 HARBORSIDE MASSACHUSETTS LIMITED PARTNERSHIP By: HARBORSIDE HEALTH I CORPORATION, its general partner By: ___________________________ Name: Title: HARBORSIDE RHODE ISLAND LIMITED PARTNERSHIP By: HARBORSIDE HEALTH I CORPORATION, its general partner By: ___________________________ Name: Title: HARBORSIDE NORTH TOLEDO LIMITED PARTNERSHIP By: HARBORSIDE HEALTH I CORPORATION, its general partner By: ___________________________ Name: Title: 10 HARBORSIDE HEALTHCARE ADVISORS LIMITED PARTNERSHIP By: KHI CORPORATION, its general partner By: ___________________________ Name: Title: HARBORSIDE TOLEDO LIMITED PARTNERSHIP By: HARBORSIDE HEALTH I CORPORATION, its general partner By: ___________________________ Name: Title: KHI CORPORATION By: ___________________________ Name: Title: HARBORSIDE ACQUISITION LIMITED PARTNERSHIP IV By: HARBORSIDE HEALTH I CORPORATION, its general partner By: ___________________________ Name: Title: 11 HARBORSIDE ACQUISITION LIMITED PARTNERSHIP V By: HARBORSIDE HEALTH I CORPORATION, its general partner By: ___________________________ Name: Title: HARBORSIDE ACQUISITION LIMITED PARTNERSHIP VI By: HARBORSIDE HEALTH I CORPORATION, its general partner By: ___________________________ Name: Title: HARBORSIDE ACQUISITION LIMITED PARTNERSHIP VII By: HARBORSIDE HEALTH I CORPORATION, its general partner By: ___________________________ Name: Title: 12 HARBORSIDE ACQUISITION LIMITED PARTNERSHIP VIII By: HARBORSIDE HEALTH I CORPORATION, its general partner By: ___________________________ Name: Title: HARBORSIDE ACQUISITION LIMITED PARTNERSHIP IX By: HARBORSIDE HEALTH I CORPORATION, its general partner By: ___________________________ Name: Title: HARBORSIDE ACQUISITION LIMITED PARTNERSHIP X By: HARBORSIDE HEALTH I CORPORATION, its general partner By: ___________________________ Name: Title: SAILORS, INC. By: ___________________________ Name: Title: 13 NEW JERSEY HARBORSIDE CORP. By: ___________________________ Name: Title: BRIDGEWATER ASSISTED LIVING LIMITED PARTNERSHIP By: NEW JERSEY HARBORSIDE CORPORATION, its general partner By: ___________________________ Name: Title: MARYLAND HARBORSIDE CORP. By: ___________________________ Name: Title: HARBORSIDE HOMECARE LIMITED PARTNERSHIP By: KHI CORPORATION, its general partner By: ___________________________ Name: Title: 14 HARBORSIDE REHABILITATION LIMITED PARTNERSHIP By: HARBORSIDE HEALTH I CORPORATION, its general partner By: ___________________________ Name: Title: HARBORSIDE HEALTHCARE NETWORK LIMITED PARTNERSHIP By: HARBORSIDE HEALTH I CORPORATION, its general partner By: ___________________________ Name: Title: HARBORSIDE HEALTH I CORPORATION By: ___________________________ Name: Title: EXHIBIT A --------- THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE ACCRETED VALUE OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY A-2 REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS. [For Global Securities only: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.08 OF THE INDENTURE.] A-3 [FORM OF FACE OF SECURITY] HARBORSIDE HEALTHCARE CORPORATION 11% SENIOR SUBORDINATED DISCOUNT NOTE DUE 2008 No. ___ CUSIP No. _________ $____________ The following information is supplied for purposes of Sections 1273 and 1275 of the Internal Revenue Code: Issue Date: [__________],____] Original issue discount under Section Yield to maturity for period from 1273 of the Internal Revenue Code Issue Date to [__________,_____]: (for each $1,000 principal amount): [____]%, compounded semi-annually on $[_______] [__________ and _______], commencing [_________, ____] (computed without Issue Price (for each $1,000 giving effect to the additional principal amount): $[_____] payments of interest in the event the issuer fails to commence the exchange offer or cause the registration statement to be declared effective, each as described on the reverse hereof) HARBORSIDE HEALTHCARE CORPORATION a Delaware corporation (the "Company"), promises to pay to _______________,or registered assigns, the principal sum of _____________________ ($________________) on August 1, 2008. Interest Payment Dates: February 1 and August 1, commencing February 1, 2003 Regular Record Dates: January 15 and July 15 Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Dated: HARBORSIDE HEALTHCARE CORPORATION By: _______________________________________ Name: Title: A-4 TRUSTEE'S CERTIFICATE OF AUHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By: ____________________________ Authorized Signatory A-5 [FORM OF REVERSE SIDE OF SECURITY] 11% Senior Subordinated Discount Note due 2008 1. Interest -------- HARBORSIDE HEALTHCARE CORPORATION a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above and shall pay Liquidated Damages, if any, payable pursuant to the relevant Registration Rights Agreement. The Company will pay interest and Liquidated Damages, if any, semiannually on August 1 and February 1 of each year commencing February 1, 2004; provided that no interest shall accrue on the principal amount of this -------- Security prior to August 1, 2003 (the "Full Accretion Date"), and no interest shall be paid on this Security prior to the Full Accretion Date except for Liquidated Damages, if any, payable pursuant to the relevant Registration Rights Agreement. The Holder of this Security is entitled to the benefit of such Registration Rights Agreement. Interest will be computed on the basis of a 360-day year of twelve 30- day months. The Company shall pay interest on overdue principal at the rate borne by the Securities, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. 2. Method of Payment ----------------- The Company will pay interest (except defaulted interest) on and Liquidated Damages, if any, in respect of the Securities to the Persons who are registered holders of Securities at the close of business on the January 15 or July 15 next preceding the interest payment date even if Securities are cancelled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal and interest by check payable in such money or by wire transfer of federal funds. 3. Paying Agent and Registrar -------------------------- Initially, UNITED STATES TRUST COMPANY OF NEW YORK (the "Trustee") will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice to the Holders. The Company or any domestically organized Wholly Owned Restricted Subsidiary may act as Paying Agent, Registrar or co-registrar. A-6 4. Indenture --------- The Company issued the Securities under an Indenture dated as of July 31, 1998 (the "Indenture"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) ------ 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Securities are unsecured senior subordinated obligations of the Company. Subject to the conditions set forth in the Indenture, the Company may issue Additional Securities. 5. Optional Redemption ------------------- Except as set forth in the next two paragraphs, the Securities may not be redeemed at the Company's option prior to August 1, 2003. Thereafter, the Securities will be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the applicable redemption date (subject to the right of Holders on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the twelve-month period beginning on August 1 of the years indicated below: Redemption Year Price - ---- ---------- 2003 105.500% 2004 103.667% 2005 101.883% 2006 and thereafter 100.000% In addition, at any time and from time to time, prior to August 1, 2001, the Company may redeem up to 35% of the sum of (i) the aggregate principal amount at maturity of Securities and (ii) the aggregate principal amount at maturity of any Additional Securities at a redemption price of 111% of the Accreted Value thereof (determined at the redemption date) plus Liquidated Damages thereon, if any, to the redemption date, with the net cash proceeds received by the Company of a public offering of common stock of the Company, provided that at least 65% of the sum of (i) the aggregate principal amount at - -------- maturity of Securities and (ii) the aggregate principal amount at maturity of any Additional Securities remains outstanding immediately after the occurrence of such redemption; and provided, further, that such redemption shall occur -------- ------- within 60 days of the date of the closing of such public offering. A-7 At any time on or prior to August 1, 2003, the Securities may be redeemed as a whole but not in part at the option of the Company upon the occurrence of a Change of Control, upon not less than 30 nor more than 60 days' prior notice (but in no event may any such redemption occur more than 90 days after the occurrence of such Change of Control) mailed by first-class mail to each Holder's registered address, at a redemption price equal to 100% of the Accreted Value thereof (determined at the redemption date) plus the Applicable Premium and Liquidated Damages thereon, if any, to the redemption date (subject to the right of Holders on the relevant record date to receive interest due on the relevant interest payment date). 6. Special Mandatory Redemption ---------------------------- In the event that the Merger is not consummated prior to the earlier to occur of (i) January 10, 1999 and (ii) if it appears, in the sole judgment of the Company, that the Merger shall not be consummated, the date on which notice of same is delivered by the Company to the Escrow Agent and the Trustee, the Company shall be required to redeem the Securities, in whole, on at least 15 days' prior written notice mailed by first class mail to each Holder's last address as it appears in the Securities Register, at a redemption price equal to 101% of the Accreted Value plus Liquidated Damages, if any, of the Securities on the date of repurchase to the redemption date. 7. Notice of Redemption -------------------- Notice of redemption will be mailed by first-class mail at least 30 days (or in the case of a Special Mandatory Redemption described in paragraph 6 hereof, 15 days) but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at its registered address all in accordance with the Indenture. If less than all of the Securities are to be redeemed at any time, selection of Securities for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Securities are listed, or, if the Securities are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that no Securities in an aggregate principal -------- amount at maturity of $1,000 or less shall be redeemed in part. If money sufficient to pay the redemption price of and accrued interest (if any) on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 8. Repurchase at the Option of the Holder -------------------------------------- Upon a Change of Control, any Holder of Securities will have the right, subject to certain conditions set forth in the Indenture, to cause the Company to repurchase all or any part of A-8 the Securities of such Holder at a purchase price equal to 101% of the aggregate principal amount of the Securities to be repurchased plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of repurchase) as provided in, and subject to the terms of, the Indenture. 9. Subordination ------------- The Securities are subordinated to Senior Debt of the Company, as defined in the Indenture. To the extent provided in the Indenture, Senior Debt of the Company must be paid before the Securities may be paid. The Company agrees, and each Securityholder by accepting a Security agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give it effect and appoints the Trustee as attorney-in-fact for such purpose. 10. Denominations; Transfer; Exchange --------------------------------- The Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. Upon any registration of transfer or exchange, the Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or to transfer or exchange any Securities for a period of 15 days prior to a selection of Securities to be redeemed or 15 days before an interest payment date. 11. Persons Deemed Owners --------------------- The registered Holder of this Security may be treated as the owner of it for all purposes. 12. Unclaimed Money --------------- If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its written request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. A-9 13. Discharge and Defeasance ------------------------ Subject to certain conditions set forth in the Indenture, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 14. Amendment, Waiver ----------------- Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount outstanding of the Securities and (ii) any past default or noncompliance with any provision of the Indenture may be waived with the consent of the Holders of a majority in principal amount then outstanding of the Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, defect or inconsistency, to provide for uncertificated Securities in addition to or in place of certificated Securities (provided that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code), to provide for the assumption of the Company's or any Guarantor's obligations to Holders of Securities in the case of a merger, consolidation or sale of assets, to release any Security Guarantee or collateral in accordance with the provisions of the Indenture or Pledge Agreement, as the case may be, to provide for additional Guarantors, to make any change that would provide any additional rights or benefits to the Holders of Securities or that, as determined by the Board of Directors in good faith, does not have a material adverse effect on the legal rights under this Indenture of any such Holder, to comply with requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA or to provide for the issuance of Additional Securities in compliance with Article II and Section 4.03 of the Indenture. 15. Defaults and Remedies --------------------- Under the Indenture, an Event of Default occurs if: (i) the Company defaults in any payment of interest on, or Liquidated Damages with respect to, any Security when the same becomes due and payable, whether or not such payment shall be prohibited by Article X of the Indenture, and such default continues for a period of 30 days; (ii) the Company defaults in the payment of the principal of or premium, if any, on the Securities, whether or not such payment shall be prohibited by Article X of the Indenture; (iii) the Company fails to comply with other covenants and agreements in the Indenture, subject to applicable grace periods as set forth in the Indenture; (iv) certain accelerations (including failure to pay within any grace period after final maturity) of other Debt of the Company or any Restricted Subsidiary that is a Significant Subsidiary occur if the amount A-10 accelerated (or so unpaid) exceeds $15,000,000; (v) certain events of bankruptcy, insolvency or reorganization with respect to the Company and any Restricted Subsidiary which is a Significant Subsidiary; (vi) certain judgments or decrees for the payment of money in excess of $15,000,000 against the Company or any Restricted Subsidiary that is a Significant Subsidiary; and (vii) except as is permitted by the Indenture, a Security Guarantee by a Guarantor that is a Significant Subsidiary shall be held in any judicial proceeding to be unenforceable or invalid or shall for any reason cease to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, denies or disaffirms its obligations under the Indenture or its Security Guarantee. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of principal, premium, if any, or interest) if and so long as a committee of its trust officers in good faith determines that withholding notice is in the interest of the Holders. 16. Trustee Dealings with the Company --------------------------------- Subject to certain limitations imposed by the Act, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 17. No Personal Liability of Directors, Officers, Employees and Stockholders ------------------------------------------------------------------------ No director, officer, employee, incorporator, stockholder or Affiliate of the Company, as such, will have any liability for any obligations of the Company under the Securities, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. No director, officer, employee, incorporator, stockholder or Affiliate of any of the Guarantors, as such, will have any liability for any obligations of the Guarantors under the Security Guarantees, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Securities and Security Guarantees by accepting a Security and a Security Guarantee waives and releases all such liabilities. The waiver and release are part of the consideration for issuance of the Securities and the Security Guarantees. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy. A-11 18. Governing Law ------------- THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, ---------------------------------------------------------------------- THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES - -------------------------------------------------------------------------------- OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER - ----------------------------------------------------------------------------- JURISDICTION WOULD BE REQUIRED THEREBY. - --------------------------------------- 19. Authentication -------------- This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Security. 20. Abbreviations ------------- Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 21. CUSIP Numbers ------------- Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Company has caused CUSIP numbers to be printed on the Securities and have directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 22. Guarantee --------- The Company's obligations under the Securities are guaranteed on a senior subordinated basis, jointly and severally, by the Guarantors. A-12 THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST AND WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE WHICH HAS IN IT THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO: HARBORSIDE HEALTHCARE CORPORATION 470 ATLANTIC AVENUE BOSTON, MASSACHUSETTS 02210 ATTENTION: CHIEF FINANCIAL OFFICER A-13 [FORM OF TRANSFER NOTICE] FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto Insert Taxpayer Identification No. - ---------------------------------- - ------------------------------------------------------------------------ Please print or typewrite name and address including zip code of assignee - ------------------------------------------------------------------------ the within Security and all rights thereunder, hereby irrevocably constituting and appointing ____________________________________________ attorney to transfer said Security on the books of the Company with full power of substitution in the premises. [THE FOLLOWING PROVISION TO BE INCLUDED ON ALL SECURITIES OTHER THAN EXCHANGE SECURITIES, UNLEGENDED OFFSHORE GLOBAL SECURITIES AND UNLEGENDED OFFSHORE PHYSICAL SECURITIES] In connection with any transfer of this Security occurring prior to the date which is the earlier of (i) the date the Shelf Registration Statement is declared effective or (ii) the end of the period referred to in Rule 144(k) under the Securities Act, the undersigned confirms that without utilizing any general solicitation or general advertising that: [Check One] --------- [ ] (a) this Security is being transferred in compliance with the exemption from registration under the Securities Act of 1933 provided by Rule 144A thereunder. or -- [ ] (b) this Security is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Security and the Indenture. A-14 If none of the foregoing boxes is checked, the Trustee or other Registrar shall not be obligated to register this Security in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.08 of the Indenture shall have been satisfied. Date:_____________ __________________________________________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever. TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933 and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated:____________ __________________________________________________ NOTICE: To be executed by an executive officer A-15 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 4.06 or 4.08 of the Indenture, check the box: [_] 4.06 Asset Sale [_] 4.08 Change of Control If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.06 or 4.08 of the Indenture, state the amount: $__________. Date: __________________ Your Signature: _________________________________ (Sign exactly as your name appears on the other side of the Security) __________________ Tax I.D. number Signature Guarantee: ______________________________________________ (Signature must be guaranteed by a participant in a recognized signature guarantee medallion program) EXHIBIT B --------- FORM OF CERTIFICATE ------------------- ______, ____ UNITED STATES TRUST COMPANY OF NEW YORK 114 West 47/th/ Street New York, New York 10036 Attention: Corporate Trust Administration Re: HARBORSIDE HEALTHCARE CORPORATION (the "Company") 11% Senior Subordinated Securities due 2008 (the "Securities") -------------------------------------------------------------- Dear Sirs: This letter relates to U.S. $_______________ principal amount at maturity of Securities represented by a Security (the "Legended Security") which bears a legend outlining restrictions upon transfer of such Legended Security. Pursuant to Section 2.02 of the Indenture dated as of July 31, 1998 (the "Indenture") relating to the Securities, we hereby certify that we are (or we will hold such securities on behalf of) a person outside the United States to whom the Securities could be transferred in accordance with Rule 904 of Regulation S promulgated under the U.S. Securities Act of 1933. Accordingly, you are hereby requested to exchange the legended certificate for an unlegended certificate representing an identical principal amount at maturity of Securities, all in the manner provided for in the Indenture. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Holder] By: _______________________________ Authorized Signature EXHIBIT C --------- [FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS TO NON-QIB ACCREDITED INVESTORS] ____________, ____ UNITED STATES TRUST COMPANY OF NEW YORK 114 West 47/th/ Street New York, New York 10036 Attention: Corporate Trust Administration Re: HARBORSIDE HEALTHCARE CORPORATION (the "Company") 11% Senior Subordinated Securities due 2008 (the "Securities") -------------------------------------------------------------- Dear Sirs: In connection with our proposed purchase of $__________________ aggregate principal amount at maturity of the Securities, we confirm that: 1. We understand that any subsequent transfer of the Securities is subject to certain restrictions and conditions set forth in the Indenture dated as of July 31, 1998 (the "Indenture") relating to the Securities and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Securities except in compliance with such restrictions and conditions and the Securities Act of 1933, amended (the "Securities Act"). 2. We understand that the offer and sale of the Securities have not been registered under the Securities Act, and that the Securities may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell any Securities within the time period referred to in Rule 144(k) of the Securities Act, we will do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and, if such transfer is in respect of an aggregate accreted value of Securities at the time of transfer of less than $250,000, an opinion of counsel acceptable to the Company that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available) or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing any of the Securities from us a notice advising such purchaser that resales of the Securities are restricted as stated herein. C-2 3. We understand that, on any proposed resale of any Securities, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Securities purchased by us will bear a legend to the foregoing effect. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Securities, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Securities purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Very truly yours, [Name of Transferee] By:_______________________________________________________ Authorized Signature EXHIBIT D --------- [FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S] _______ __, 19__ UNITED STATES TRUST COMPANY OF NEW YORK 114 West 47/th/ Street New York, New York 10036 Attention: Corporate Trust Administration Re: HARBORSIDE HEALTHCARE CORPORATION (the "Company") 11% Senior Subordinated Securities due 2008 (the "Securities") -------------------------------------------------------------- Dear Sirs: In connection with our proposed sale of U.S.$__________________ aggregate principal amount at maturity of the Securities, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the Securities Act of 1933 and, accordingly, we represent that: (1) the offer of the Securities was not made to a person in the United States; (2) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States; (3) no directed selling efforts have been made by us in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; and (4) the transaction is not part of a plan or scheme to evade the registration requirements of the U.S. Securities Act of 1933. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal D-2 proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By:______________________________________ Authorized Signature EX-4.2 3 CERTIFICATE OF DESIGNATIONS EXHIBIT 4.2 HARBORSIDE HEALTHCARE CORPORATION CERTIFICATE OF DESIGNATION OF THE POWERS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF 13 1/2% EXCHANGEABLE PREFERRED STOCK AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF ------------------------------------------------ PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE ------------------------------------------------ Harborside Healthcare Corporation (the "Issuer"), a corporation ------ organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that, pursuant to authority conferred upon the Board of Directors of the Issuer or any committee of the Board of Directors by its Certificate of Incorporation (the "Certificate of Incorporation"), and ---------------------------- pursuant to the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors, by unanimous written consent dated as of August 11, 1998, duly approved and adopted the following resolution: RESOLVED, that, pursuant to the authority vested in the Board of Directors by its Certificate of Incorporation, the Board of Directors does hereby create, authorize and provide for the issue of 13 1/2% Exchangeable Preferred Stock, par value $0.01 per share, with a liquidation preference of $1,000.00 per share, consisting of up to 250,000 shares, having the designations, preferences and relative, participating, optional and other special rights and the qualifications, limitations and restrictions thereof that are set forth in the Certificate of Incorporation and in this Resolution as follows: This Certificate of Designation shall be deemed effective on August 11, 1998. ARTICLE 1 DESIGNATION SECTION 1.1 There is hereby created out of the authorized and unissued shares of Preferred Stock of the Issuer a class of Preferred Stock designated as the "13 1/2% Exchangeable Preferred Stock". The number of shares constituting such class shall be 250,000 shares of 13 1/2% Exchangeable Preferred Stock (the "Exchangeable Preferred Stock"), consisting of one or more series. Initially, - ----------------------------- there is hereby created "Series A" (the "Series A Exchangeable Preferred ------------------------------- Stock"), consisting of 120,000 shares of Exchangeable Preferred Stock which - ----- consists of an initial issuance of 40,000 shares of Exchangeable Preferred Stock, plus up to 40,000 additional shares of Exchangeable Preferred Stock which may be issued pursuant to the Preferred Stock Registration Rights Agreement in exchange for the Exchangeable Preferred Stock issued on the Issue Date, plus additional shares of Exchangeable Preferred Stock which, among other things, may be used to pay certain dividends on the Exchangeable Preferred Stock if the Issuer elects to pay dividends in additional shares of Preferred Stock. SECTION 1.2 In addition, if and when authorized by the Board of Directors, the Issuer may issue (subject to the 250,000 maximum referred to above and compliance with the terms and provisions hereof) additional series of Preferred Stock having identical terms and conditions to the Series A Exchangeable Preferred Stock (the "Additional Exchangeable Preferred Stock"). --------------------------------------- Any shares of Additional Exchangeable Preferred Stock will be part of the same issue and class as the Series A Exchangeable Preferred Stock and will vote as one class with such Exchangeable Preferred Stock on all matters subject to a vote by the Holders thereof. All references in this Certificate of Designation to "Exchangeable Preferred Stock" include any 2 Additional Exchangeable Preferred Stock, and any references to "Exchange Debentures" include any Exchange Debentures issued in exchange for Additional Exchangeable Preferred Stock, unless the context otherwise requires. ARTICLE 2 RANK SECTION 2.1 The Exchangeable Preferred Stock shall, with respect to dividends and as to distributions upon the liquidation, winding-up and dissolution of the Issuer, rank (i) senior to all other classes of Capital Stock of the Issuer established after the date of the Offering Memorandum by the Board of Directors of the Issuer the terms of which do not expressly provide that it ranks on a parity with the Exchangeable Preferred Stock as to dividends and as to distributions upon the liquidation, winding-up and dissolution of the Issuer (collectively referred to with the common stock of the Issuer as "Junior ------ Securities"); and (ii) on a parity with each series of Preferred Stock - ---------- established after the date of the Offering Memorandum by the Board of Directors of the Issuer, the terms of which expressly provide that such class will rank on a parity with the Exchangeable Preferred Stock as to dividends and as to distributions upon the liquidation, winding-up and dissolution of the Issuer (collectively referred to as "Parity Securities"). ----------------- ARTICLE 3 DIVIDENDS SECTION 3.1 Beginning on the Issue Date, Holders of outstanding Exchangeable Preferred Stock will be entitled to receive, when, as and if declared by the Board of Directors of the Issuer, out of funds legally available therefor, dividends on the outstanding Exchangeable Preferred Stock at a rate per annum equal to 13 1/2% of the liquidation preference per share of outstanding Exchangeable Preferred Stock. All dividends will be cumulative, whether or not earned or declared, on a daily basis from the date of issuance of the Exchangeable Preferred Stock and will be payable quarterly in arrears on February 1, May 1, August 1 and November 1 of each year (each a "Dividend -------- Payment Date"), commencing on November 1, 1998. On or before August 1, 2003, - ------------ the Issuer may, at its option, pay dividends in cash or in additional fully paid and non-assessable shares of Exchangeable Preferred Stock having an aggregate liquidation preference equal to the amount of such dividends. After August 1, 2003, dividends may be paid only in cash. Each distribution in the form of a dividend (whether in cash or in additional shares of Exchangeable Preferred Stock) shall be payable to Holders of record as they appear on the stock books of the Issuer on the applicable record date, which record date shall be January 15, April 15, July 15 and October 15, as the case may be. Dividends shall cease to accumulate in respect of shares of the Exchangeable Preferred Stock on the Exchange Date or on the date of their earlier redemption unless the Issuer shall have failed to issue the appropriate aggregate principal amount of Exchange Debentures in respect of the Exchangeable Preferred Stock on the Exchange Date or shall have failed to pay the relevant redemption price on the date fixed for redemption. 3 SECTION 3.2 In addition to the dividend rights set forth in Section 3.1, under certain circumstances set forth in the Preferred Stock Registration Rights Agreement, the Holders of outstanding Exchangeable Preferred Stock may be entitled to Liquidated Damages (as defined therein). Copies of the Preferred Stock Registration Rights Agreement may be obtained without charge by writing to the Issuer at the following address: Harborside Healthcare Corporation, 470 Atlantic Avenue, Boston Massachusetts 02110, Attn: Chief Financial Officer. SECTION 3.3 All dividends paid with respect to shares of the outstanding Exchangeable Preferred Stock pursuant to Section 3.1 hereof shall be paid pro rata to the Holders entitled thereto. SECTION 3.4 Nothing herein contained shall in any way or under any circumstances be construed or deemed to require the Board of Directors to declare, or the Issuer to pay or set apart for payment, any dividends on shares of the Exchangeable Preferred Stock at any time. SECTION 3.5 Dividends on account of arrears for any past Dividend Period and dividends in connection with any optional redemption pursuant to Section 5.1 hereof may be declared and paid at any time, without reference to any regular Dividend Payment Date, to Holders of record on such date, not more than 45 days prior to the payment thereof, as may be fixed by the Board of Directors. SECTION 3.6 Notwithstanding Section 3.4, no dividends may be declared or paid (whether in cash, additional Parity Securities or otherwise) or funds set apart for the payment of dividends on any Parity Securities for any period unless full cumulative dividends shall have been or contemporaneously are declared and paid in full or declared and, if payable in cash, a sum in cash is set apart for such payment on the Exchangeable Preferred Stock. If full dividends are not so declared, paid or funds therefor set aside, as the case may be, the Exchangeable Preferred Stock will share dividends pro rata with the Parity Securities based on the relative liquidation preference of the Exchangeable Preferred Stock and such Parity Securities. No dividends may be paid or set apart for such payment on Junior Securities (except dividends on Junior Securities in additional shares of Junior Securities) and no Junior Securities or Parity Securities may be repurchased, redeemed or otherwise retired nor may funds be set apart for payment with respect thereto, if full cumulative dividends have not been paid on the Exchangeable Preferred Stock. Holders of Exchangeable Preferred Stock will not be entitled to any dividends, whether payable in cash, in additional Exchangeable Preferred Stock, property or stock, in excess of the full cumulative dividends as herein described. SECTION 3.7 Holders of shares of Exchangeable Preferred Stock shall be entitled to receive the dividends provided for in Section 3.1 hereof in preference to and in priority over any dividends upon any Junior Securities. SECTION 3.8 Dividends payable on shares of the outstanding Exchangeable Preferred Stock for any period less than a year shall be computed on the basis of a 360-day year of twelve 30-day months. If any Dividend Payment Date occurs on a day that is not a Business 4 Day, any accrued dividends otherwise payable on such Dividend Payment Date shall be paid on the next succeeding Business Day. ARTICLE 4 LIQUIDATION PREFERENCE SECTION 4.1 Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Issuer, Holders of the Exchangeable Preferred Stock will be entitled to be paid, out of the assets of the Issuer available for distribution, the liquidation preference per share, plus an amount in cash equal to all accumulated and unpaid dividends thereon to the date fixed for liquidation, dissolution or winding-up (including an amount equal to a prorated dividend for the period from the last Dividend Payment Date to the date fixed for liquidation, dissolution or winding-up), before any distribution is made on any Junior Securities, including, without limitation, common stock of the Issuer. If, upon any voluntary or involuntary liquidation, dissolution or winding-up of the Issuer, the amounts payable with respect to the Exchangeable Preferred Stock and all other Parity Securities are not paid in full, the Holders of the Exchangeable Preferred Stock and the Parity Securities will share equally and ratably in any distribution of assets of the Issuer in proportion to the full liquidation preference and accumulated and unpaid dividends to which each is entitled. After payment of the full amount of the liquidation preferences and accumulated and unpaid dividends to which they are entitled, the Holders of Exchangeable Preferred Stock will not be entitled to any further participation in any distribution of assets of the Issuer. SECTION 4.2 For purposes of Section 4.1, neither the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Issuer nor the consolidation or merger of the Issuer with or into one or more corporations will be deemed to be a liquidation, dissolution or winding-up of the Issuer. ARTICLE 5 REDEMPTION SECTION 5.1 Optional Redemption. -------------------- (a) The Exchangeable Preferred Stock may be redeemed for cash (subject to contractual and other restrictions with respect thereto and to the legal availability of funds therefor) at any time on or after August 1, 2003, in whole or in part, at the option of the Issuer, at the following redemption prices (expressed as percentages of the liquidation preference thereof) if redeemed during the 12-month period beginning August 1 of each of the years set forth below, in each case together with an amount in cash equal to all accumulated and unpaid dividends, if any (including an amount in cash equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the Redemption Date to the Redemption Date): 5
------------------------------------- YEAR PERCENTAGE ------------------------------------- 2003 106.750% ------------------------------------- 2004 104.500% ------------------------------------- 2005 102.250% ------------------------------------- 2006 and thereafter 100.000% -------------------------------------
(b) In addition, at any time and from time to time prior to August 1, 2001, the Issuer may redeem up to 35% of the aggregate liquidation preference of (i) all shares of Series A Exchangeable Preferred Stock issued on the respective Issue Date, and (ii) all shares of each other series of Exchangeable Preferred Stock issued on the respective Issue Date, at the option of the Issuer, at a redemption price equal to 113.5% of the liquidation preference thereof, plus an amount in cash equal to all accumulated and unpaid dividends thereon, if any, to the Redemption Date (including an amount in cash equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the Redemption Date to the Redemption Date), with the net cash proceeds received by the Issuer of a public offering of common stock of the Issuer, provided that such redemption shall occur within 60 days of the date of the closing of such public offering . (c) At any time on or prior to August 1, 2003, the Exchangeable Preferred Stock may be redeemed as a whole but not in part at the option of the Issuer upon the occurrence of a Change of Control at a redemption price equal to 100% of the liquidation preference thereof to the Redemption Date, plus an amount in cash equal to all accumulated and unpaid dividends thereon (including an amount in cash equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the Redemption Date to the Redemption Date) plus the Applicable Premium, provided that in no event may any such redemption pursuant to this Section 5.1(c) occur more than 90 days after the occurrence of such Change of Control. (d) In the event of partial redemptions of Exchangeable Preferred Stock, the shares to be redeemed will be determined pro rata or by lot, as determined by the Issuer, except that the Issuer may redeem such shares held by any Holders of fewer than 100 shares (or shares held by Holders who would hold less than 100 shares as a result of such redemption), without regard to any pro rata redemption requirement. (e) Notwithstanding Sections 5.1(a), 5.1(b) or 5.1(c), no optional redemption may be authorized or made unless prior thereto or contemporaneously therewith full unpaid cumulative dividends shall have been paid or a sum shall have been set apart for such payment on the Exchangeable Preferred Stock. SECTION 5.2 [Intentionally Deleted] 6 SECTION 5.3 Mandatory Redemption On August 1, 2010, the Issuer shall be -------------------- required to redeem (subject to the legal availability of funds therefor) all outstanding shares of Exchangeable Preferred Stock at a price equal to the then effective liquidation preference thereof, plus an amount in cash equal to all accumulated and unpaid dividends thereon. SECTION 5.4 Procedures for Redemption. Redemptions pursuant to Section ------------------------- 5.1 and 5.3 shall made in the manner set forth in this Section 5.4. (a) At least 30 days and not more than 60 days prior to the date fixed for any redemption of the Exchangeable Preferred Stock written notice (the "Redemption Notice") shall be given by the Issuer by first-class mail ----------------- to each Holder of record on the record date fixed for such redemption of the Exchangeable Preferred Stock at such Holder's address as the same appears on the stock register of the Issuer, provided that no failure to give such notice nor any deficiency therein shall affect the validity of the procedure for the redemption of any shares of Exchangeable Preferred Stock to be redeemed except as to the Holder or Holders to whom the Issuer has failed to give said notice or except as to the Holder or Holders whose notice was defective. The Redemption Notice shall state: (i) whether the redemption is pursuant to Section 5.1(a), 5.1(b), 5.1(c), or 5.3 hereof; (ii) the redemption price; (iii) whether all or less than all the outstanding shares of the Exchangeable Preferred Stock are to be redeemed and the total number of shares of the Exchangeable Preferred Stock being redeemed; (iv) the number of shares of Exchangeable Preferred Stock held, as of the appropriate record date, by the Holder that the Issuer intends to redeem; (v) the Redemption Date; (vi) that the Holder is to surrender to the Issuer, at the place or places where certificates for shares of Exchangeable Preferred Stock are to be surrendered for redemption, in the manner and at the price designated, the certificate or certificates representing the shares of Exchangeable Preferred Stock to be redeemed; and (vii) that dividends on the shares of the Exchangeable Preferred Stock to be redeemed shall cease to accrue on such Redemption Date unless the Issuer defaults in the payment of the redemption price. (b) Each Holder of Exchangeable Preferred Stock shall surrender the certificate or certificates representing such shares of Exchangeable Preferred Stock to the Issuer (duly endorsed or assigned for transfer) in the manner and at the place designated 7 in the Redemption Notice and on the Redemption Date. The full redemption price for such shares of Exchangeable Preferred Stock shall be payable in cash to the Person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be canceled and retired. In the event that less than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (c) Unless the Issuer defaults in the payment in full of the applicable redemption price, dividends on the Exchangeable Preferred Stock called for redemption shall cease to accumulate on the Redemption Date, and the Holders of such redeemed shares shall cease to have any further rights with respect thereto from and after the Redemption Date, other than the right to receive the redemption price, without interest. SECTION 5.5 Sinking Fund. The Issuer will not be required to make ------------ sinking fund payments with respect to the Exchangeable Preferred Stock. ARTICLE 6 VOTING RIGHTS SECTION 6.1 The Holders of shares of Exchangeable Preferred Stock, except as otherwise required under Delaware law or as set forth in this Article 6, shall not be entitled or permitted to vote on any matter required or permitted to be voted upon by the stockholders of the Issuer. SECTION 6.2 Voting Rights Triggering Event. ------------------------------ (a) If (i) dividends on the Exchangeable Preferred Stock are in arrears and unpaid (or, in the case of dividends payable after August 1, 2003, are not paid in cash) for six quarterly periods (whether or not consecutive), (ii) the Issuer fails to discharge any redemption obligation with respect to the Exchangeable Preferred Stock (whether or not such redemption is prohibited by the terms of the New Credit Facility, the Notes or any other obligation of the Issuer), (iii) the Issuer fails to redeem or make an offer to purchase all of the outstanding shares of Exchangeable Preferred Stock following a Change of Control (whether or not the Issuer is permitted to do so by the terms of the New Credit Facility, the Notes or any other obligation of the Issuer) or fails to purchase shares of Exchangeable Preferred Stock from Holders who elect to have such shares purchased pursuant to the Exchangeable Preferred Change of Control Offer (as defined in Section 8.1), (iv) a breach or violation of the covenants contained in Articles 9, 10, 11, 12 or Section 15.6 occurs and the breach or violation continues for a period of 90 days or more after the Issuer receives notice thereof specifying the default from Holders of at least 25% of the Exchangeable Preferred Stock then outstanding, or (v) the Issuer or any Significant Subsidiary fails to pay any Debt within any applicable grace period after final maturity, or the acceleration of any such Debt by the holders thereof because of a default, so long as the total amount of such Debt unpaid or accelerated exceeds $15.0 million or its foreign currency equivalent, then the number of directors constituting the Board of 8 Directors of the Issuer will be adjusted to permit the Holders of the majority of the then outstanding Exchangeable Preferred Stock, voting separately as a class, to elect two directors. Each such event described in clauses (i) through (v) above is referred to herein as a "Voting Rights ------------- Triggering Event." Voting rights arising as a result of a Voting Rights ---------------- Triggering Event will continue until (x) in the case of any Voting Rights Triggering Event under clause (i) of the definition thereof, such time as all dividends in arrears on the Exchangeable Preferred Stock are paid in full (and after August 1, 2003, are paid in cash) and (y) in all other cases, any failure, breach or default giving rise to such voting rights is remedied or waived by the Holders of at least a majority of the shares of Exchangeable Preferred Stock then outstanding (and, in the case of any acceleration referred to in clause (v) of the definition of ''Voting Rights Triggering Event,'' such acceleration has been rescinded), at which time the term of the directors elected pursuant to the provisions of this Article 6 shall terminate automatically. (b) At any time after voting power to elect directors shall have become vested and be continuing in the Holders of shares of the Exchangeable Preferred Stock pursuant to Section 6.2(a) hereof, or if vacancies shall exist in the offices of directors elected by the Holders of shares of the Exchangeable Preferred Stock, a proper officer of the Issuer may, and upon the written request of the Holders of record of at least 25% of the shares of Exchangeable Preferred Stock then outstanding addressed to the Secretary of the Issuer shall, call a special meeting of the Holders of Exchangeable Preferred Stock, for the purpose of electing the directors which such Holders are entitled to elect. If such meeting shall not be called by the proper officer of the Issuer within 15 days after personal service of said written request upon the Secretary of the Issuer, or within 20 days after mailing the same within the United States by certified mail, addressed to the Secretary of the Issuer at its principal executive offices, then the Holders of record of at least 25% of the outstanding shares of the Exchangeable Preferred Stock may designate in writing one of their number to call such meeting at the expense of the Issuer, and such meeting may be called by the Person so designated upon the notice required for the annual meetings of stockholders of the Issuer and shall be held at the place for holding the annual meetings of stockholders or such other place in the United States as shall be designated in such notice. Notwithstanding the provisions of this Section 6.2(b), no such special meeting shall be called if any such request is received less than 40 days before the date fixed for the next ensuing annual or special meeting of stockholders of the Issuer. Such meeting shall be held within 30 days of the date such notice is given. Any Holder of shares of the Exchangeable Preferred Stock so designated shall have, and the Issuer shall provide, access to the lists of Holders of shares of the Exchangeable Preferred Stock for purposes of calling a meeting pursuant to the provisions of this Section 6.2(b). (c) At any meeting held for the purpose of electing directors at which the Holders of Exchangeable Preferred Stock shall have the right, voting separately as one class, to elect directors as aforesaid, the presence in person or by proxy of the Holders of at least a majority of the outstanding Exchangeable Preferred Stock shall be required to constitute a quorum of such Exchangeable Preferred Stock. 9 (d) Any vacancy occurring in the office of a director elected by the Holders of the Exchangeable Preferred Stock may be filled by the remaining director elected by such Holders unless and until such vacancy shall be filled by such Holders. SECTION 6.3 So long as any shares of Exchangeable Preferred Stock are outstanding, the Issuer shall not amend this Certificate of Designation so as to affect adversely the special rights, powers, preferences, privileges or voting rights of Holders of the Exchangeable Preferred Stock, without the affirmative vote or consent of the Holders of in excess of 50% of the then outstanding shares of Exchangeable Preferred Stock, voting or consenting, as the case may be, separately as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting; provided that (i) the creation, authorization or issuance of any shares of Junior Securities or any Parity Securities, (ii) the decrease in the amount of authorized Capital Stock of any class, including any Exchangeable Preferred Stock or (iii) the increase in the amount of authorized Capital Stock of any class of Junior Securities or Parity Securities (including Exchangeable Preferred Stock) shall not require the consent of the Holders of Exchangeable Preferred Stock and shall not be deemed to affect adversely the special rights, powers, preferences, privileges or voting rights of Holders of shares of Exchangeable Preferred Stock. SECTION 6.4 In any case in which the Holders of shares of the Exchangeable Preferred Stock shall be entitled to vote pursuant to this Article 6 or pursuant to Delaware law, each Holder of shares of the Exchangeable Preferred Stock shall be entitled to one vote for each share of Exchangeable Preferred Stock held. Any action that may be taken hereunder by the Holders of the Exchangeable Preferred Stock at a meeting may be taken by written consent of a majority of the Holders of such Exchangeable Preferred Stock. SECTION 6.5 Without the consent of any Holder of Exchangeable Preferred Stock, the Issuer may amend or supplement this Certificate of Designation to (i) cure any ambiguity, defect or inconsistency in this Certificate of Designation or (ii) make any change that, as determined by the Board of Directors in good faith, does not adversely effect the legal rights under this Certificate of Designation of any such Holder. ARTICLE 7 OPTIONAL EXCHANGE SECTION 7.1 Requirements. ------------ (a) The Issuer may at its option exchange all, but not less than all, of the then outstanding shares of Exchangeable Preferred Stock into Exchange Debentures on any Dividend Payment Date, provided that (i) on the date of such exchange such exchange is permitted by the terms of the Indenture and the New Credit Facility, (ii) the Recapitalization shall have been consummated, (iii) either (x) a registration statement relating to the Exchange Debentures shall have been declared effective under the Securities Act prior to such exchange and shall continue to be in effect on the Exchange Date or (y) (1) the Issuer shall have obtained (and delivered to the Exchange Debenture 10 Trustee) a written Opinion of Counsel reasonably acceptable to the Exchange Debenture Trustee that an exemption from the registration requirements of the Securities Act is available for such exchange and that upon receipt of such Exchange Debentures pursuant to such exchange made in accordance with such exemption, each Holder that is not an Affiliate of the Issuer will not be subject to any restrictions imposed by the Securities Act upon the resale thereof and (2) such exemption is relied upon by the Issuer for such exchange; and (iv) the Issuer shall have delivered to the Exchange Debenture Trustee a written Opinion of Counsel reasonably acceptable to the Exchange Debenture Trustee, dated the Exchange Date, subject to customary exceptions and qualifications, regarding the satisfaction of the conditions set forth in clauses (i) and (ii) and including language substantially to the effect set forth in Section 7.1(b) hereof, provided that in rendering such opinion such counsel may rely, as to matters of fact, on an Officer's Certificate. In the event that the issuance of the Exchange Debentures is not permitted on the date of exchange or any of the conditions set forth in clauses (i) through (iv) of the preceding sentence are not satisfied on the Exchange Date, the Issuer shall use its reasonable best efforts to satisfy such conditions and effect such exchange as soon as practicable. (b) Opinion Language. The Opinion of Counsel referenced in Section ---------------- 7.1(a)(iv) hereof shall include language substantially to the following effect: (i) The Exchange Debentures have been duly authorized by the Issuer and, when executed, authenticated and delivered in accordance with the provisions of the Exchange Debenture Indenture, will be valid and binding obligations of the Issuer, enforceable against the Issuer, in accordance with their terms, except as the same may be limited by (A) applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally, including without limitation the effect of statutory or other laws regarding fraudulent conveyances or transfers, preferential transfers or distributions by corporations to shareholders, or (B) general principles of equity, whether considered at law or at equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing. (ii) The Exchange Debenture Indenture has been duly authorized, executed and delivered by the Issuer, and is a valid and binding agreement of the Issuer, enforceable against the Issuer in accordance with its terms, except as the same may be limited by (A) applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally, including without limitation the effect of statutory or other laws regarding fraudulent conveyances or transfers, preferential transfers or distributions by corporations to shareholders, or (B) general principles of equity, whether considered at law or at equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing. (c) To exchange the Exchangeable Preferred Stock for Exchange Debentures, the Issuer shall send a written notice (the "Exchange Notice") --------------- of exchange by mail to 11 each Holder of shares of Exchangeable Preferred Stock, which notice shall state (i) that the Issuer is exercising its option to exchange the Exchangeable Preferred Stock for Exchange Debentures pursuant to this Certificate of Designation, (ii) the date fixed for exchange (the "Exchange Date"), which date shall not be less than 30 days nor more than ------------- 60 days following the date on which the Exchange Notice is mailed, (iii) that the Holder is to surrender to the Issuer, at the place or places where certificates for shares of Exchangeable Preferred Stock are to be surrendered for exchange, in the manner designated in the Exchange Notice, the certificate or certificates representing the shares of Exchangeable Preferred Stock to be exchanged (duly endorsed or assigned for transfer); (iv) that dividends on the shares of Exchangeable Preferred Stock to be exchanged shall cease to accrue on the Exchange Date, and that Holders of Exchangeable Preferred Stock shall cease to have any further rights with respect to such shares (other than the right to receive Exchange Debentures), whether or not certificates for shares of Exchangeable Preferred Stock are surrendered for exchange on the Exchange Date unless the Issuer shall default in the delivery of Exchange Debentures; and (v) that interest on the Exchange Debentures shall accrue from the Exchange Date whether or not certificates for shares of Exchangeable Preferred Stock are surrendered for exchange on the Exchange Date; provided, however, that no failure to give such notice nor any deficiency therein shall affect the validity of the procedure for the exchange of any shares of Exchangeable Preferred Stock to be exchanged except as to the Holder or Holders to whom the Issuer has failed to give said notice or except as to the Holder or Holders whose notice was defective. On the Exchange Date, if the conditions set forth in Section 7.1(a)(i) through 7.1(a)(iv) are satisfied, the Issuer shall issue Exchange Debentures in exchange for the Exchangeable Preferred Stock as provided in Section 7.1(d). (d) On the Exchange Date, Holders of outstanding shares of Exchangeable Preferred Stock will be entitled to receive a principal amount of Exchange Debentures equal to the liquidation preference per share, plus an amount in cash (or, on or prior to August 1, 2003, in principal amount of Exchange Debentures) equal to all accumulated and unpaid dividends (including an amount equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the Exchange Date to the Exchange Date). The Exchange Debentures will be issued in registered form, without coupons. Exchange Debentures issued in exchange for Exchangeable Preferred Stock will be issued in principal amounts of $1,000 and integral multiples thereof to the extent possible, and will also be issued in principal amounts less than $1,000 so that each Holder of Exchangeable Preferred Stock will receive certificates representing the entire amount of Exchange Debentures to which his or her shares of Exchangeable Preferred Stock entitle him or her, provided that the Issuer may, at its option, pay cash in lieu of issuing an Exchange Debenture in a principal amount less than $1,000. On and after the Exchange Date, dividends will cease to accumulate on the outstanding shares of Exchangeable Preferred Stock, and all rights of the Holders of Exchangeable Preferred Stock (except the right to receive the Exchange Debentures, an amount in cash equal to the accumulated and unpaid dividends to the Exchange Date (or, on or prior to August 1, 2003, in principal amount of Exchange Debentures) and if the Issuer so elects, cash in lieu of any Exchange Debenture that is in an amount that is not an integral multiple of 12 $1,000) will terminate. The Person entitled to receive the Exchange Debentures issuable upon such exchange will be treated for any purposes as the registered Holder of such Exchange Debentures. SECTION 7.2 Procedure for Exchange. ---------------------- (a) On or before the Exchange Date, each Holder of Exchangeable Preferred Stock shall surrender the certificate or certificates representing such shares of Exchangeable Preferred Stock, in the manner and at the place designated in the Exchange Notice. The Issuer shall cause the Exchange Debentures to be executed on the Exchange Date and, upon surrender in accordance with the Exchange Notice of the certificates for any shares of Exchangeable Preferred Stock so exchanged (duly endorsed or assigned for transfer), such shares shall be exchanged by the Issuer into Exchange Debentures. The Issuer shall pay interest on the Exchange Debentures at the rate and on the dates specified therein from the Exchange Date. (b) Subject to the satisfaction of the conditions set forth in clauses (i) through (iv) of Section 7.1(a), if notice has been mailed as aforesaid, and if before the Exchange Date (i) the Exchange Debenture Indenture shall have been duly executed and delivered by the Issuer and the Exchange Debenture Trustee and (ii) all Exchange Debentures necessary for such exchange shall have been duly executed by the Issuer and delivered to the Exchange Debenture Trustee with irrevocable instructions to authenticate the Exchange Debentures necessary for such exchange, then the rights of the Holders of shares of the Exchangeable Preferred Stock as stockholders of the Issuer shall cease (except the right to receive Exchange Debentures), and the Person or Persons entitled to receive the Exchange Debentures issuable upon exchange shall be treated for all purposes as the registered Holder or Holders of such Exchange Debentures as of the date of exchange without any further action of the Holders of Exchangeable Preferred Stock. ARTICLE 8 CHANGE OF CONTROL OFFER SECTION 8.1 (a) Upon the occurrence of a Change of Control, unless all Exchangeable Preferred Stock has been called for redemption pursuant to Article 5, each Holder of outstanding Exchangeable Preferred Stock will have the right to require the Issuer to repurchase all or any part of such Holder's Exchangeable Preferred Stock pursuant to an offer (the "Exchangeable Preferred Change of Control Offer") at an offer price in ------------------------------------------------ cash (the "Exchangeable Preferred Change of Control Payment") equal to ------------------------------------------------ 101% of the aggregate liquidation preference thereof plus an amount in cash equal to all accumulated and unpaid dividends per share (including an amount in cash equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the repurchase date to the repurchase date), if any, to the date of repurchase. 13 (b) The Issuer shall not be required to make an Exchangeable Preferred Change of Control Offer upon a Change of Control if a third party makes and consummates an Exchangeable Preferred Change of Control Offer in accordance with the provisions of this Article 8. SECTION 8.2 In the event that the Issuer shall be required to commence an Exchangeable Preferred Change of Control Offer, the Issuer shall follow the procedures specified in this Section 8.2. (a) Within 30 days after a Change of Control (unless (i) the Issuer is not required to make such offer pursuant to Section 8.1(b) or (ii) all shares of Exchangeable Preferred Stock have been called for redemption pursuant to Article 5), the Issuer shall (x) commence an Exchangeable Preferred Change of Control Offer, which shall remain open for a period of at least 20 Business Days following its commencement (the "Offer Period") ------------ and (y) send, by first class mail, a notice to the Transfer Agent and each of the Holders of the Exchangeable Preferred Stock which shall contain all instructions and materials necessary to enable such Holders to tender their shares of Exchangeable Preferred Stock pursuant to such Exchangeable Preferred Change of Control Offer. The notice, which shall govern the terms of the Exchangeable Preferred Change of Control Offer, shall describe the transaction or transactions that constitute the Change of Control and shall state: (i) that the Exchangeable Preferred Change of Control Offer is being made pursuant to this Article 8; (ii) that the Issuer is required to offer to purchase all of the outstanding shares of Exchangeable Preferred Stock at a purchase price equal to the Exchangeable Preferred Change of Control Payment and, that on the date specified in such notice (the "Purchase Date"), ------------- which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed, the Issuer shall repurchase all shares of Exchangeable Preferred Stock validly tendered and not withdrawn pursuant to this Article 8; (iii) that any outstanding shares of Exchangeable Preferred Stock not tendered or accepted for payment shall continue to accrue dividends; (iv) that, unless the Issuer defaults in making such payment, shares of Exchangeable Preferred Stock accepted for payment pursuant to the Exchangeable Preferred Change of Control Offer shall cease to accrue dividends after the Purchase Date; (v) that Holders of outstanding Exchangeable Preferred Stock electing to have such shares purchased pursuant to an Exchangeable Preferred Change of Control Offer may elect to have all or any portion of such shares purchased; 14 (vi) that Holders of outstanding Exchangeable Preferred Stock electing to have such shares purchased pursuant to an Exchangeable Preferred Change of Control Offer shall be required to surrender the Exchangeable Preferred Stock with such customary documents of surrender and transfer as the Issuer may reasonably request, duly completed, or transfer by book-entry transfer, to the Issuer or the Transfer Agent at the address specified in the notice prior to the Purchase Date; (vii) that Holders shall be entitled to withdraw their election if the Issuer, or the Transfer Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the aggregate liquidation preference of the Exchangeable Preferred Stock the Holder delivered for purchase and a statement that such Holder is withdrawing its election to have such Exchangeable Preferred Stock purchased; and (viii) that Holders whose shares of Exchangeable Preferred Stock are purchased only in part shall be issued new Exchangeable Preferred Stock equal in liquidation preference to the unpurchased portion of the Exchangeable Preferred Stock surrendered (or transferred by book- entry transfer), which unpurchased portion must be equal to $1,000 in liquidation preference or an integral multiple thereof. (b) On (or at the Issuer's election, before) the Purchase Date, the Issuer shall: (i) to the extent lawful, accept for payment, the outstanding Exchangeable Preferred Stock or portions thereof validly tendered pursuant to the Exchangeable Preferred Change of Control Offer and not theretofore withdrawn; (ii) deposit with the Transfer Agent an amount equal to the Exchangeable Preferred Change of Control Payment in respect of all Exchangeable Preferred Stock or portions thereof so tendered; and (iii) deliver or cause to be delivered to the Transfer Agent the shares of Exchangeable Preferred Stock so accepted together with an Officers' Certificate stating the aggregate liquidation preference of such Exchangeable Preferred Stock or portions thereof being purchased by the Issuer. The Issuer or the Transfer Agent, as the case may be, shall promptly mail or deliver to each tendering Holder an amount equal to the Exchangeable Preferred Change of Control Payment with respect to the Exchangeable Preferred Stock tendered by such Holder and accepted by the Issuer for purchase. The Issuer shall promptly issue new certificates representing shares of Exchangeable 15 Preferred Stock and mail (or cause to be transferred by book entry) to each Holder a new certificate representing shares of Exchangeable Preferred Stock equal in liquidation preference to any unpurchased portion of the Exchangeable Preferred Stock so surrendered, if any, provided that each such new share of Exchangeable Preferred Stock shall be in a principal amount of $1,000 or an integral multiple thereof. Any Exchangeable Preferred Stock not so accepted shall be promptly mailed or delivered by the Issuer to the Holder thereof. On the Purchase Date, all Exchangeable Preferred Stock purchased by the Issuer shall be delivered to the Transfer Agent for cancellation. All Exchangeable Preferred Stock or portions thereof purchased pursuant to the Exchangeable Preferred Change of Control Offer will be canceled by the Transfer Agent. The Issuer shall publicly announce the results of the Exchangeable Preferred Change of Control Offer on or as soon as practicable after the Purchase Date. (c) On and after the Purchase Date, dividends shall cease to accrue on the Exchangeable Preferred Stock or the portions of Exchangeable Preferred Stock repurchased and all rights of Holders of such tendered shares shall terminate, except for the right to receive payment therefor, on the Purchase Date. SECTION 8.3 The Issuer shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations to the extent such laws and regulations are applicable in connection with the Exchangeable Preferred Change of Control Offer. To the extent that the provisions of any applicable securities laws or regulations conflict with provisions of this Article 8, the Issuer shall comply with such securities laws and regulations and shall not be deemed to have breached its obligations under this Section 8.3 by virtue thereof. SECTION 8.4 Prior to complying with the provisions of this Article 8, but in any event within 90 days following a Change of Control, the Issuer will either use commercially reasonable efforts to repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Exchangeable Preferred Stock required by this Article 8, unless notice of redemption of all Exchangeable Preferred Stock has then been given pursuant to the provisions described in this Article 5 and such redemption is permitted by the terms of outstanding Senior Debt. ARTICLE 9 RESTRICTED PAYMENTS SECTION 9.1 The Issuer will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other distribution (including any payment in connection with any merger or consolidation) on account of any Junior Equity 16 Interests of the Issuer or Equity Interests of any Restricted Subsidiary (other than dividends or distributions payable in Junior Equity Interests of the Issuer or Equity Interests of any Restricted Subsidiary (other than Disqualified Stock) and dividends payable to the Issuer or any Restricted Subsidiary); (ii) purchase, redeem or otherwise acquire or retire for value (including in connection with any merger or consolidation) any Junior Equity Interests of the Issuer or any Equity Interests of any Restricted Subsidiary held by Persons other than the Issuer or any Restricted Subsidiary; or (iii) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iii) above being collectively referred to as ''Restricted Payments''), unless, at the time of, and after giving effect to, such Restricted Payment: (a) no Voting Rights Triggering Event shall have occurred and be continuing or would occur as a consequence thereof; (b) the Issuer would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Debt pursuant to the Consolidated Coverage Ratio test set forth in Section 10.1; and (c) such Restricted Payment, together with (without duplication) the aggregate amount of all other Restricted Payments made by the Issuer and its Restricted Subsidiaries after the Issue Date (excluding Restricted Payments permitted by clauses (ii), (iv) and (v) of Section 9.2, but including all other Restricted Payments permitted by Section 9.2, is less than the sum (without duplication) of (i) 50% of the Consolidated Net Income of the Issuer for the period (taken as one accounting period) from the beginning of the fiscal quarter during which the Issue Date with respect to the Series A Exchangeable Preferred Stock occurs to the end of the Issuer's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds received by the Issuer from the issue or sale (other than to a Subsidiary) of, or from capital contributions with respect to, Junior Equity Interests of the Issuer (other than Disqualified Stock), in either case after the Issue Date, plus (iii) the aggregate principal amount (or accreted value, if less) of Debt, Disqualified Stock or Equity Interests (other than Junior Equity Interests) of the Issuer or any Restricted Subsidiary issued since the Issue Date (other than to a 17 Restricted Subsidiary) that has been converted into Junior Equity Interests (other than Disqualified Stock) of the Issuer, plus (iv) 100% of the aggregate net cash received by the Issuer or a Restricted Subsidiary of the Issuer since the Issue Date from (A) Restricted Investments, whether through interest payments, principal payments, dividends or other distributions or payments, or the sale or other disposition (other than to the Issuer or a Restricted Subsidiary) thereof made by the Issuer and its Restricted Subsidiaries and (B) a cash dividend from, or the sale (other than to the Issuer or a Restricted Subsidiary) of the stock of, an Unrestricted Subsidiary, plus (v) upon the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair market value of the Investments of the Issuer and its Restricted Subsidiaries (other than such Subsidiary) in such Subsidiary. SECTION 9.2 The foregoing provisions of Section 9.1 will not prohibit: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at such date of declaration such payment would have complied with the provisions of this Certificate of Designation; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any Junior Equity Interests of the Issuer or Equity Interests of any Restricted Subsidiary in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary of the Issuer) of other Junior Equity Interests of the Issuer or Equity Interests of any Restricted Subsidiary, or a capital contribution with respect to Junior Equity Interests of the Issuer (other than, in each case, any sale of or capital contribution in respect of Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (c) (ii) of Section 9.1; (iii) the redemption, repurchase, retirement, defeasance or other acquisition of Junior Equity Interests upon a Change of Control to the extent required by the agreement or certificate of designation governing such Junior Equity Interests, but only (x) if the Issuer shall have complied with Article 8 and repurchased all Exchangeable Preferred Stock tendered pursuant to the offer required by such covenant prior to purchasing or repaying such Junior Equity Interests, and (y) within six months after the date such offer is consummated; (iv) the payment of any dividend by a Restricted Subsidiary of the Issuer to the holders of its common Equity Interests on a pro rata basis; (v) to the extent constituting Restricted Payments, the Specified Affiliate Payments; and (vi) Restricted Payments in an aggregate amount not to exceed $10 million. 18 The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Voting Rights Triggering Event. For purposes of making such determination, all outstanding Investments by the Issuer and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated, to the extent they do not constitute Permitted Investments at the time such Subsidiary became an Unrestricted Subsidiary, will be deemed to be Restricted Payments made at the time of such designation. The amount of such outstanding Investments will be equal to the portion of the fair market value of the net assets of any Subsidiary of the Issuer at the time that such Subsidiary is designated an Unrestricted Subsidiary that is represented by the interest of the Issuer and its Restricted Subsidiaries in such Subsidiary, in each case as determined in good faith by the Board of Directors of the Issuer. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Issuer or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any non-cash Restricted Payment shall be determined in good faith by the Board of Directors of the Issuer. In making the computations required by this Article 9, (i) the Issuer or the relevant Restricted Subsidiary may use audited financial statements for the portions of the relevant period for which audited financial statements are available on the date of determination and unaudited financial statements and other current financial data based on the books and records of the Issuer for the remaining portion of such period and (ii) the Issuer or the relevant Restricted Subsidiary will be permitted to rely in good faith on the financial statements and other financial data derived from the books and records of the Issuer and the Restricted Subsidiary that are available on the date of determination. If the Issuer makes a Restricted Payment that, at the time of the making of such Restricted Payment, would in the good faith determination of the Issuer or any Restricted Subsidiary be permitted under the requirements of this Certificate of Designation, such Restricted Payment will be deemed to have been made in compliance with this Certificate of Designation notwithstanding any subsequent adjustments made in good faith to the Issuer's or any Restricted Subsidiary's financial statements, affecting Consolidated Net Income of the Issuer for any period. For the avoidance of doubt, it is expressly agreed that no payment or other transaction permitted by clauses (3), (4) and (5) of Section 12.2 shall be considered a Restricted Payment for purposes of, or otherwise restricted by, this Certificate of Designation. ARTICLE 10 INCURRENCE OF DEBT AND ISSUANCE OF PREFERRED STOCK SECTION 10.1 The Issuer will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become 19 directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Debt and that the Issuer will not issue any ----- Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of Preferred Stock; provided, however, that the Issuer and its Restricted Subsidiaries may incur Debt or issue shares of Disqualified Stock and the Issuer's Restricted Subsidiaries may issue Preferred Stock, if the Consolidated Coverage Ratio for the Issuer's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Debt is incurred or such Disqualified Stock or Preferred Stock is issued would have been at least 1.75 to 1.00 if such four-quarter period ends on or prior to the second anniversary of the Issue Date and 2.00 to 1.00 if it ends thereafter, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Debt had been incurred, or the Disqualified Stock or Preferred Stock had been issued, as the case may be, at the beginning of such four-quarter period. SECTION 10.2 The provisions of Section 10.1 will not apply to the incurrence of any of the following items of Debt (collectively, "Permitted --------- Debt"): - ---- (i) the incurrence of term and revolving Debt, letters of credit (with letters of credit being deemed to have a principal amount equal to the undrawn face amount thereof) and other Debt under Credit Facilities (including Guarantees by the Issuer or any of its Subsidiaries of synthetic lease drawings and other loans under the New Credit Facility or of other Debt under Credit Facilities); provided that the aggregate principal amount of such Debt outstanding pursuant to this clause (i) does not exceed an amount equal to $250.0 million; (ii) the incurrence by the Issuer and its Restricted Subsidiaries of Existing Debt; (iii) the incurrence by (A) the Issuer of Debt represented by the Notes and the Exchange Debentures and (B) the Guarantors of Debt represented by the Note Guarantees; (iv) the incurrence by the Issuer or any of its Restricted Subsidiaries of Acquired Debt; (v) the incurrence by the Issuer or any of its Restricted Subsidiaries of Permitted Refinancing Debt in exchange for, or the net proceeds of which are used to refund, refinance or replace Debt (other than intercompany Debt) that was permitted by this Certificate of Designation to be incurred; (vi) the incurrence by the Issuer or any of its Restricted Subsidiaries of intercompany Debt or Preferred Stock owed or issued to and held by the Issuer and any of its Restricted Subsidiaries, provided, however, that (A) any subsequent issuance or transfer of Equity Interests or other action that results in any such Debt or Preferred Stock being held by a Person other than the Issuer or a Restricted Subsidiary and (B) any sale or other transfer of any such Debt or Preferred Stock to a Person that is not either the Issuer or a Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of 20 such Debt or issuance of such Preferred Stock by the Issuer or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (vi); (vii) the incurrence by the Issuer or any of its Restricted Subsidiaries of Hedging Obligations that are incurred (A) principally for the purpose of fixing or hedging interest rate risk with respect to any floating rate Debt that is permitted by the terms of this Certificate of Designation to be outstanding or (B) principally for the purpose of fixing or hedging currency exchange rate risk or commodity price risk incurred in the ordinary course of business; (viii) the guarantee by the Issuer or any Restricted Subsidiary of Debt of the Issuer or a Restricted Subsidiary of the Issuer that was permitted to be incurred by another provision of this section; and (ix) the incurrence by the Issuer or any of its Restricted Subsidiaries of additional Debt (which may comprise Debt under the New Credit Facility) in an aggregate principal amount (or accreted value, as applicable) at any time outstanding pursuant to this clause (ix) not to exceed an amount equal to $20.0 million. For purposes of determining compliance with this Article 10, in the event that an item of Debt meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (ix) of Section 10.2, or is entitled to be incurred pursuant to Section 10.1, the Issuer shall, in its sole discretion, classify such item of Debt in any manner that complies with this Article 10 and such item of Debt will be treated as having been incurred pursuant to only one of such clauses of Section 10.2 or pursuant to Section 10.1 hereof; provided that all outstanding Debt under the New Credit Facility immediately following the Recapitalization shall be deemed to have been incurred pursuant to clause (i) of Section 10.2. Accrual of interest and the accretion of accreted value will be deemed not to be an incurrence of Debt for purposes of this Article 10. ARTICLE 11 MERGER, CONSOLIDATION OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS SECTION 11.1 The Issuer may not consolidate or merge with or into (whether or not the Issuer is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another Person unless: (i) the Issuer is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than the Issuer) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; 21 (ii) the Exchangeable Preferred Stock shall be converted into or exchanged for and shall become shares of the surviving entity having in respect of such surviving entity substantially the same rights and privileges that the Exchangeable Preferred Stock had immediately prior to such transaction with respect to the Issuer and shall not be subordinated to any Preferred Stock of the surviving entity; (iii) immediately after such transaction no Voting Rights Triggering Event shall exist; and (iv) except in the case of a merger of the Issuer with or into a Wholly Owned Restricted Subsidiary of the Issuer, the Issuer or the Person formed by or surviving any such consolidation or merger (if other than the Issuer), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, either (x) be permitted to incur at least $1.00 of additional Debt pursuant to the Consolidated Coverage Ratio test set forth in Section 10.1 or (y) have a Consolidated Coverage Ratio at least equal to the Consolidated Coverage Ratio of the Issuer for such four-quarter reference period. SECTION 11.2 Notwithstanding clauses (iii) and (iv) of Section 11.1, (a) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Issuer and (b) the Issuer may merge with an Affiliate incorporated solely for the purpose of reincorporating the Issuer in another jurisdiction. ARTICLE 12 TRANSACTIONS WITH AFFILIATES SECTION 12.1 The Issuer will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an ''Affiliate Transaction''), --------------------- unless: (i) such Affiliate Transaction is on terms that, taken as a whole, are no less favorable to the Issuer or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Issuer or such Restricted Subsidiary with an unrelated Person; and (ii) the Issuer delivers to the Transfer Agent (a) with respect to any Affiliate Transaction entered into after the Issue Date involving aggregate consideration in excess of $3.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the members of the Board of Directors and (b) with respect to any Affiliate Transaction involving aggregate consideration in excess of $10.0 million, an opinion as to the fairness to the Holders of 22 such Affiliate Transaction from a financial point of view issued by an investment banking, appraisal or accounting firm of national standing. SECTION 12.2 The provisions of Section 12.1 shall not prohibit and the following shall not be deemed to be Affiliate Transactions: (1) transactions between or among the Issuer and/or its Restricted Subsidiaries; (2) Permitted Investments and Restricted Payments that are permitted by the provisions of this Certificate of Designation described in Article 9; (3) employment agreements, employee benefit plans and related arrangements entered into in the ordinary course of business and all payments and other transactions contemplated thereby; (4) any payments to Investcorp and its Affiliates (whether or not such Persons are Affiliates of the Issuer) (A) for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including in connection with acquisitions or divestitures, which payments are approved by the Board of Directors of the Issuer in good faith and (B) of annual management, consulting and advisory fees and related expenses; (5) any agreement in effect on the Closing Date (including the Recapitalization Agreement, the Services Agreement between the Berkshire Companies Limited Partnership and the Issuer (as amended) and the Brevard lease agreement) or any amendment thereto (so long as any such amendment is not disadvantageous to the Holders in any material respect) or any payment or other transaction contemplated by any of the foregoing; and (6) Debt permitted by clause (ix) of Section 10.2 hereof to the extent such Debt is on terms that, taken as a whole, are no less favorable to the Issuer or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction with an unrelated Person. ARTICLE 13 DISCHARGE AND DEFEASANCE SECTION 13.1 Legal Defeasance and Covenant Defeasance. ---------------------------------------- (a) The Issuer may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 13.1(b) or 13.1(c) hereof be applied to all outstanding Exchangeable Preferred Stock upon compliance with the conditions set forth below in this Article 13. (b) Upon the Issuer's exercise under Section 13.1(a) hereof of the option applicable to this Section 13.1(b), the Issuer shall, subject to the satisfaction of the 23 conditions set forth in Section 13.2 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Exchangeable Preferred Stock on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal ---------------- Defeasance means that the Issuer shall be deemed to have paid and discharged all the obligations represented by the outstanding Exchangeable Preferred Stock, which Exchangeable Preferred Stock shall thereafter be deemed to be "outstanding" only for the purposes of Section 13.3 hereof and the other Sections of this Certificate of Designation referred to in (i) and (ii) below, and to have satisfied all their other obligations under such Exchangeable Preferred Stock and this Certificate of Designation (and the Transfer Agent, on demand of and at the expense of the Issuer, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of outstanding Exchangeable Preferred Stock to receive solely from the trust fund described in this Article 13, as more fully set forth in such Article, payments in respect of the liquidation preference of, accumulated and unpaid dividends on, and Liquidated Damages, if any, on such Exchangeable Preferred Stock when such payments are due and (ii) this Article 13. Subject to compliance with this Article 13, the Issuer may exercise its option under this Section 13.1(b) notwithstanding the prior exercise of its option under Section 13.1(c) hereof. (c) Upon the Issuer's exercise under Section 13.1(a) hereof of the option applicable to this Section 13.1(c), the Issuer shall, subject to the satisfaction of the conditions set forth in Section 13.2 hereof, be released from its obligations under Articles 8, 9, 10, 12, and Sections 11.1(iv) and 15.6 hereof with respect to the outstanding Exchangeable Preferred Stock on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Exchangeable ------------------- Preferred Stock shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such Articles and Section, but shall continue to be deemed "outstanding" for all the other purposes hereunder (it being understood that such Exchangeable Preferred Stock shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect of any term, condition or limitation set forth in any such Article or Section, whether directly or indirectly, by reason of any reference elsewhere herein to any such Article or Section or by reason of any reference in any such Article or Section to any other provision herein or in any other document and such omission to comply shall not constitute a Voting Rights Triggering Event under Section 6.2 hereof, but, except as specified above, the remainder of this Certificate of Designation and such Exchangeable Preferred Stock shall be unaffected thereby. SECTION 13.2. Conditions to Legal or Covenant Defeasance. The following ------------------------------------------ shall be the conditions to the application of either Section 13.1(b) or 13.1(c) hereof to the outstanding Exchangeable Preferred Stock: In order to exercise either Legal Defeasance or Covenant Defeasance: 24 (a) the Issuer must irrevocably deposit with the Transfer Agent, in trust, for the benefit of the Holders, cash in United States dollars, Government Notes, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the aggregate liquidation preference of, accumulated and unpaid dividends on, and Liquidated Damages, if any, on the outstanding Exchangeable Preferred Stock on the stated date for payment thereof or on the applicable Redemption Date, as the case may be; (b) in the case of an election under Section 13.1(b) hereof, the Issuer shall have delivered to the Transfer Agent an Opinion of Counsel in the United States reasonably acceptable to the Transfer Agent confirming that (A) the Issuer has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date hereof, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Exchangeable Preferred Stock will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of an election under Section 13.1(c) hereof, the Issuer shall have delivered to the Transfer Agent an Opinion of Counsel in the United States, subject to customary assumptions and exclusions, reasonably acceptable to the Transfer Agent confirming that the Holders of the outstanding Exchangeable Preferred Stock will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Voting Rights Triggering Event shall have occurred and be continuing on the date of such deposit (other than a Voting Rights Triggering Event resulting from the Incurrence of Debt) all or a portion of the proceeds of which will be used to defease the Exchangeable Preferred Stock pursuant to this Article 13 concurrently with such Incurrence; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Certificate of Designation) to which the Issuer or any of its Subsidiaries is a party or by which the Issuer or any of its Subsidiaries is bound; (f) the Issuer shall have delivered to the Transfer Agent an Opinion of Counsel, subject to customary assumptions and exclusions, to the effect that after the 91st day following the deposit pursuant to Section 13.2(a), the trust funds will not be part of any "estate" formed by the bankruptcy or reorganization of the Issuer or subject to the "automatic stay" under the Bankruptcy Code, or in the case of a Covenant Defeasance, 25 will be subject to a first priority lien in favor of the Transfer Agent for the benefit of the Holders; (g) the Issuer shall have delivered to the Transfer Agent an Officers' Certificate stating that the deposit was not made by the Issuer with the intent of preferring the Holders over any other creditors of the Issuer or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Issuer; and (h) the Issuer shall have delivered to the Transfer Agent an Officers' Certificate and an Opinion of Counsel, subject to customary assumptions and exclusions, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. SECTION 13.3. Deposited Money and Government Securities to be Held in ------------------------------------------------------- Trust; Other Miscellaneous Provisions. Subject to Section 13.4 hereof, all - ------------------------------------- money and Government Notes (including the proceeds thereof) deposited with the Transfer Agent (or other qualifying trustee, collectively for purposes of this Section 13.3, the "Transfer Agent") pursuant to Section 13.2 hereof in respect -------------- of the outstanding Exchangeable Preferred Stock shall be held in trust and applied by the paying agent, in accordance with the provisions of such Exchangeable Preferred Stock and this Certificate of Designation, to the payment, either directly or through any paying agent (including the Issuer acting as paying agent) as the Transfer Agent may determine, to the Holders of such Exchangeable Preferred Stock of all sums due and to become due thereon in respect of the liquidation preference of and accumulated and unpaid dividends on the Exchangeable Preferred Stock, but such money need not be segregated from other funds except to the extent required by law. Anything in this Article 13 to the contrary notwithstanding, the Transfer Agent shall deliver or pay to the Issuer from time to time upon the request of the Issuer any money or Government Notes held by it as provided in Section 13.2 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Transfer Agent (which may be the opinion delivered under Section 13.2(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 13.4. Repayment to Issuer. Any money deposited with the Transfer ------------------- Agent or any paying agent, or then held by the Issuer, in trust for the payment of the aggregate liquidation preference of, accumulated and unpaid dividends on and Liquidated Damages, if any, and remaining unclaimed for two years after such amounts have become due and payable shall be paid to the Issuer on its request or (if then held by the Issuer) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Issuer for payment thereof, and all liability of the Transfer Agent with respect to such trust money, and all liability of any paying agent (including the Issuer as paying agent) thereof, shall thereupon cease; provided, -------- however, that the Transfer Agent or paying agent, before being required to make - ------- any such repayment, may at the expense of the Issuer, cause to be published once, in the Wall Street Journal (national edition), notice that such money remains unclaimed and 26 that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Issuer. SECTION 13.5. Reinstatement. If the Transfer Agent is unable to apply any ------------- United States dollars or Government Notes in accordance with this Article 13 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Issuer's obligations under this Certificate of Designation and the Exchangeable Preferred Stock shall be revived and reinstated as though no deposit had occurred pursuant to this Article 13 until such time as the Transfer Agent is permitted to apply all such money in accordance with this Article 13; provided, -------- however, that, if the Issuer makes any payment on account of the Exchangeable - ------- Preferred Stock following the reinstatement of its obligations, the Issuer shall be subrogated to the rights of the Holders of such Exchangeable Preferred Stock to receive such payment from the money held by the Transfer Agent or any paying agent. ARTICLE 14 REGISTRATION RIGHTS SECTION 14.1 Registration Rights. So long as any shares of Exchangeable ------------------- Preferred Stock constitute "Transfer Restricted Securities", as defined in the Preferred Stock Registration Rights Agreement, each Holder shall be entitled to the rights granted by the Issuer thereunder, and shall be bound by the restrictions contained therein, on the certificates representing the Exchangeable Preferred Stock, in the Offering Memorandum and in any offering memorandum for any Additional Exchangeable Preferred Stock. ARTICLE 15 MISCELLANEOUS SECTION 15.1 Conversion or Exchange. The Holders of Exchangeable ---------------------- Preferred Stock shall not have any rights hereunder to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of Capital Stock of the Issuer. SECTION 15.2 Preemptive Rights. No shares of Exchangeable Preferred ----------------- Stock shall have any rights of preemption whatsoever as to any securities of the Issuer, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities or such warrants, rights or options may be designated, issued or granted. SECTION 15.3 Reissuance of Exchangeable Preferred Stock. Shares of ------------------------------------------ Exchangeable Preferred Stock that have been issued and reacquired in any manner, including shares purchased or redeemed or exchanged, shall (upon compliance with any applicable provisions of the laws of Delaware) have the status of authorized but unissued shares of Preferred Stock of the Issuer and may be designated or redesignated and issued or reissued, as the case may 27 be, as part of any series of Preferred Stock of the Issuer, except that any issuance or reissuance of shares of Exchangeable Preferred Stock must be in compliance with this Certificate of Designation. SECTION 15.4 Business Day. If any payment, redemption, repurchase or ------------ exchange shall be required by the terms hereof to be made on a day that is not a Business Day, such payment, redemption, repurchase or exchange shall be made on the immediately succeeding Business Day and no interest shall accrue on the intervening period. SECTION 15.5 Remedies. The sole remedy to Holders of Exchangeable -------- Preferred Stock in the event of the Issuer's failure to comply with any of the provisions hereof and the sole consequence of any such failure will be the voting rights described in Article 6. SECTION 15.6 Reports. Notwithstanding that the Issuer may not be ------- required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, to the extent permitted by the Exchange Act, the Issuer will file with the Commission, and provide, within 15 days after the Issuer is required to file the same with the Commission and the Holders with the annual reports and the information, documents and other reports that are specified in Sections 13 and 15(d) of the Exchange Act. In the event the Issuer is not permitted to file such reports, documents and information with the Commission, the Issuer will provide substantially similar information to the Trustee and the Holders, as if the Issuer were subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. SECTION 15.7 Waiver. The Holders of at least a majority of the ------ outstanding shares of Exchangeable Preferred Stock, voting or consenting, as the case may be, as one class, may also waive compliance with any provision of this Certificate of Designation. SECTION 15.8 Certificate as to Conditions Precedent. Upon any request or -------------------------------------- application by the Issuer to the Transfer Agent to take or refrain from taking any action under this Certificate of Designation, at the request of the Transfer Agent, the Issuer shall furnish to the Transfer Agent: (1) an Officers' Certificate in form and substance reasonably satisfactory to the Transfer Agent (which shall include the statements set forth in Section 15.9 hereof) stating that in the opinion of the signers, all conditions precedent, if any, provided for in this Certificate of Designation relating to the proposed action have been complied with; and (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Transfer Agent (which shall include the statements set forth in Section 15.9 hereof) stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 15.9. Statements Required in Certificate. Each certificate or ---------------------------------- opinion with respect to compliance with a covenant or condition provided for in this Certificate of Designation shall include: 28 (1) a statement that the individual making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with. SECTION 15.10 Notice. Any notice or communication given pursuant to this ------ Certificate of Designation shall be in writing and delivered in person or mailed by first-class mail addressed as follows: if to the Issuer, to: Harborside Healthcare Corporation 470 Atlantic Avenue Boston, MA 02210 Attn: Chief Financial Officer Phone: (617) 556 8158 Fax: (617) 556 1565 with copies to: Investcorp International Inc. 280 Park Avenue, 37 West New York, NY 10017 Attn: Christopher J. O'Brien Phone: (212) 599-4700 Fax: (212) 983-7073 Gibson, Dunn & Crutcher LLP 200 Park Avenue, 48th Floor New York, NY 10166 Attn: Joerg H. Esdorn Phone: (212) 351-4000 Fax: (212) 351-4035 If to the Transfer Agent, to: 29 United States Trust Company of New York 114 West 47th Street New York, NY 10036 Attn: Corporate Trust Administration Phone: (212) 852-1000 Fax: (212) 852-1626 The Issuer or the Transfer Agent by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Holder of Exchangeable Preferred Stock shall be mailed to the Holder at the Holder's address as it appears in the stock register of the Issuer and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in such notice shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. ARTICLE 16 TRANSFER RESTRICTIONS SECTION 16.1 The certificates evidencing the Exchangeable Preferred Stock shall, unless otherwise agreed to by the Issuer and the Holders of any such certificates, bear a legend substantially to the following effect: THE EXCHANGEABLE PREFERRED STOCK HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THE EXCHANGEABLE PREFERRED STOCK, RESELL OR OTHERWISE TRANSFER THE EXCHANGEABLE PREFERRED STOCK EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRANSFER AGENT A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS 30 RELATING TO THE RESTRICTIONS ON TRANSFER OF THE EXCHANGEABLE PREFERRED STOCK (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRANSFER AGENT) AND, IF SUCH TRANSFER IS IN RESPECT OF EXCHANGEABLE PREFERRED STOCK HAVING AN AGGREGATE LIQUIDATION PREFERENCE AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (E) AFTER REGISTRATION UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS EXCHANGEABLE PREFERRED STOCK IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS EXCHANGEABLE PREFERRED STOCK WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRANSFER AGENT. THE CERTIFICATE OF DESIGNATION OF THE ISSUER CONTAINS A PROVISION REQUIRING THE TRANSFER AGENT TO REFUSE TO REGISTER ANY TRANSFER OF THIS EXCHANGEABLE PREFERRED STOCK IN VIOLATION OF THE FOREGOING RESTRICTIONS. SECTION 16.2 The Transfer Agent shall refuse to register any attempted transfer of shares of Exchangeable Preferred Stock not in compliance with Section 16.1. SECTION 16.3 The legend provided in Section 16.1 may be removed if the Exchangeable Preferred Stock has been registered pursuant to an effective registration statement under the Securities Act. ARTICLE 17 BOOK-ENTRY, DELIVERY AND FORM SECTION 17.1 The certificates representing the Exchangeable Preferred Stock will be issued in fully registered form. Exchangeable Preferred Stock sold in reliance on Rule 144A under the Securities Act will be represented by one or more permanent global Exchangeable Preferred Stock certificates in definitive, fully registered form (each a "Restricted Global Preferred Stock --------------------------------- Certificate") and will be deposited with a custodian for, and registered in the - ----------- name of a nominee of, Depositary Trust Company ("DTC"). Owners of beneficial --- interests in a Restricted Global Preferred Stock Certificate will generally not be entitled to receive physical delivery of a physical certificate for their Exchangeable Preferred Stock ("Certificated Preferred Stock"). The ---------------------------- Exchangeable Preferred Stock is not issuable in bearer form. 31 Investors to whom Exchangeable Preferred Stock is transferred and who are not Qualified Institutional Buyers (as defined in Rule 144A under the Securities Act) will receive Certificated Preferred Stock, which cannot then be traded through the facilities of DTC, except in connection with a transfer to a Qualified Institutional Buyer. Upon the transfer to a Qualified Institutional Buyer of Certificated Preferred Stock, such Certificated Preferred Stock will, unless the relevant Restricted Global Preferred Stock Certificate has previously been exchanged in whole for Certificated Preferred Stock, be exchanged for an interest in a Restricted Global Preferred Stock Certificate. Upon the issuance of the Restricted Global Preferred Stock Certificates, DTC or its custodian will credit, on its internal system, the respective liquidation preference of the individual beneficial interests represented by such Restricted Global Preferred Stock Certificates, to the accounts of Persons who have accounts with such depositary. Such accounts initially will be designated by or on behalf of the Placement Agents. Ownership of beneficial interests in a Restricted Global Preferred Stock Certificate will be limited to Persons who have accounts with DTC ("participants") or Persons who hold interests through participants. Ownership of beneficial interests in a Restricted Global Preferred Stock Certificate will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of Persons other than participants). Qualified Institutional Buyers may hold their interests in a Restricted Global Preferred Stock Certificate directly through DTC if they are participants in such system, or indirectly through organizations which are participants in such system. So long as DTC, or its nominee, is the registered owner or holder of a Restricted Global Preferred Stock Certificate, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Exchangeable Preferred Stock represented by such Restricted Global Preferred Stock Certificate for all purposes under the Certificate of Designation and the Exchangeable Preferred Stock. No beneficial owner of an interest in a Restricted Global Preferred Stock Certificate will be able to transfer that interest except in accordance with DTC's applicable procedures, in addition to those provided for under this Certificate of Designation. Payments made with respect to the Restricted Global Preferred Stock Certificates will be made to DTC or its nominee, as the case may be, as the registered owner thereof. Neither the Issuer nor the Placement Agents will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Restricted Global Preferred Stock Certificate or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. If DTC is at any time unwilling or unable to continue as a depositary for the Restricted Global Preferred Stock Certificates and a successor depositary is not appointed by the Issuer within 90 days, the Issuer will issue Certificated Preferred Stock, which may bear the legend referred to in Section 16.1 in exchange for the Restricted Global Preferred Stock Certificates. ARTICLE 18 32 DEFINITIONS SECTION 18.1 As used in this Certificate of Designation, the following terms shall have the following meanings: "Acquired Debt" means, with respect to any specified Person, (i) Debt of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person, (ii) Debt incurred by such specified Person, its Restricted Subsidiaries or such other Person for the purpose of financing the acquisition of such other Person or its assets (provided that such other Person becomes or, in the case of an asset purchase, the Person acquiring such assets is, a Restricted Subsidiary and (iii) Debt secured by a Lien encumbering any asset acquired by such specified Person. "Additional Notes" means any additional notes that may be issued under the Indenture. "Affiliate" of any specified Person means (i) any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person, (ii) any other Person that owns, directly or indirectly, 5% or more of such specified Person's Voting Stock or (iii) any Person who is a director or officer (a) of such Person, (b) of any Subsidiary of such Person or (c) of any Person described in clause (i) or (ii) above. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. "Applicable Premium" means, with respect to a share of Exchangeable Preferred Stock at any Redemption Date, the greater of (i) 1.0% of the liquidation preference thereof or (ii) the excess of (A) the present value at such time of the redemption price of such share of Exchangeable Preferred Stock at August 1, 2003 (such redemption price being set forth in the table above), computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (B) the liquidation preference of such Exchangeable Preferred Stock, if greater. "Board of Directors" means, with respect to any Person, the Board of Directors of such Person, or any authorized committee of the Board of Directors of such Person. "Business Day" means a day other than a Saturday, Sunday or other day on which banking institutions in New York State are authorized or required by law to close. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited 33 liability company, partnership or membership interests (whether general or limited) and (iv) any similar participation in profits and losses or equity of a Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any commercial bank or trust company having capital and surplus in excess of $300.0 million, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Services, a division of the McGraw-Hill Companies, Inc. ("S&P") and in each case maturing within one year after the date of acquisition, (vi) investment funds investing 95% of their assets in securities of the types described in clauses (ii)-(v) above, (vii) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody's or S&P and (viii) Debt with a rating of "A" or higher from S&P or "A2" or higher from Moody's and having a maturity of not more than one year from the date of acquisition. "Change of Control" means the occurrence of any of the following events: (i) prior to the first public offering of Voting Stock of the Issuer, the Initial Control Group ceases to be the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the Issuer, whether as a result of the issuance of securities of the Issuer, any merger, consolidation, liquidation or dissolution of the Issuer, any direct or indirect transfer of securities by the Initial Control Group or otherwise (for purposes of this clause (i), the Initial Control Group shall be deemed to beneficially own all Voting Stock of an entity (the "specified entity") held by any other entity (the "parent entity") so long as the Initial Control Group beneficially owns (as so defined), directly or indirectly, in the aggregate a majority of the voting power of the Voting Stock of the parent entity); (ii) following the first public offering of Voting Stock of the Issuer (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more members of the Initial Control Group, is or becomes the beneficial owner (as defined in clause (i) above), directly or indirectly, of more than 40% of the total voting power of the Voting Stock of the Issuer and (B) the Initial Control Group "beneficially owns" (as defined in clause (i) above), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Issuer, than such other person and does not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors of the Issuer (for purposes of this clause (ii), such other person shall be deemed to beneficially own all 34 Voting Stock of a specified entity held by a parent entity, if such other person "beneficially owns" (as defined in clause (i) above), directly or indirectly, in the aggregate more than 40% of the voting power of the Voting Stock of such parent entity and the Initial Control Group "beneficially owns" (as defined in clause (i) above), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent entity and does not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors of such parent entity); or (iii) at any time after the first public offering of common stock of the Issuer, any person other than the Initial Control Group (or their designated board members), (A)(I) nominates one or more individuals for election to the Board of Directors of the Issuer and (II) solicits proxies, authorizations or consents in connection therewith and (B) such number of nominees elected to serve on the Board of Directors in such election and all previous elections after the Closing Date represents a majority of the Board of Directors of the Issuer following such election. "Closing Date" means the date on which MergerCo was merged with and into the Issuer. "Collateral Agent" means United States Trust Company of New York, as Collateral Agent, under the Collateral Pledge and Security Agreement dated as of July 31, 1998 between the Issuer and the Collateral Agent relating to the Exchangeable Preferred Stock. "Commission" means the Securities and Exchange Commission. "Commodity Hedging Agreements" means any futures contract or other similar agreement or arrangement designed to protect the Issuer or any Restricted Subsidiary against fluctuations in commodities prices. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period (A) plus (without duplication), to the extent deducted in computing such Consolidated Net Income, (i) Consolidated Interest Expense and the amortization of debt issuance costs, commissions, fees and expenses of such Person and its Restricted Subsidiaries for such period, (ii) provision for taxes based on income or profits (including franchise taxes) of such Person and its Restricted Subsidiaries for such period, (iii) depreciation and amortization expense, including amortization of inventory write-up under APB 16, amortization of intangibles (including goodwill and the non-cash costs of Interest Rate Agreements, Commodity Hedging Agreements or Currency Agreements, license agreements and non-competition agreements), non-cash amortization of Capital Lease Obligations, and organization costs, (iv) non-cash expenses related to the amortization of management fees paid on or prior to the Closing Date, (v) expenses and charges related to any equity offering or incurrence of Debt permitted to be incurred by the Indenture (including any such expenses or charges relating to the Recapitalization), (vi) the amount of any restructuring charge or reserve, (vii) unrealized gains and losses from hedging, foreign currency or commodities translations and transactions, (viii) expenses consisting of internal software development costs that are expensed during the period but could have been capitalized in accordance with GAAP, (ix) any write- 35 downs, write-offs, and other non-cash charges, items and expenses, (x) the amount of expense relating to any minority interest in a Restricted Subsidiary, and (xi) costs of surety bonds in connection with financing activities, and (B) minus any cash payment for which a reserve or charge of the kind described in clauses (vi), (ix) or (x) of subclause (A) above was taken previously during such period. "Consolidated Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such period to the Consolidated Interest Expense of such Person and its Restricted Subsidiaries for such period. In the event that the Issuer or any of its Restricted Subsidiaries incurs, assumes, Guarantees, redeems or repays any Debt (other than revolving credit borrowings) or issues or redeems Preferred Stock subsequent to the commencement of the period for which the Consolidated Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Consolidated Coverage Ratio is made (the "Calculation Date"), then the Consolidated Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee, redemption or repayment of Debt, or such issuance or redemption of Preferred Stock, as if the same had occurred at the beginning of the applicable four- quarter reference period. For purposes of making the computation referred to above, Investments, acquisitions, dispositions, mergers and consolidations that have been made by the Issuer or any of its Restricted Subsidiaries during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date, and discontinued operations determined in accordance with GAAP on or prior to the Calculation Date, shall be given effect on a pro forma basis assuming that all such Investments, acquisitions, dispositions, mergers and consolidations or discontinued operations (and the reduction or increase of any associated Consolidated Interest Expense and the change in Consolidated Cash Flow resulting therefrom, including because of reasonably anticipated cost savings) had occurred on the first day of the four- quarter reference period. If since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Issuer or any Restricted Subsidiary since the beginning of such period) shall have made any Investment, acquisition, disposition, merger or consolidation or determined a discontinued operation, that would have required adjustment pursuant to this definition, then the Consolidated Coverage Ratio shall be calculated giving pro forma effect thereto for such period as if such Investment, acquisition, disposition, merger or consolidation or discontinued operations had occurred at the beginning of the applicable four-quarter period. For purposes of this definition, whenever pro forma effect is to be given to a transaction, the pro forma calculations shall be made in good faith by a financial or accounting officer of the Issuer. If any Debt to which pro forma effect is given bears interest at a floating rate, the interest expense on such Debt shall be calculated as if the rate in effect on the Calculation Date had been the applicable interest rate for the entire period (taking into account any Interest Rate Agreement in effect on the Calculation Date). Interest on a Capital Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by a responsible financial or accounting officer of the Issuer to be the rate of interest implicit in such Capital Lease Obligation in accordance with GAAP. Interest on Debt that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as the Issuer may designate. 36 "Consolidated Interest Expense" means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated net interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations relating to Interest Rate Agreements or Currency Agreements with respect to Debt, excluding, however, (A) amortization of debt issuance costs, commissions, fees and expenses, (B) customary commitment, administrative and transaction fees and charges and (C) expenses attributable to letters of credit or similar arrangements supporting insurance certificates issued to customers in the ordinary course of business), (ii) any interest expense on Debt of another Person that is Guaranteed by or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries (but only to the extent such Guarantee or Lien has then been called upon), and (iii) cash dividends paid in respect of any Preferred Stock of such Person or any Restricted Subsidiary of such Person held by Persons other than the Issuer or a Subsidiary, in each case, on a consolidated basis and in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Restricted Subsidiary of such Person, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, prohibited by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders unless such restriction with respect to the payment of dividends has been permanently waived, (iii) except for purposes of calculating "Consolidated Cash Flow," the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iv) the cumulative effect of a change in accounting principles shall be excluded (effected either through cumulative effect adjustment or a retroactive application, in each case, in accordance with GAAP), (v) to the extent deducted in determining Net Income, the fees, expenses and other costs incurred in connection with the Recapitalization, including payments to management contemplated by the Recapitalization Agreement, shall be excluded, and (vi) to the extent deducted in determining Net Income, any non- cash charges resulting from any write-up, write-down or write-off of assets, of the Issuer and its Restricted Subsidiaries in connection with the Recapitalization, shall be excluded. "Credit Facilities" means, with respect to the Issuer, one or more debt facilities (including the New Credit Facility) or commercial paper facilities with banks, insurance companies or other institutional lenders providing for revolving credit loans, term loans, 37 synthetic lease financing, notes, receivables factoring or other financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from or issue securities to such lenders against such receivables) or letters of credit or other credit facilities, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement to which the Issuer or any Restricted Subsidiary is a party or of which it is a beneficiary. "Debt" means, with respect to any Person (without duplication), (i) any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property, which purchase price is due more than six months after the date of placing such property in final service or taking final delivery thereof, or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, (ii) all indebtedness under clause (i) of other Persons secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) provided that the amount of indebtedness of such Person shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such indebtedness of such other Persons, and (iii) to the extent not otherwise included, the Guarantee by such Person of any Debt under clause (i) of any other Person; provided, however, that Debt shall not include (a) obligations of the Issuer or any of its Restricted Subsidiaries arising from agreements of the Issuer or a Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Subsidiary, other than guarantees of Debt incurred by any Person acquiring all or any portion of such business, assets or a Subsidiary for the purpose of financing such acquisition; provided, however, that (x) such obligations are not reflected on the balance sheet of the Issuer or any Restricted Subsidiary (contingent obligations referred to in a footnote to financial statements and not otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this clause (x)) and (y) the maximum assumable liability in respect of all such obligations shall at no time exceed the gross proceeds including noncash proceeds (the fair market value of such noncash proceeds being measured at the time received and without giving effect to any subsequent changes in value) actually received by the Issuer and its Restricted Subsidiaries in connection with such disposition, (b) (A) obligations under (or constituting reimbursement obligations with respect to) letters of credit, performance bonds, surety bonds, appeal bonds, completion guarantees or similar instruments issued in connection with the ordinary course of business conducted by the Issuer, including letters of credit in respect of workers' compensation claims, security or lease deposits and self-insurance, provided, however, that upon the drawing of such letters of credit or other instrument, such obligations are reimbursed within 30 days following such drawing, and (B) obligations arising from the honoring by a bank or other financial institution of a check, draft 38 or similar instrument inadvertently (except in the case of day-light overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such obligations are extinguished within three Business Days of incurrence, or (c) retentions in connection with purchasing assets in the ordinary course of business of the Issuer and its Restricted Subsidiaries. The amount of any Debt outstanding as of any date shall be the lesser of (i) the accreted value thereof and (ii) the principal amount thereof, provided that the amount of Permitted Debt under clause (i) or (ix) of the definition thereof, at the Issuer's election, but without duplication, may be reduced by the principal amount (not to exceed $7.5 million) of the note receivable issued to the Issuer before the Issue Date in connection with the leasing of certain nursing home facilities in the State of Connecticut. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event (other than as a result of a Change of Control), matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date on which the Exchangeable Preferred Stock is subject to mandatory redemption as set forth in Section 5.3 hereof; provided, however, that if such Capital Stock is issued to any plan for the benefit of employees of the Issuer or its Subsidiaries or by any such plan to such employees, such Capital Stock shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Issuer in order to satisfy applicable statutory or regulatory obligations. For the avoidance of doubt, Exchangeable Preferred Stock shall not be considered "Disqualified Stock." "Dividend Payment Date" means February 1, May 1, August 1 and November 1 of each year. "Dividend Period" means the Initial Dividend Period and, thereafter, each Quarterly Dividend Period. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Exchange Act" means the Securities and Exchange Act of 1934, as amended. "Exchange Date" means the date on which the Exchangeable Preferred Stock is exchanged for Exchange Debentures. "Exchange Debentures" means the Exchange Debentures of the Issuer due 2010 issued in exchange for the Exchangeable Preferred Stock and any Exchange Debentures issued as payments in kind interest thereon, provided that such Exchange Debentures have the terms set forth in the Offering Memorandum. "Exchange Debenture Indenture" means the indenture pursuant to which the Exchange Debentures are to be issued as it may from time to time be amended or supplemented. 39 "Exchange Debenture Trustee" means the trustee under the Exchange Debenture Indenture, as appointed by the Issuer in its discretion. "Exchangeable Preferred Stock" is defined in Section 1.1. "Existing Debt" means Debt of the Issuer and its Restricted Subsidiaries (other than Debt under the New Credit Facility) in existence on the Issue Date, until such amounts are repaid. "Foreign Subsidiary" means any Subsidiary of the Issuer formed under the laws of any jurisdiction other than the United States or any political subdivision thereof substantially all of the assets of which are located outside of the United States or that conducts substantially all of its business outside of the United States. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in the Exchange Debenture Indenture shall be computed in conformity with GAAP as in effect as of the Issue Date. "Government Notes" means non-callable direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States is pledged. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including letters of credit and reimbursement agreements in respect thereof), of all or any part of any Debt. "Guarantors" means, at any time after the Closing Date, (i) each of the Issuer's Subsidiaries on the Closing Date, other than the Subsidiary Non-Guarantors on such date and (ii) each Restricted Subsidiary that executes and delivers a Note Guarantee after the Closing Date, and their respective successors and assigns, in each case until released from its Note Guarantee in accordance with the terms of the Indenture. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under Interest Rate Agreements, Currency Agreements or Commodity Hedging Agreements. "Holder" means with respect to any share of Exchangeable Preferred Stock, a Person in whose name such share of Exchangeable Preferred Stock is registered in the register for the Exchangeable Preferred Stock. "Indenture" means the Indenture dated as of July 31, 1998 between MergerCo and United States Trust Company of New York, as Trustee pursuant to which the Notes were issued as it may from time to time be amended or supplemented. 40 "Initial Control Group" means Investcorp, its Affiliates, any Person acting in the capacity of an underwriter or initial purchaser in connection with a public or private offering of the Issuer's Capital Stock, any employee benefit plan of the Issuer or any of its Subsidiaries or any participant therein, a trustee or other fiduciary holding securities under any such employee benefit plan or any Permitted Transferee of any of the foregoing Persons. "Initial Dividend Period" means the dividend period commencing on the Issue Date and ending on the day before the first Dividend Payment Date to occur thereafter. "Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement, repurchase agreement, futures contract or other financial agreement or arrangement designed to protect the Issuer or any Restricted Subsidiary against fluctuations in interest rates. "Investcorp" means Investcorp S.A. and certain affiliates thereof. "Investment Grade Securities" means (i) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (other than Cash Equivalents) having maturities of not more than one year from the date of acquisition, (ii) debt securities or debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by Moody's or the equivalent of such rating by such rating organization, or, if no rating of S&P or Moody's then exists, the equivalent of such rating by any other nationally recognized securities rating agency, but excluding any debt securities or instruments constituting loans or advances among the Issuer and its Subsidiaries having maturities of not more than one year from the date of acquisition, and (iii) investments in any fund that invests exclusively in investments of the type described in clauses (i) and (ii), which fund may also hold immaterial amounts of cash pending investment and/or distribution. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Debt or other obligations, but excluding advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such Person), advances or capital contributions (excluding commission, travel, payroll, entertainment, relocation and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Debt, Equity Interests or other securities. If the Issuer or any Restricted Subsidiary of the Issuer sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Issuer such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Issuer, the Issuer shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of in an amount determined as provided in the third to last paragraph of Section 9.2. "Issue Date" means, with respect to any series of Exchangeable Preferred Stock, the date on which such series of Exchangeable Preferred Stock is originally issued. The Series A Exchangeable Preferred Stock was originally issued on July 31, 1998 by MergerCo. 41 "Issuer" means Harborside Healthcare Corporation, a Delaware corporation, and any successor. "Junior Equity Interests" means Junior Securities or warrants, options or other rights to acquire Junior Securities (but excluding any debt security that is convertible into, or exchangeable for, Junior Securities). "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement or any lease in the nature thereof); provided that in no event shall an operating lease be deemed to constitute a Lien. "MergerCo" means HH Acquisition Corp., a Delaware corporation. "Net Income" means, with respect to any Person and any period, the net income (or loss) of such Person for such period, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends, excluding, however, (i) any extraordinary or non-recurring gains or losses or charges and gains or losses or charges from the sale of assets outside the ordinary course of business, together with any related provision for taxes on such gain or loss or charges and (ii) deferred financing costs written off in connection with the early extinguishment of Debt; provided, however, that Net Income shall be deemed to include any increases during such period to shareholder's equity of such Person attributable to tax benefits from net operating losses and the exercise of stock options that are not otherwise included in Net Income for such period. "New Credit Facility" means the collective reference to (a) the Credit Agreement among the Issuer and certain Subsidiaries of the Issuer named therein and the financial institutions named therein, any Credit Documents (as defined therein) and any related notes, collateral documents, letters of credit, participation agreements, guarantees, and other documents part of or relating to the Credit Documents, including any appendices, exhibits or schedules to any of the foregoing (as the same may be in effect from time to time), and (b) the Synthetic Lease Facility described in the Credit Agreement, including the Lease between a Subsidiary of the Issuer, as lessee, and the Delaware business trust named therein, as lessor (the "Lessor"), the Credit Agreement among the Lessor and the financial institutions named therein, the Participation Agreement among the parties to the Lease, the parties to the Credit Agreement, the Trustee of Lessor, and the Investors in Lessor, and the additional Operative Agreements described in the Participation Agreement, including any appendices, exhibits or schedules to any of the foregoing (as the same may be in effect from time to time), in each case, as such agreements may be amended, modified, supplemented or restated from time to time, or refunded, refinanced, restructured, replaced, renewed, repaid or extended from time to time (whether with the original agents and lenders or other agents or lenders or otherwise, and whether provided under the original credit agreements or other credit agreements or otherwise). "Note Guarantee" means the Guarantee by each Guarantor of the Issuer's Obligations under the Notes. 42 "Notes" means the 11% Senior Subordinated Discount Notes Due 2008 issued by the Issuer. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages, guarantees and other liabilities payable under the documentation governing any Debt, in each case whether now or hereafter existing, renewed or restructured, whether or not from time to time decreased or extinguished and later increased, created or incurred, whether or not arising on or after the commencement of a proceeding under Title 11, U.S. Code or any similar federal or state law for the relief of debtors (including post-petition interest) and whether or not allowed or allowable as a claim in any such proceeding. "Offering Memorandum" means the Offering Memorandum, dated July 29, 1998, relating to the offering and placement of the Notes and the Exchangeable Preferred Stock. "Officers" means any of the following: Chairman, President, Chief Executive Officer, Treasurer, Chief Financial Officer, Executive Vice President, Senior Vice President, Vice President, Assistant Vice President, Secretary, Assistant Secretary or any other officer reasonably acceptable to the Transfer Agent. "Officers' Certificate" means a certificate signed by two Officers. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Transfer Agent. The counsel may be an employee of or counsel to the Issuer or the Transfer Agent. "Permitted Investments" means (a) any Investment in the Issuer or in a Restricted Subsidiary (including in any Equity Interests of a Restricted Subsidiary); (b) any Investment in cash, Cash Equivalents or Investment Grade Securities; (c) any Investment by the Issuer or any Restricted Subsidiary of the Issuer in a Person, if as a result of such Investment (i) such Person becomes a Restricted Subsidiary or (ii) such Person, in one transaction or a series of substantially concurrent related transactions, is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Issuer or a Restricted Subsidiary; (d) any securities or other assets received or other Investments made as a result of the receipt of non-cash consideration from an asset sale that was made in connection with any other disposition of assets not constituting an asset sale; (e) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Issuer; (f) loans or advances to employees (or guarantees of third party loans to employees) in the ordinary course of business; (g) stock, obligations or securities received in satisfaction of judgments, foreclosure of liens or settlement of debts (whether pursuant to a plan of reorganization or similar arrangement); (h) receivables owing to the Issuer or any Restricted Subsidiary, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms (including such concessionary terms as the Issuer or such Restricted Subsidiary deems reasonable); (i) any Investment existing on the Issue Date for the Series A Exchangeable Preferred Stock or made pursuant to legally binding written commitments in existence on the Issue Date for the Series A Exchangeable Preferred Stock; (j) Investments in Interest Rate Agreements, Currency Agreements and Commodity Hedging Agreements 43 otherwise permitted under the Exchange Debenture Indenture; and (k) additional Investments having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (k) that are at that time outstanding, not to exceed 15.0% of Total Assets at the time of such Investment (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value). "Permitted Refinancing Debt" means any Debt of the Issuer or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Debt of the Issuer or any of its Restricted Subsidiaries incurred in compliance with the Exchange Debenture Indenture; provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Debt does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Debt so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable premium and fees and expenses incurred in connection therewith); (ii) in the case of term Debt, (1) principal payments required under such Permitted Refinancing Debt have a Stated Maturity no earlier than the earlier of (A) the Stated Maturity of those under the Debt being refinanced and (B) the maturity date of the Exchange Debentures and (2) such Permitted Refinancing Debt has a Weighted Average Life to Maturity equal to or greater than the lesser of the Weighted Average Life to Maturity of the Debt being extended, refinanced, renewed, replaced, defeased or refunded and the Weighted Average Life to Maturity of the Exchange Debentures; (iii) if the Debt being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Exchange Debentures, such Permitted Refinancing Debt has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Exchange Debentures on terms at least as favorable to the Holders of Exchange Debentures as those contained in the documentation governing the Debt being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Debt is incurred either by the Issuer or by its Restricted Subsidiary who is the obligor on the Debt being extended, refinanced, renewed, replaced, defeased or refunded. The Issuer may Incur Permitted Refinancing Debt not more than six months prior to the application of the proceeds thereof to repay the Debt to be refinanced; provided that upon the Incurrence of such Permitted Refinancing Debt, the Issuer shall provide written notice thereof to the Exchange Debenture Trustee, specifically identifying the Debt to be refinanced with Permitted Refinancing Debt. "Permitted Transferee" means, with respect to any Person, (i) any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person, (ii) the spouse, former spouse, lineal descendants, heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any such Person, (iii) a trust, the beneficiaries of which, or a corporation or partnership or limited liability company, the stockholders, general or limited partners or members of which, include only such Person or his or her spouse, lineal descendants or heirs, in each case to whom such Person has transferred, or through which it holds, the beneficial ownership of any securities of the Issuer and (iv) any investment fund or investment entity that is a subsidiary of such Person or a Permitted Transferee of such Person. 44 "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Placement Agents" means each of Morgan Stanley Dean Witter, BT Alex. Brown and Chase Securities Inc. "Preferred Stock" means, with respect to any Person, any Capital Stock of such Person (however designated) that is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. With respect to the Issuer, "Preferred Stock" includes the Exchangeable Preferred Stock. "Preferred Equity Interests" means Preferred Stock and all warrants, options or other rights to acquire Preferred Stock (but excluding any debt security that is convertible into, or exchangeable for, Preferred Stock). "Preferred Stock Registration Rights Agreement" means (i) with respect to the Series A Exchangeable Preferred Stock, the Registration Rights Agreement dated July 31, 1998 between the Issuer and the Placement Agents, as the same may be amended or supplemented from time to time and (ii) with respect to any other series of Exchangeable Preferred Stock, any registration rights agreement applicable to such series. "Quarterly Dividend Period" means the quarterly period commencing on each February 1, May 1, August 1 and November 1 and ending on the day before the following Dividend Payment Date. "Recapitalization" means the recapitalization of Harborside Healthcare Corporation pursuant to which MergerCo was merged with and into the Issuer and the financing transactions related thereto. "Recapitalization Agreement" means the Agreement and Plan of Merger dated as of April 15, 1998 by and between MergerCo and Harborside Healthcare Corporation, as amended through the Closing Date. "Redemption Date" with respect to any shares of Exchangeable Preferred Stock, means the date on which such shares of Exchangeable Preferred Stock are redeemed by the Issuer. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "Securities Act" means the Securities Act of 1933, as amended. "Senior Debt" means (i) all Debt of the Issuer outstanding under the New Credit Facility and all Hedging Obligations with respect thereto, (ii) all Debt represented by the Notes 45 (including any Additional Notes), (iii) any other Debt (including Acquired Debt) permitted to be incurred by the Issuer under the terms of the Exchange Debenture Indenture, unless the instrument under which such Debt is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Exchange Debentures, and (iv) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include (v) any liability for federal, state, local or other taxes owed or owing by the Issuer, (w) any Debt of the Issuer to any of its Subsidiaries, officers, employees or other Affiliates (other than Debt under any Credit Facility to any such Affiliate), (x) any trade payables, (y) that portion of Debt incurred in violation of Article 10 (but as to any such Debt under any Credit Facility, such violation shall be deemed not to exist for purposes of this clause (y) if the lenders have obtained a representation from a Senior Officer of the Issuer to the effect that the issuance of such Debt does not violate such Article 10) or (z) any Debt or obligation of the Issuer which is expressly subordinated in right of payment to any other Debt or obligation of the Issuer including any Subordinated Debt of the Issuer. "Senior Officer" means the Chief Executive Officer or the Chief Financial Officer of the Issuer. "Series A Exchangeable Preferred Stock" is defined in Section 1.1. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such regulation is in effect on the Issue Date. "Specified Affiliate Payments" means: (i) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Issuer or any Restricted Subsidiary of the Issuer, held by any future, present or former employee, director, officer or consultant of the Issuer (or any of its Restricted Subsidiaries) pursuant to any management equity subscription agreement, stock option agreement, put agreement, stockholder agreement or similar agreement that may be in effect from time to time; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $3.0 million in any calendar year (with unused amounts in any calendar year being carried over to succeeding calendar years subject to a maximum amount of repurchases, redemptions or other acquisitions pursuant to this clause (i) (without giving effect to the immediately following proviso) of $10.0 million in any calendar year) and no payment default on Senior Debt or the Exchange Debentures shall have occurred and be continuing; provided further that such amount in any calendar year may be increased by an amount not to exceed (A) the cash proceeds received by the Issuer (including by way of capital contribution) since the Issue Date for the Series A Exchangeable Preferred Stock from the sale of Equity Interests of the Issuer to employees, directors, officers or consultants of the Issuer or its Subsidiaries that occurs in such calendar year (it being understood that such cash proceeds shall be excluded from clause (c)(ii) of Section 9.1 plus (B) the cash proceeds from key man life insurance policies received by the Issuer and its Restricted Subsidiaries in such calendar year (including proceeds from the sale of such policies to the person insured thereby); and provided, 46 further, that cancellation of Debt owing to the Issuer from employees, directors, officers or consultants of the Issuer or any of its Subsidiaries in connection with a repurchase of Equity Interests of the Issuer will not be deemed to constitute a Restricted Payment for purposes of the Exchange Debenture Indenture; (ii) repurchases of Equity Interests deemed to occur upon exercise of stock options or warrants as a result of the payment of all or a portion of the exercise price of such options or warrants with Equity Interests; (iii) payments by the Issuer to shareholders or members of management of the Issuer and its Subsidiaries in connection with the Recapitalization; and (iv) payments or transactions permitted under clause (5) of Section 12.2; "Stated Maturity" means, with respect to any installment of interest on or principal of, or any other amount payable in respect of, any series of Debt, the date on which such interest, principal or other amount was scheduled to be paid in the documentation governing such Debt, and shall not include any contingent obligations to repay, redeem or repurchase any such interest, principal or other amount prior to the date scheduled for the payment thereof. "Subordinated Debt" means any Debt of the Issuer (whether outstanding on the Issue Date for the Series A Exchangeable Preferred Stock or thereafter incurred) that is subordinate or junior in right of payment to the Exchange Debentures pursuant to written agreement. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). Unless the context otherwise requires, "Subsidiary" refers to a Subsidiary of the Issuer. "Subsidiary Non-Guarantors" means (i) each of the Subsidiaries of the Issuer on the Closing Date that do not issue or are released from a Note Guarantee, (ii) each Unrestricted Subsidiary, and (iii) each Restricted Subsidiary formed or acquired after the Closing Date that does not execute and deliver or is released from a Note Guarantee. "Total Assets" means, at any time, the total consolidated assets of the Issuer and its Restricted Subsidiaries at such time. "Transfer Agent" means (i) United States Trust Company of New York, until a successor is appointed by the Issuer or replaces it and, thereafter, means the successor or (ii) any exchange agent appointed by the Issuer for purposes of Article 7 or 8, as applicable. 47 "Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H. 15(519) which has become publicly available at least two Business Days prior to the Redemption Date (or, if such Statistical Release is no longer published, any publicly available source or similar market data)) most nearly equal to the period from the Redemption Date to August 1, 2003, provided, however, that if the period from the Redemption Date to August 1, 2003 is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the Redemption Date to August 1, 2003 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. "Unrestricted Subsidiary" means (i) any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a board resolution, and (ii) any Subsidiary of an Unrestricted Subsidiary; but in the case of any Subsidiary referred to in clause (i) (or any Subsidiary of any such Subsidiary) only to the extent that such Subsidiary: (a) is not party to any agreement, contract, arrangement or understanding with the Issuer or any Restricted Subsidiary of the Issuer unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Issuer or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Issuer; and (b) except in the case of a Foreign Subsidiary, is a Person with respect to which neither the Issuer nor any of its Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results. Any such designation by the Board of Directors shall be evidenced to the Exchange Debenture Trustee by filing with the Exchange Debenture Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions and was permitted by Article 9. If, at any time, any Unrestricted Subsidiary referred to in clause (ii) of the first sentence of this definition (or any Subsidiary thereof) would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Exchange Debenture Indenture and any Debt of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Issuer as of such date (and, if such Debt is not permitted to be incurred as of such date under Article 10, the Issuer shall be in default of such Article). The Board of Directors of the Issuer may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Debt by a Restricted Subsidiary of the Issuer of any outstanding Debt of such Unrestricted Subsidiary and such designation shall only be permitted if (i) such Debt is permitted under Article 10 calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period, and (ii) no Voting Rights Triggering Event would be in existence following such designation. 48 "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person, excluding, however, Exchangeable Preferred Stock. "Weighted Average Life to Maturity" means, when applied to any Debt at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Debt. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person. SECTION 18.2 Rules of Construction.. For the purposes of this --------------------- Certificate of Designation (i) words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires, (ii) the word "including" and words of similar import shall mean "including, without limitation," (iii) a word has the meaning assigned to it, (iv) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP, and (v) "or" is not exclusive. 49 IN WITNESS WHEREOF, Harborside Healthcare Corporation has caused this Certificate of Designation to be signed by Stephen L. Guillard, its President, on the date and year first above written. HARBORSIDE HEALTHCARE CORPORATION By /s/ Stephen L. Guillard -------------------------- Name: Stephen L. Guillard Title: President 50 EX-10.1 4 CREDIT AGREEMENT DATED AUGUST 11, 1998 EXHIBIT 10.1 - -------------------------------------------------------------------------------- HARBORSIDE HEALTHCARE CORPORATION ------------------------------------ CREDIT AGREEMENT dated as of August 11, 1998 ------------------------------------ $250,000,000 Credit Facility ------------------------------------ CHASE SECURITIES INC., as Arranger, MORGAN STANLEY SENIOR FUNDING, INC. and BT ALEX. BROWN INCORPORATED, as Co-Arrangers, BANKERS TRUST COMPANY, as Documentation Agent, MORGAN STANLEY SENIOR FUNDING, INC., as Syndication Agent, and THE CHASE MANHATTAN BANK, as Administrative Agent - -------------------------------------------------------------------------------- 1 TABLE OF CONTENTS
Page ---- SECTION 1. DEFINITIONS................................................................................... 2 1.1 Defined Terms................................................................................. 2 1.2 Other Definitional Provisions................................................................. 28 SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS....................................................................... 29 2.1 Revolving Credit Commitments.................................................................. 29 2.2 Commitment Fee................................................................................ 30 2.3 Proceeds of Revolving Credit Loans............................................................ 30 2.4 Swing Line Commitment......................................................................... 30 2.5 Issuance of Letters of Credit................................................................. 32 2.6 Participating Interests....................................................................... 32 2.7 Procedure for Opening Letters of Credit....................................................... 33 2.8 Payments in Respect of Letters of Credit...................................................... 33 2.9 Letter of Credit Fees......................................................................... 34 2.10 Letter of Credit Reserves..................................................................... 34 2.11 Further Assurances............................................................................ 35 2.12 Obligations Absolute.......................................................................... 35 2.13 Assignments................................................................................... 36 2.14 Participations................................................................................ 36 2.15 Conversion to Term Loans...................................................................... 36 SECTION 3. GENERAL PROVISIONS APPLICABLE TO LOANS........................................................ 37 3.1 Procedure for Borrowing....................................................................... 37 3.2 Conversion and Continuation Options........................................................... 38 3.3 Changes of Commitment Amounts................................................................. 38 3.4 Optional and Mandatory Prepayments; Repayments of Term Loans.................................. 39 3.5 Interest Rates and Payment Dates.............................................................. 42 3.6 Computation of Interest and Fees.............................................................. 42 3.7 Certain Fees.................................................................................. 43 3.8 Inability to Determine Interest Rate.......................................................... 43 3.9 Pro Rata Treatment and Payments............................................................... 43 3.10 Illegality.................................................................................... 46 3.11 Requirements of Law........................................................................... 47 3.12 Indemnity..................................................................................... 49 3.13 Repayment of Loans; Evidence of Debt.......................................................... 50 3.14 Replacement of Lenders........................................................................ 51 3.15 Appointment of the Company and Reliance on Representation of the Company....................................................................................... 51 SECTION 4. REPRESENTATIONS AND WARRANTIES................................................................ 51 4.1 Financial Condition........................................................................... 52 4.2 No Change..................................................................................... 53 4.3 Corporate Existence; Compliance with Law...................................................... 53
Page ---- 4.4 Corporate Power; Authorization............................................................... 54 4.5 Enforceable Obligations...................................................................... 54 4.6 No Legal Bar................................................................................. 55 4.7 No Material Litigation....................................................................... 55 4.8 Investment Company Act....................................................................... 55 4.9 Federal Regulation........................................................................... 55 4.10 No Default................................................................................... 56 4.11 Taxes........................................................................................ 56 4.12 Subsidiaries................................................................................. 56 4.13 Ownership of Property; Liens................................................................. 56 4.14 ERISA........................................................................................ 57 4.15 Security Documents........................................................................... 58 4.16 Copyrights, Patents, Permits, Trademarks and Licenses........................................ 58 4.17 Environmental Matters........................................................................ 59 4.18 Accuracy and Completeness of Information..................................................... 60 4.19 AcquisitionCo................................................................................ 60 4.20 Health Care Permits.......................................................................... 60 4.21 Year 2000.................................................................................... 61 SECTION 5. CONDITIONS PRECEDENT......................................................................... 61 5.1 Conditions to Initial Revolving Credit Loans and Letters of Credit........................... 61 5.2 Conditions to All Loans and Letters of Credit................................................ 66 SECTION 6. AFFIRMATIVE COVENANTS........................................................................ 67 6.1 Financial Statements......................................................................... 67 6.2 Certificates; Other Information.............................................................. 69 6.3 Payment of Obligations....................................................................... 70 6.4 Conduct of Business and Maintenance of Existence............................................. 71 6.5 Maintenance of Property; Insurance........................................................... 71 6.6 Inspection of Property; Books and Records; Discussions....................................... 71 6.7 Notices...................................................................................... 72 6.8 Environmental Laws........................................................................... 73 6.9 Additional Collateral........................................................................ 74 6.10 Health Care Permits and Approvals............................................................ 76 6.11 Operating Leases............................................................................. 77 6.12 Mortgages.................................................................................... 77 SECTION 7. NEGATIVE COVENANTS........................................................................... 77 7.1 Indebtedness................................................................................. 78 7.2 Limitation on Liens.......................................................................... 82 7.3 Limitation on Contingent Obligations......................................................... 83 7.4 Prohibition of Fundamental Changes........................................................... 85 7.5 Prohibition on Disposition of Assets......................................................... 85 7.6 Limitation on Investments, Loans and Advances................................................ 87 7.7 Capital Expenditures......................................................................... 91
ii
Page ---- 7.8 Interest Rate Agreements..................................................................... 92 7.9 Debt to EBITDA............................................................................... 92 7.10 Coverage Ratio............................................................................... 93 7.11 Limitation on Dividends...................................................................... 95 7.12 Transactions with Affiliates................................................................. 95 7.13 Prepayments and Amendments of Subordinated Debt.............................................. 96 7.14 Limitation on Changes in Fiscal Year......................................................... 96 7.15 Limitation on Lines of Business.............................................................. 96 7.16 Health Care Permits and Approvals............................................................ 96 7.17 Preferred Stock.............................................................................. 97 SECTION 8. EVENTS OF DEFAULT............................................................................ 97 SECTION 9. MISCELLANEOUS................................................................................ 100 9.1 Amendments and Waivers....................................................................... 100 9.2 Notices...................................................................................... 102 9.3 No Waiver; Cumulative Remedies............................................................... 102 9.4 Survival of Representations and Warranties................................................... 103 9.5 Payment of Expenses and Taxes................................................................ 103 9.6 Successors and Assigns; Participations and Assignments....................................... 104 9.7 Set-off...................................................................................... 108 9.8 Counterparts................................................................................. 109 9.9 Governing Law; No Third Party Rights......................................................... 109 9.10 Submission to Jurisdiction; Waivers.......................................................... 109 9.11 Releases..................................................................................... 110 9.12 Interest..................................................................................... 110 9.13 Special Indemnification...................................................................... 111 9.14 Permitted Payments and Transactions.......................................................... 111 9.15 Harborside of Rhode Island................................................................... 112
iii SCHEDULES Schedule I Borrowers Schedule II Lenders, Addresses and Commitments Schedule III Pricing and Commitment Fee Grid Schedule 2.5 Existing Letters of Credit Schedule 4.11 Taxes Schedule 4.12 Subsidiaries Schedule 4.13 Fee and Leased Properties Schedule 4.15(a) UCC Filing Offices Schedule 4.16 Trademarks and Copyrights Schedule 7.1(a) Existing Indebtedness Schedule 7.2(i) Existing Liens Schedule 7.3(e) Existing Contingent Obligations EXHIBITS EXHIBIT A Form of Revolving Credit Note EXHIBIT B Form of Term Loan Note EXHIBIT C Form of Swing Line Note EXHIBIT D Form of Assignment and Acceptance EXHIBIT E Form of Collateral Agreement EXHIBIT F Form of Agency and Intercreditor Agreement EXHIBIT G Form of L/C Participation Certificate EXHIBIT H Form of Swing Line Loan Participation Certificate EXHIBIT I Form of Subsection 3.11(d)(2) Certificate EXHIBIT J-1 Form of Opinion of Gibson, Dunn & Crutcher LLP EXHIBIT J-2 Form of Opinion of In-house or Massachusetts Counsel to the Company EXHIBIT K-1 Form of Company Closing Certificate EXHIBIT K-2 Form of Subsidiaries Closing Certificate EXHIBIT L Form of Mortgage EXHIBIT M-1 Form of Lease Intercreditor Agreement EXHIBIT M-2 Form of Loan Intercreditor Agreement EXHIBIT N Form of Trust Guarantee iv CREDIT AGREEMENT, dated as of August 11, 1998, among HARBORSIDE HEALTHCARE CORPORATION, a Delaware corporation (the "Company"), and the other entities ------- listed on Schedule I hereto, as joint and several borrowers hereunder (together with the Company and any other Subsidiary of the Company that may become a party hereto as provided herein, the "Borrowers" and, individually, a "Borrower"), the --------- -------- several lenders from time to time parties hereto (the "Lenders"), CHASE ------- SECURITIES INC., as arranger (the "Arranger"), MORGAN STANLEY SENIOR FUNDING, -------- INC. and BT ALEX. BROWN INCORPORATED, as co-arrangers (collectively, in such capacity, the "Co-Arrangers"), MORGAN STANLEY SENIOR FUNDING, INC., as ------------ syndication agent (in such capacity, the "Syndication Agent"), BANKERS TRUST ----------------- COMPANY, as documentation agent (in such capacity, the "Documentation Agent"), ------------------- and THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative agent for the Lenders (in such capacity, the "Administrative Agent"). -------------------- W I T N E S S E T H : ------------------- WHEREAS, HH Acquisition Corp., a Delaware corporation ("AcquisitionCo"), ------------- and the Company have entered into an Agreement and Plan of Merger, dated as April 15, 1998 (together with all schedules and exhibits attached thereto and any and all amendments, supplements and modifications thereto and as the same may be hereafter amended, supplemented or otherwise modified from time to time in accordance with this Agreement, the "Merger Agreement"), pursuant to which ---------------- AcquisitionCo will be merged with and into the Company (the "Merger"), the ------ Company being the surviving corporation of the Merger; WHEREAS, upon the Merger, the Investors will own approximately 90% of the common stock of the Company and certain existing shareholders and management (the "Existing Shareholders") will own the remaining portion of such common --------------------- stock; WHEREAS, the Company intends to finance the Merger (including the refinancing of certain existing indebtedness) and related premiums, fees and expenses from the following sources: (a) approximately $175,000,000 in common equity (consisting of a cash investment of at least approximately 90% of the common equity from the Investors, with the balance represented by common stock retained by the Existing Shareholders); (b) approximately $40,000,000 in exchangeable preferred stock or junior subordinated unsecured loans, with any amount of exchangeable preferred stock over $40,000,000 reducing the common equity ownership referenced in clause (a) above by a like amount; (c) approximately $100,000,000 in gross cash proceeds from an issuance by the Company of either subordinated unsecured loans or senior subordinated discount notes; (d) approximately $15,000,000 of drawings under $250,000,000 of senior secured credit facilities consisting of the credit facilities provided for herein and/or the Synthetic Lease Facility (as defined below); 2 WHEREAS, the Borrowers are and will be operated as separate entities but are and will be operated on an integrated basis in connection with their respective financial resources; the Borrowers conduct their operations on a combined basis with shared management, purchasing, planning, financial controls and other functions; and the access of all Borrowers to the credit facilities provided for herein benefits all Borrowers in connection with their various businesses; and WHEREAS, the Company and the other Borrowers, jointly and severally, have requested the Lenders to make loans and other extensions of credit available to the Borrowers: (a) to enable the Company to finance a portion of the Merger, (b) to refinance certain of the existing indebtedness of the Company and its subsidiaries, (c) for working capital purposes of the Company and its subsidiaries; (d) to finance certain acquisitions and capital expenditures and (e) for general corporate purposes; NOW, THEREFORE, the Borrowers, the Administrative Agent, the Arranger, the Co-Arrangers, the Syndication Agent, the Documentation Agent and the Lenders agree as follows: SECTION 1. DEFINITIONS ----------- 1.1 Defined Terms. As used in this Agreement, the terms defined in the ------------- caption hereto shall have the meanings set forth therein, and the following terms have the following meanings: "Acquired Business": any Person or assets acquired by the Company or ----------------- any Subsidiary in an acquisition permitted by subsection 7.6(g). "AcquisitionCo": as defined in the Recitals hereto. ------------- "Acquisition Consideration": with respect to any acquisition, the ------------------------- aggregate consideration therefor paid by the Company or any Subsidiary (excluding fees and expenses incurred in connection therewith), including, without limitation, the cash purchase price payment, upfront cash payments to obtain purchase options or favorable lease rates, Indebtedness arising in connection with such acquisition as permitted by subsection 7.1(f) and the fair market value of Capital Stock of the Company issued in connection with such acquisition. "Added Amount": at any time, an amount equal to 10% of the sum of (a) ------------ aggregate Acquisition Consideration given subsequent to the date hereof in connection with acquisitions of Encumbered Subsidiaries permitted by subsection 7.6(g)(iv) plus (b) the aggregate appraised value (as set forth ---- in the appraisals furnished pursuant to subsection 6.11) of the properties that are the subject of operating leases entered into subsequent to the date hereof under which any Encumbered Subsidiary is the lessee. "Additional Mortgage": as defined in subsection 6.9(c). ------------------- 3 "Administrative Agent": as defined in the Preamble hereto. -------------------- "Adjustment Date": as defined in the definition of Applicable Margin. --------------- "Affiliate": as to any Person (a) any other Person (other than a --------- Subsidiary) which, directly or indirectly, is in control of, is controlled by, or is under common control with such Person, or (b) any other Person who is a director or officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of any Person described in clause (a) above. For purposes of this definition, control of a Person shall mean the power, direct or indirect, (x) to vote 25% or more of the securities having ordinary voting power for the election of directors of such Person, whether by ownership of securities, contract, proxy or otherwise, or (y) to direct or cause the direction of the management and policies of such Person, whether by ownership of securities, contract, proxy or otherwise. "Agency and Intercreditor Agreement": the Agency and Intercreditor ----------------------------------- Agreement, substantially in the form of Exhibit F, to be executed and delivered by the Borrowers, the Trust, the Lenders, the Synthetic Investors and the Administrative Agent, as the same may be amended, supplemented or otherwise modified from time to time. "Agreement": this Credit Agreement, as amended, supplemented or --------- modified from time to time. "Alternate Base Rate": for any day, a rate per annum (rounded ------------------- upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate ---------- of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by the Administrative Agent in connection with extensions of credit to debtors); "Base CD Rate" shall mean the sum of (a) the product ------------ of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which is one and the denominator of which is one minus the C/D Reserve Percentage and (b) the C/D Assessment Rate; "Three-Month Secondary CD Rate" ----------------------------- shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 A.M., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the 4 Administrative Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it; and "Federal Funds ------------- Effective Rate" shall mean, for any day, the weighted average of the rates -------------- on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively. "Alternate Base Rate Loans": Loans at such time as they are made ------------------------- and/or being maintained at a rate of interest based upon the Alternate Base Rate. "Ancillary Businesses": any businesses ancillary to the operation of -------------------- a Health Care Facility such as the rehabilitative therapy, home healthcare and pharmaceutical businesses associated therewith. "Applicable Margin": for Term Loans, Revolving Credit Loans and Swing ----------------- Line Loans of the Types set forth below, the rate per annum set forth under the relevant column heading opposite such Loans below: Alternate Base Rate Eurodollar Loans Loans ---------- ---------------- Term Loans: 1.25% 2.25% Revolving Credit Loans: 1.25% 2.25% Swing Line Loans: 1.25% Not applicable; provided that the Applicable Margin with respect to the Loans will be -------- adjusted on each Adjustment Date (as defined below) occurring after the completion of four fiscal quarters of the Company after the Closing Date to the applicable rate per annum set forth in the pricing grid attached hereto as Schedule III based on the Leverage Ratio as determined from the relevant financial statements delivered pursuant to subsection 6.1. Changes in the Applicable Margin resulting from changes in the Leverage Ratio shall become effective on each date (an "Adjustment Date") on which such financial --------------- statements are delivered to the Lenders (but in any event not later than the 45th day after the end of each of the first three quarterly periods of each fiscal year or the 90th day after the end of each fiscal year as the case may be) and shall remain in effect until the next change to be effected pursuant to this definition; provided that (a) the Applicable -------- Margin shall be initially the rate per annum set forth under the relevant column heading above; (b) if for any reason the financial statements required by subsection 6.1 are not timely delivered to the Lenders, (i) during the period from the 5 date upon which such financial statements were required to be delivered until the date upon which they actually are delivered, the Applicable Margin shall be the Applicable Margin in effect immediately prior to the date such financial statements were due, and (ii) if such financial statements, when actually delivered, would have required an increase in the Applicable Margin over the Applicable Margin in effect immediately prior to the date such financial statements were due, the Company shall promptly following the delivery of such financial statements pay to the Lenders and the Administrative Agent any additional amounts of interest or fees which would have been payable on any previous Interest Payment Date had such higher Applicable Margin been in effect from the date such financial statements were required to be delivered; (c) any change in the Applicable Margin as a result of a change in the Leverage Ratio shall apply to all Loans for each day during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change in the Applicable Margin; and (d) if an Event of Default exists on any Adjustment Date or other date upon which the Applicable Margin would otherwise be adjusted hereunder, the Applicable Margin shall in no event be reduced on such Adjustment Date or other date from the Applicable Margin in effect immediately prior to such Adjustment Date or other date. "Arranger": as defined in the Preamble hereto. -------- "Asset Sale": any sale, sale-leaseback, or other disposition by the ---------- Company or any Subsidiary restricted by subsection 7.5 of any of its property or assets, including the stock of any Subsidiary, except sales and dispositions permitted by subsections 7.5(a), (b), (c), (f), (g), (i) and (k). "Assignee": as defined in subsection 9.6(c). -------- "Assignment and Acceptance": an assignment and acceptance ------------------------- substantially in the form of Exhibit D. "Authorized Officer": each of Steven L. Guillard, William H. Stephan ------------------ and each additional or substitute officer as the Company notifies the Administrative Agent in writing. "Available Revolving Credit Commitment": as to any Lender, at a ------------------------------------- particular time, an amount equal to (a) the amount of such Lender's Revolving Credit Commitment at such time less (b) the sum of (i) the ---- aggregate unpaid principal amount at such time of all Revolving Credit Loans made by such Lender pursuant to subsection 2.1, (ii) such Lender's Revolving Credit Percentage of the aggregate unpaid principal amount at such time of all Swing Line Loans, provided that for purposes of -------- calculating the Revolving Credit Commitments pursuant to subsection 2.2 the amount referred to in this clause (ii) shall be zero, (iii) such Lender's L/C Participating Interest in the aggregate amount available to be drawn at such time under all outstanding Letters of Credit issued by the Issuing Lender, (iv) such Lender's Revolving Credit Percentage of the aggregate outstanding amount of L/C Obligations 6 and (v) such Lender's Revolving Credit Percentage of the then aggregate principal amount of the Synthetic Lease Obligations; collectively, as to all the Lenders, the "Available Revolving Credit Commitments". -------------------------------------- "Bankruptcy Code": Title I of the Bankruptcy Reform Act of 1978, as --------------- amended and codified at Title 11 of the United States Code. "Board": the Board of Governors of the Federal Reserve System of the ----- United States, together with any successor. "Borrower" and "Borrowers": as defined in the Preamble hereto. -------- --------- "Borrowing Date": any Business Day specified in a notice pursuant to -------------- (a) subsection 2.4 or 3.1 as a date on which the Company requests the Swing Line Lender or the Lenders to make Loans hereunder or (b) subsection 2.5 as a date on which the Company requests the Issuing Lender to issue a Letter of Credit hereunder. "Bridge Commitment Letter": the Commitment Letter and term sheet ------------------------ thereto dated as of April 30, 1998 by and between Investcorp Investment Equity Limited, on its behalf and on behalf of certain of its affiliates and other investors and Morgan Stanley Bridge Fund L.L.C., Chase Securities, Inc. and Bankers Trust Corporation. "Bridge Junior Subordinated Debt": the junior subordinated unsecured ------------------------------- bridge loans or exchange or rollover notes of the Company outstanding from time to time pursuant to the Bridge Loan Agreement or the Indenture contemplated thereby. "Bridge Loan Agreement": the Bridge Loan Agreement that may be --------------------- entered into pursuant to the Bridge Commitment Letter among Morgan Stanley Bridge Fund L.L.C., Chase Securities, Inc., Bankers Trust Corporation and an affiliate of AcquisitionCo, as the same may be amended, supplemented or otherwise modified from time to time in accordance with its terms and the terms of this Agreement. "Bridge Senior Subordinated Debt": the senior subordinated unsecured ------------------------------- bridge loans or exchange or rollover notes of the Company outstanding from time to time pursuant to the Bridge Loan Agreement or the Indenture contemplated thereby. "Business Day": (a) for all purposes other than as covered by clause ------------ (b) below, a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close and (b) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (a) and which is also a day for trading by and between banks in Dollar deposits in the interbank eurodollar market in London. "Capital Expenditures": for any period, all amounts which would, in -------------------- accordance with GAAP, be set forth as capital expenditures (exclusive of any amount 7 attributable to capitalized interest) on the consolidated statement of cash flows or other similar statement of the Company and its Subsidiaries for such period but shall exclude (a) any expenditures made with the proceeds of condemnation or eminent domain proceedings affecting real property or with insurance proceeds, provided that any Capital Expenditures financed -------- with the proceeds of any Indebtedness permitted hereunder (other than Indebtedness incurred hereunder) shall be deemed to be a Capital Expenditure only in the period in which, and by the amount which, any principal of such Indebtedness is repaid, (b) any expenditures constituting a reinvestment contemplated by subsection 7.5(e), 7.5(h)(i) or 7.5(j), (c) expenditures made in connection with acquisitions permitted by subsection 7.6(g) (other than subsection 7.6(g)(ii)(B)) and (d) with respect to any acquired Person or assets operating or including, as the case may be, a Health Care Facility, any capital expenditures with respect thereto that have been identified by the acquiring Person at the time of the acquisition of such Person or assets so long as the aggregate amount of such capital expenditures does not exceed an amount equal to the greater of (i) 10% of the Acquisition Consideration for such acquired Person or assets and (ii) $3,000,000. "Capital Stock": any and all shares, interests, participations or ------------- other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing. "Cash Equivalents": (a) securities issued or directly and fully ---------------- guaranteed or insured by the United States or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (b) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any Lender or with any domestic (in the case of any investments, acquisitions or holdings by the Company or its Domestic Subsidiaries) commercial bank or trust company having capital and surplus in excess of $300,000,000, (c) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (a) and (b) entered into with any financial institution meeting the qualifications specified in clause (b) above, (d) commercial paper having the highest rating obtainable from S&P or Moody's and in each case maturing within one year after date of acquisition, (e) investment funds investing 95% of their assets in securities of the type described in clauses (a)-(d) above, (f) readily marketable direct obligations issued by any state of the United States or any political subdivision thereof having one of the two highest rating categories obtainable from either S&P or Moody's and (g) indebtedness with a rating of "A" or higher from S&P or "A2" or higher from Moody's. "C/D Assessment Rate": for any day the net annual assessment rate ------------------- (rounded upwards, if necessary, to the next 1/100 of 1%) determined by the Administrative Agent to be payable on such day to the Federal Deposit Insurance Corporation or any successor ("FDIC") for FDIC's insuring time ---- deposits made in Dollars at offices of the Administrative Agent in the United States. 8 "C/D Reserve Percentage": for any day, that percentage (expressed as ---------------------- a decimal) which is in effect on such day, as prescribed by the Board for determining maximum reserve requirement for a Depositary Institution (as defined in Regulation D of the Board) in respect of new non-personal time deposits in Dollars having a maturity of 30 days or more. "Change in Law": with respect to any Lender, the adoption of, or ------------- change in, any law, rule, regulation, policy, guideline or directive (whether or not having the force of law) or any change in the interpretation or application thereof by any Governmental Authority having jurisdiction over such Lender, in each case after the Closing Date. "Change of Control": the occurrence of any of the following events: ----------------- (a) at any time prior to an IPO by the Company, Investcorp or any of its Affiliates (provided that for purposes of this definition only the -------- reference to 25% in the definition of Affiliate shall be deemed to be 51%) or Subsidiaries, any Person that is a member of the senior management of the Company, or any entity the majority of the equity ownership interests of which is owned by such senior management of the Company, shall cease to own, directly or indirectly, in the aggregate, at least 51% of the issued and outstanding voting stock of the Company, free and clear of all Liens or (b) at any time after an IPO by the Company, any Person (other than Investcorp, any of its Affiliates or Subsidiaries, any Person that is a member of the senior management of the Company, any entity the majority of the equity ownership interests of which is owned by such senior management of the Company or any Person acting in the capacity of an underwriter), whether singly or in concert with one or more Persons, shall, directly or indirectly, have acquired, or acquire the power (i) to vote or direct the voting of 30% or more, on a fully diluted basis, of the outstanding common stock of the Company or (ii) to elect or designate for election a majority of the Board of Directors of the Company by voting power, contract or otherwise. "Chase": The Chase Manhattan Bank, a New York banking corporation, ----- and its successors. "Closing Date": the date (which shall be on or prior to September 30, ------------ 1998) on which the Lenders make their initial Loans or the Issuing Lender issues the initial Letter of Credit. "Co-Arrangers": as defined in the Preamble hereto. ------------ "Code": the Internal Revenue Code of 1986, as amended from time to ---- time. "Collateral": all assets of the Credit Parties, now owned or ---------- hereafter acquired, upon which a Lien is purported to be created by any Security Document. "Collateral Agreement": the Collateral Agreement, substantially in -------------------- the form of Exhibit E, to be made by the Company and the Subsidiaries from time to time parties 9 thereto in favor of the Administrative Agent, for the benefit of the Lenders, as the same may be amended, supplemented or otherwise modified from time to time. "Commercial L/C": a commercial documentary Letter of Credit under -------------- which the Issuing Lender agrees to make payments in Dollars for the account of the Company, on behalf of the Company or a Subsidiary, in respect of obligations of the Company or such Subsidiary in connection with the purchase of goods or services in the ordinary course of business. "Commitment": as to any Lender at any time, such Lender's Swing Line ---------- Commitment and Revolving Credit Commitment; collectively, as to all the Lenders, the "Commitments". ----------- "Commonly Controlled Entity": an entity, whether or not incorporated, -------------------------- which is under common control with the Company within the meaning of Section 4001 of ERISA or is part of a group which includes the Company and which is treated as a single employer under Section 414(b) or (c) of the Code. "Company": as defined in the Preamble hereto. ------- "Confidential Information Memorandum": the Confidential Information ----------------------------------- Memorandum dated May 1998 titled Harborside Healthcare Corporation $250,000,000 Senior Secured Credit Facility. "Consolidated Current Assets": at a particular date, all amounts --------------------------- which would, in conformity with GAAP, be included under current assets on a consolidated balance sheet of the Company and its Subsidiaries as at such date. "Consolidated Current Liabilities": at a particular date, all amounts -------------------------------- which would, in conformity with GAAP, be included under current liabilities on a consolidated balance sheet of the Company and its Subsidiaries as at such date, excluding the current portion of long-term debt and the entire outstanding principal amount of the Revolving Credit Loans. "Consolidated EBITDA": for any period, the Consolidated Net Income of ------------------- the Company and its Subsidiaries for such period, plus, without duplication and to the extent reflected as a charge in the statement of such Consolidated Net Income for such period, the sum of (a) total income tax expense (including any tax benefit or expense related to the dividend on any preferred stock), (b) interest expense, amortization or writeoff of debt discount, debt issuance, warrant and other equity (including any preferred stock) issuance costs and commissions, discounts, redemption premium and other fees and charges associated with the Loans, letters of credit permitted hereunder, Financing Leases (including commitment fees and other periodic bank charges), Standby L/Cs, the Subordinated Debt or with the acquisition or repayment of any debt securities of the Company permitted hereunder, and net costs associated with Interest Rate Agreements to which the Company is a party in respect of the Loans, (c) costs of 10 surety bonds, (d) depreciation and amortization expense, (e) amortization of intangibles (including, but not limited to, goodwill and costs of interest-rate caps, leasehold interests and the cost of non-competition agreements) and organization costs, (f) non-cash amortization of Financing Leases, (g) franchise taxes, (h) management fees paid as contemplated by subsection 9.14(a) and charges relating to management fees prepaid in connection with the Merger, (i) all cash dividend payments and non-cash dividend expenses on any series of preferred stock, (j) any fees and expenses incurred in connection with any merger, acquisition, joint venture or financing permitted hereunder, the Merger and, in each case, the related financing thereof (excluding general business development expenses), (k) any other write-downs, write-offs, minority interests and other non-cash charges or expenses, (l) any non-cash restructuring or non-recurring charge or reserve, (m) expenses and charges related to any equity offering, (n) expenses consisting of internal software development costs that are expensed during the period but could have been capitalized in accordance with GAAP, (o) securitization expenses, (p) nonrecurring litigation or claim settlement charges or expenses relating to activities or matters outside of the ordinary course of business of the Company and its Subsidiaries and (q) synthetic lease rent expense less any amortization of principal included in such expense; provided that in determining such -------- Consolidated EBITDA for such period (i) the cumulative effect of a change in accounting principles (effected either through cumulative effect adjustment or a retroactive application) shall be excluded, (ii) the impact of foreign currency and hedging shall be excluded and (iii) the aggregate amount of cash expenditures during such period relating to matters for which non-cash restructuring or non-recurring charges or reserves shall have been made or created shall be deducted. "Consolidated Indebtedness": at a particular date, all Indebtedness ------------------------- (including Synthetic Lease Obligations and any other obligations in respect of synthetic leases but excluding any other Indebtedness described in clauses (b) or (c) of the definition of Indebtedness), of the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP at such date. "Consolidated Net Income": with respect to any Person and any period, ----------------------- the net income (or loss) of such Person for such period, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends, excluding, however, (i) any extraordinary or non-recurring gains or losses or charges and gains or losses or charges from the sale of assets outside the ordinary course of business, together with any related provision for taxes on such gain or loss or charges, (ii) deferred financing costs written off in connection with the early extinguishment of Indebtedness; provided, however, that Consolidated Net Income shall be -------- ------- deemed to include any increases during such period to shareholder's equity of such Person attributable to tax benefits from net operating losses and the exercise of stock options that are not otherwise included in Consolidated Net Income for such period; and further provided that (a) the ------- -------- net income (but not loss) of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the Company or a wholly owned Subsidiary and (b) the net income of any Subsidiary shall be excluded to the 11 extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that net income is prohibited or not permitted at the date of determination. "Consolidated Senior Indebtedness": at a particular date, all -------------------------------- Consolidated Indebtedness other than Subordinated Debt. "Contingent Obligation": as to any Person, any obligation of such --------------------- Person guaranteeing or in effect guaranteeing any Indebtedness ("primary ------- obligations") of any other Person (the "primary obligor") in any manner, ----------- --------------- whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided that the term Contingent Obligation shall not include -------- endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount (based on the maximum reasonably anticipated net liability in respect thereof as determined by the Company in good faith) of the primary obligation or portion thereof in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated net liability in respect thereof (assuming such Person is required to perform thereunder) as determined by the Company in good faith. "Contractual Obligation": as to any Person, any provision of any ---------------------- security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of the property owned by it is bound. "Coverage Ratio": on the last day of any fiscal quarter of the -------------- Company ending on or after December 31, 1998, the ratio of (a) the sum of Consolidated EBITDA plus rental expense, in each case for the period of ---- four fiscal quarters ending on such day to (b) the sum of cash interest expense (excluding (i) fees payable on account of letters of credit, (ii) to the extent included in interest expense in accordance with GAAP, net costs associated with Interest Rate Agreements to which the Company is party in respect of the Loans and other periodic bank charges and amortization of debt discount (including discount of liabilities and reserves established under APB 16), (iii) costs of debt issuance and interest expense on customer deposits and (iv) costs of debt issuance and interest expense on any Bridge Junior Subordinated Debt) net of interest income, in each case, for or during such period on a consolidated basis for the Company and its Subsidiaries plus rental expense for such period on a ---- consolidated basis for the Company and its Subsidiaries; provided, however, -------- ------- that on (A) the last 12 day of the 1998 fourth fiscal quarter of the Company such ratio shall measure the period of two fiscal quarters ending on such day and (B) on the last day of the 1999 first fiscal quarter of the Company such ratio shall measure the period of three fiscal quarters ending on such day. For clarification, cash interest expense does not include the accretion of interest expense. "Credit Documents": the collective reference to this Agreement, the ---------------- Notes, the Mortgages, the Collateral Agreement, the Trust Guarantee, the Intercreditor Agreement and the Agency and Intercreditor Agreement. "Credit Parties": the collective reference to the Company, the other -------------- Borrowers and each other Subsidiary which may from time to time be party to a Credit Document. "Default": any of the events specified in Section 8, whether or not ------- any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Documentation Agent": as defined in the Preamble hereto. ------------------- "Dollars" and "$": dollars in lawful currency of the United States. ------- - "Domestic Subsidiary": any Subsidiary other than a Foreign ------------------- Subsidiary. "Encumbered Subsidiary": at any time, any Domestic Subsidiary (a) as --------------------- to which the Administrative Agent does not have a first priority Lien, for the benefit of the Lenders, on all or substantially all of the accounts receivable and real property owned in fee of such Subsidiary or (b) which is not a Borrower hereunder or a guarantor of the obligations hereunder and under the Synthetic Lease Facility, provided that the limitation set forth -------- in subsection 9.15 shall not cause any Domestic Subsidiary to be deemed an Encumbered Subsidiary. "Environmental Laws": any and all foreign, Federal, state, local or ------------------ municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees or requirements of any Governmental Authority or Requirements of Law (including, without limitation, common law) regulating or imposing liability or standards of conduct concerning environmental or public health protection matters, including, without limitation, Hazardous Materials, as now or may at any time hereafter be in effect. "Environmental Permits": any and all permits, licenses, --------------------- registrations, notifications, exemptions and any other authorizations required under any Environmental Law. "ERISA": the Employee Retirement Income Security Act of 1974, as ----- amended from time to time. 13 "Eurocurrency Reserve Requirements": for any day as applied to a --------------------------------- Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member bank of such System. "Eurodollar Base Rate": with respect to each day during each Interest -------------------- Period pertaining to a Eurodollar Loan, the rate per annum determined on the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on Page 3750 of the Dow Jones Markets screen as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period. In the event that such rate does not appear on Page 3750 of the Dow Jones Markets screen (or otherwise on such screen), the "Eurodollar ---------- Base Rate" for purposes of this definition shall be determined by reference --------- to such other comparable publicly available service for displaying eurodollar rates as may be selected by the Administrative Agent or, in the absence of such availability, by reference to the rate at which the Administrative Agent is offered Dollar deposits at or about 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where its eurodollar and foreign currency and exchange operations are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein. "Eurodollar Lending Office": as to any Lender the office of such ------------------------- Lender which shall be making or maintaining Eurodollar Loans. "Eurodollar Loans": Loans for which the applicable rate of interest ---------------- is based upon a Eurodollar Rate. "Eurodollar Rate": with respect to each day during each Interest --------------- Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): Eurodollar Base Rate ------------------------------------ 1.00 - Eurocurrency Reserve Requirements "Event of Default": any of the events specified in Section 8, ---------------- provided that any requirement for the giving of notice, the lapse of time, -------- or both, has been satisfied. "Excess Cash Flow": at the end of any fiscal year of the Company ---------------- ending on or after December 31, 1999, the excess of (a) Consolidated EBITDA for the period from January 1, 1999 to the end of such fiscal year plus any extraordinary or non-recurring gains for such period over (b) the sum, without duplication, of (i) the aggregate amount actually paid by the Company and its Subsidiaries in cash since 14 January 1, 1999 on account of capital expenditures or acquisitions permitted hereunder (other than capital expenditures made with the proceeds of eminent domain or condemnation proceedings to the extent such proceeds are not included in the determination of Consolidated EBITDA for such period), (ii) the aggregate amount of payments of principal in respect of any Indebtedness since January 1, 1999 (other than any such payments of principal pursuant to subsections 3.4(b)(i), (ii), (iii) and (iv) or any such payment of principal in respect of any revolving credit facility to the extent that there is not an equivalent reduction in such facility), (iii) increases in working capital (calculated as Consolidated Current Assets at the end of such period minus Consolidated Current Liabilities as ----- at the end of such period) of the Company and its Subsidiaries since January 1, 1999 (excluding any increase in cash or Cash Equivalents above an increase deemed in good faith by the Company to be necessary or desirable for the operation of the business of the Company and its Subsidiaries), (iv) cash interest expense (including fees paid in connection with Letters of Credit, surety bonds, commitment fees and other periodic bank charges) of the Company since January 1, 1999, (v) any dividends actually paid in cash by the Company since January 1, 1999 as permitted by subsection 7.11, (vi) the amount of taxes actually paid in cash by the Company and its Subsidiaries since January 1, 1999 either during such period or within a normal payment period thereof, (vii) the amount of cash actually paid to repurchase Capital Stock of the Company pursuant to subsection 7.11 since January 1, 1999, (viii) any fees and expenses incurred in connection with any merger, acquisition, joint venture or financing permitted hereunder, the Merger and, in each case, the related financing thereof and charges relating to management fees prepaid in connection with the Merger, (ix) to the extent used in computing Consolidated Net Income of the Company and its Subsidiaries, (A) the net income of any Person acquired in a pooling of interests transaction for any period prior to the date of acquisition and (B) any increases during such period to shareholder's equity of such Person attributable to tax benefits from net operating losses and the exercise of stock options that are not otherwise included in Consolidated Net Income for such period, (x) to the extent added to Consolidated Net Income of the Company and its Subsidiaries in calculating Consolidated EBITDA for such period, the net cost of Interest Rate Agreements, franchise taxes and management fees, (xi) the net income of any Subsidiary to the extent that such amount is accounted for under the equity method and to the extent cash dividends are not paid or the declaration or payment of dividends is not permitted without prior governmental approval (which has not been obtained), (xii) the amount (without duplication) of cash actually paid by the Company in connection with clauses (b), (h), (k), (m), (n), (o) and (p) in the definition of Consolidated EBITDA, (xiii) any non-cash restructuring or non-recurring charge or reserve (net of cash payments during such period with respect to such charge or reserve), (xiv) any extraordinary or non-recurring losses for such period and (xv) any cash synthetic lease rent expense (less any amortization of principal included in such expense) since January 1, 1999, provided that such excess, if any, shall be reduced by the amount of any -------- payments previously made pursuant to subsection 3.4(b)(iv). 15 "Exchange Debentures": to the extent permitted to be issued ------------------- hereunder, the exchange debentures which shall have material terms and conditions as described in the Offering Memorandum (or any refinancing thereof permitted hereunder). "Existing Credit Agreement": the Credit Agreement dated as of April ------------------------- 14, 1997, as amended to date, among the Company, the other borrowers specified therein, the lenders parties thereto and Chase, as administrative agent. "Existing Shareholders": as defined in the Recitals hereto. --------------------- "Fee Property": as defined in subsection 4.13. ------------ "Financing Lease": (a) any lease of property, real or personal, the --------------- obligations under which are capitalized on a consolidated balance sheet of the Company and its consolidated Subsidiaries and (b) any other such lease to the extent that the then present value of any rental commitment thereunder should, in accordance with GAAP, be capitalized on a balance sheet of the lessee. "Foreign Subsidiary": any Subsidiary which is not organized under the ------------------ laws of the United States or any state thereof or the District of Columbia. "Form S-4": the Registration Statement on Form S-4 dated May 1, 1998 -------- and as amended, filed by the Company with the Securities and Exchange Commission in connection with the Merger. "GAAP": generally accepted accounting principles in the United States ---- in effect from time to time. "Governmental Authority": any nation or government, any state or ---------------------- other political subdivision thereof or any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Hazardous Materials": any hazardous materials, hazardous wastes, ------------------- hazardous pesticides or hazardous or toxic substances, and any other material that may give rise to liability under any Environmental Law, including, without limitation, asbestos, petroleum, any other petroleum products (including gasoline, crude oil or any fraction thereof), polychlorinated biphenyls and urea-formaldehyde insulation. "Health Care Business": the business of operating a Health Care -------------------- Facility or any Ancillary Businesses. "Health Care Facility": any skilled nursing, assisted living, -------------------- retirement or congregate care facility. "Health Care Permit": every accreditation, authorization, certificate ------------------ of need, license or permit that is required by any applicable Governmental Authority to own, 16 lease, operate or manage a Health Care Facility or Ancillary Business of the Company or any of its Subsidiaries. "Indebtedness": of a Person, at a particular date, (a) all ------------ indebtedness of such Person for borrowed money or for the deferred purchase price of property or services, (b) the undrawn face amount of all letters of credit issued for the account of such Person and, without duplication, all drafts drawn thereunder and unpaid reimbursement obligations with respect thereto, (c) all liabilities (other than Lease Obligations and liabilities in connection with reserves established in accordance with GAAP) secured by any Lien on any property owned by such Person, even though such Person has not assumed or become liable for the payment thereof, (d) Financing Leases and (e) all indebtedness of such Person arising under acceptance facilities, but excluding (i) trade and other accounts payable and accrued expenses payable in the ordinary course of business which are not overdue for a period of more than 120 days or, if overdue for more than 120 days, as to which a dispute exists and adequate reserves in conformity with GAAP have been established on the books of such Person and (ii) letters of credit supporting the purchase of goods in the ordinary course of business and expiring no more than six months from the date of issuance; provided that (x) obligations in respect of Interest Rate Agreements and -------- (y) obligations relating to Bowie Center L.P. in an aggregate principal amount not to exceed $7,000,000 at any time shall not be included in this definition and that interest expense in respect of the obligations described in clause (y) shall be excluded from all calculations of financial tests under this Agreement; and provided, further, that -------- ------- Indebtedness shall at all times be reduced by amounts outstanding under the Promissory Note. "Insolvency": with respect to any Multiemployer Plan, the condition ---------- that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. --------- "Intercreditor Agreement": the collective reference to the Lease ----------------------- Intercreditor Agreement and the Loan Intercreditor Agreement. "Interest Payment Date": (a) as to Alternate Base Rate Loans, the --------------------- last day of each March, June, September and December, commencing on the first such day to occur after any Alternate Base Rate Loans are made or any Eurodollar Loans are converted to Alternate Base Rate Loans, and the Termination Date, (b) as to any Eurodollar Loan in respect of which the Company, as agent for the Borrowers, has selected an Interest Period of one, two or three months, the last day of such Interest Period, (c) as to any Eurodollar Loan in respect of which the Company, as agent for the Borrowers, has selected a longer Interest Period than the periods described in clause (b), the last day of each three calendar month interval during such Interest Period and, in addition, the last day of such Interest Period and (d) as to any Loan (other than any Revolving Credit Loan that is an Alternate Base Rate Loan and any Swing Line Loan), the date of any repayment or prepayment made in respect thereof. 17 "Interest Period": with respect to any Eurodollar Loan: --------------- (a) initially, the period commencing on, as the case may be, the Borrowing Date or conversion date with respect to such Eurodollar Loan and ending one, two, three or six months thereafter (or, if and when available to all the relevant Lenders, nine or twelve months thereafter) as selected by the Company, as agent for the Borrowers, in its notice of borrowing as provided in subsection 3.1 or its notice of conversion as provided in subsection 3.2; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six months thereafter (or, if and when available to all the relevant Lenders, nine or twelve months thereafter) as selected by the Company, as agent for the Borrowers, by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect to such Eurodollar Loan; provided that the foregoing provisions relating to Interest Periods are -------- subject to the following: (i) if any Interest Period would otherwise end on a day which is not a Business Day, that Interest Period shall be extended to the next succeeding Business Day, unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day ; (ii) any Interest Period that would otherwise extend beyond the Termination Date shall end on the Termination Date, or if the Termination Date shall not be a Business Day, on the next preceding Business Day; (iii) if the Company shall fail to give notice as provided above in clause (b), it shall be deemed to have selected a conversion of a Eurodollar Loan into an Alternate Base Rate Loan (which conversion shall occur automatically and without need for compliance with the conditions for conversion set forth in subsection 3.2); (iv) any Interest Period that begins on the last day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (v) the Company shall select Interest Periods so as not to require a prepayment (to the extent practicable) or a scheduled payment of a Eurodollar Loan during an Interest Period for such Eurodollar Loan. 18 "Interest Rate Agreement": any interest rate swap agreement, interest ----------------------- rate cap agreement, interest rate collar agreement or other similar agreement or arrangement. "Investcorp": Investcorp S.A., a Luxembourg corporation. ---------- "Investment Grade Securities": (a) securities issued or directly and --------------------------- fully guaranteed or insured by the United States government or any agency or instrumentality thereof (other than Cash Equivalents), (b) debt securities or debt instruments with a rating of BBB- or higher by S&P or Baa3 by Moody's or the equivalent of such rating by such rating organization, or if no rating of S&P's or Moody's then exists, the equivalent of such rating by any other nationally recognized securities rating agency, but excluding any debt securities or instruments constituting loans or advances among the Company and its Subsidiaries and (c) investments in any fund that invests exclusively in investments of the type described in clauses (a) and (b) which fund may also hold immaterial amounts of cash pending investment and/or distribution. "Investor Contributions": as defined in the Participation Agreement, ---------------------- dated as of the date hereof, among the Company, the Trust, the Synthetic Investors, the Lenders and the Administrative Agent. "Investors": Investcorp S.A., certain of its affiliated entities and --------- other initial investors arranged by Investcorp S.A. "IPO": any sale by the Company through a public offering of its --- common (or other voting) stock pursuant to an effective registration statement (other than a registration statement on Form S-4, S-8 or any successor or similar form) filed under the Securities Act of 1933, as amended. "Issuing Lenders": Chase and any of its Affiliates, including Chase --------------- Manhattan Bank Delaware, as issuer of the Letters of Credit; with respect to any Letter of Credit, the term "Issuing Lender" shall mean the Issuing Lender with respect to such Letter of Credit. "L/C Application": as defined in subsection 2.5(a). --------------- "L/C Obligations": the obligations of the Company to reimburse the --------------- Issuing Lender for any payments made by the Issuing Lender under any Letter of Credit that have not been reimbursed by the Company pursuant to subsection 2.8(a). "L/C Participating Interest": an undivided participating interest in -------------------------- the face amount of each issued and outstanding Letter of Credit and the L/C Application relating thereto. "L/C Participation Certificate": a certificate in substantially the ----------------------------- form of Exhibit G. 19 "Leased Property": as defined in subsection 4.13. --------------- "Lease Intercreditor Agreement": the Accounts Receivable ----------------------------- Intercreditor Agreement (Leased Facilities), substantially in the form of Exhibit M-1, to be executed and delivered by Meditrust Company LLC, the Administrative Agent, the Trust and the Synthetic Investors, as the same may be amended, supplemented or otherwise modified from time to time. "Lease Obligations": as of the date of any determination thereof, the ----------------- rental commitments, if any, of the Company and its Subsidiaries determined on a consolidated basis under leases for real and/or personal property (net of rental commitments from sub-leases thereof), excluding however, obligations under Financing Leases. "Lenders": as defined in the Preamble hereto. ------- "Letters of Credit": the collective reference to the Commercial L/Cs ----------------- and the Standby L/Cs; individually, a "Letter of Credit". ---------------- "Leverage Ratio": as defined in subsection 7.9; provided that for -------------- -------- purposes of calculating the Leverage Ratio on any date, the unencumbered (other than Liens permitted pursuant to subsection 7.2(f)) cash and Cash Equivalent balances of the Company and its Subsidiaries on such date, and any Bridge Junior Subordinated Debt outstanding on such date, shall be deducted from the amount of Consolidated Indebtedness on such date. "Lien": any mortgage, pledge, hypothecation, assignment, deposit ---- arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing, except for the filing of financing statements in connection with Lease Obligations incurred by the Company or its Subsidiaries to the extent that such financing statements relate to the property subject to such Lease Obligations). "Loan Intercreditor Agreement": the Accounts Receivable Intercreditor ---------------------------- Agreement (Mortgaged Facilities), substantially in the form of Exhibit M-2, to be executed and delivered by Meditrust Mortgage Investments, Inc., the Administrative Agent, the Trust and the Synthetic Investors, as the same may be amended, supplemented or otherwise modified from time to time. "Loans": the collective reference to the Swing Line Loans, the Term ----- Loans and the Revolving Credit Loans; individually, a "Loan". ---- 20 "Meditrust": any one or more of the following entities: Meditrust --------- Mortgage Investments, Inc., Meditrust Company LLC (as successor by merger to Meditrust of Florida, Inc., Meditrust of Ohio, Inc., Meditrust of New Hampshire, Inc., Meditrust of Bedford, Inc., Meditrust of New Jersey, Inc., Meditrust Tri-States, Inc.) and any of their affiliates. "Meditrust Entities": the collective reference to HHCI Limited ------------------ Partnership, Harborside Toledo Limited Partnership, Harborside of New Hampshire Limited Partnership, Harborside Toledo Corp., Countryside Care Center Corp., Bay Tree Nursing Center Corp., West Bay Nursing Center Corp. and Sunset Point Nursing Center Corp. "Merger": as defined in the Recitals hereto. ------ "Merger Agreement": as defined in the Recitals hereto. ---------------- "Moody's": Moody's Investors Service, Inc. ------- "Mortgaged Properties": (a) the Real Property designated as -------------------- "Mortgaged Property" on Schedule 4.13 and (b) any fee Real Property covered by a Mortgage delivered pursuant to subsection 6.9(c). "Mortgages": as defined in subsection 6.12. --------- "Multiemployer Plan": a Plan which is a multiemployer plan as defined ------------------ in Section 4001(a)(3) of ERISA. "Net Proceeds": the aggregate cash proceeds received by the Company ------------ or any Subsidiary in respect of: (a) (i) any issuance or borrowing of any debt securities or loans by the Company or any Subsidiary other than debt or loans permitted to be incurred or borrowed pursuant to subsection 7.1 or (ii) any issuance of Capital Stock (excluding any such issuance to any Investor or any Affiliate thereof); (b) any Asset Sale, excluding (i) any net proceeds received upon any condemnation or exercise of rights of eminent domain to the extent the same shall be deemed not to constitute Net Proceeds pursuant to the proviso to subsection 7.5(d) and (ii) any proceeds of insurance received upon any casualty or loss; (c) any substantially like-kind exchanges of property to the extent provided in subsection 7.5(e); and (d) any promissory notes delivered to the Company or such Subsidiary in respect of an Asset Sale; 21 in each case net of (without duplication) (A) the amount required to repay any Indebtedness (other than the Loans) secured by a Lien on any assets of the Company or a Subsidiary that are collateral for any such debt securities or loans that are sold or otherwise disposed of in connection with such Asset Sale, (B) liabilities associated with the assets that are the subject of any such Asset Sale that are not assumed by the purchaser in connection with such Asset Sale, (C) the reasonable expenses (including legal fees and brokers' and underwriters' commissions, lenders' fees or credit enhancement fees, in any case, paid to third parties or, to the extent permitted hereby, Affiliates) incurred in effecting such issuance or sale and (D) any taxes reasonably attributable to such sale and reasonably estimated by the Company or such Subsidiary to be actually payable. "Non-Funding Lender": as defined in subsection 3.9(c). ------------------ "Notes": the collective reference to the Swing Line Note, the ----- Revolving Credit Notes and the Term Loan Notes; each of the Notes, a "Note". ---- "Offering Memorandum": the offering memorandum dated July 29, 1998 ------------------- with respect to the Senior Subordinated Discount Notes and the Preferred Stock. "Participants": as defined in subsection 9.6(b). ------------ "Participating Lender": any Lender (other than the Issuing Lender) -------------------- with respect to its L/C Participating Interest in each Letter of Credit. "Payment Sharing Notice": a written notice from the Company or any ---------------------- Lender informing the Administrative Agent that an Event of Default has occurred and is continuing and directing the Administrative Agent to allocate payments thereafter received from or on behalf of any Borrower in accordance with the provisions of subsection 3.9. "PBGC": the Pension Benefit Guaranty Corporation established pursuant ---- to Subtitle A of Title IV of ERISA or any successor. "Permanent Junior Subordinated Debt": (a) unsecured notes or ---------------------------------- debentures of the Company, subordinated to the prior payment of the Loans, the other obligations under the Credit Documents, the Synthetic Lease Obligations and related Interest Rate Agreements, provided that (i) such -------- notes or debentures have terms which are as favorable to the Lenders as the terms relating to the Exchange Debentures set forth in the Offering Memorandum and the conditions contained in clauses (a)(ii)(C) and (D) of this definition are met or (ii) (A) unless otherwise agreed to by the Required Lenders, no part of the principal amount of any such notes or debentures shall have a scheduled maturity date earlier than the date that is one year after the Scheduled Termination Date, (B) unless otherwise agreed to by the Required Lenders, (I) the subordination provisions of which are as favorable to the Lenders as such provisions set forth in the Offering Memorandum relating to the Exchange Debentures, (II) the 22 terms and conditions thereof (including, without limitation, subordination, covenant and event of default provisions thereof but excluding any call protection provisions) taken as a whole shall be at least as favorable to the Company and the Lenders as such terms and conditions set forth with respect to the Bridge Junior Subordinated Debt in the Bridge Commitment Letter (or in the Bridge Loan Agreement if entered into by the parties thereto), and (III) no cash interest shall be payable thereon for a period of five years commencing on the Closing Date and, thereafter, the non- default cash interest rate thereon shall not exceed 16% per annum and the total non-default interest rate shall not exceed 18% per annum, (C) no covenant contained in this Agreement or any of the other Credit Documents would be violated on the proposed issuance date after giving effect to (I) the issuance of such notes or debentures, (II) the payment of all issuance costs, commissions, discounts, redemption premiums and other fees and charges associated therewith, (III) the use of proceeds thereof and (IV) the redemption, repayment, retirement and repurchase of all Indebtedness of the Company and its Subsidiaries to be redeemed, repaid or repurchased in connection therewith and (D) substantially final drafts of the documentation governing any such notes or debentures, showing the terms thereof, shall have been furnished to the Arranger and the Co-Arrangers at least 5 days prior to the date of issuance of such notes or debentures and (b) unsecured notes or debentures of the Company, subordinated to the prior payment of the Loans, the other obligations under the Credit Documents, the Synthetic Lease Obligations and related Interest Rate Agreements, that may be issued by the Company to refinance previously issued Bridge Junior Subordinated Debt or Permanent Junior Subordinated Debt, provided that (i) -------- unless otherwise agreed to by the Required Lenders, (A) no part of the principal amount of any such notes or debentures shall have a scheduled amortization date earlier than the date that is one year after the Scheduled Termination Date and (B) the interest rate and subordination provisions shall be at least as favorable to the Company and the Lenders as such provisions of such refinanced Bridge Junior Subordinated Debt or Permanent Junior Subordinated Debt, as the case may be, and the other terms and conditions thereof (including, without limitation, the covenant and event of default provisions thereof but excluding any call protection provisions and provisions relating to accretion or accrual of interest without cash payments thereof) taken as a whole shall be at least as favorable to the Company and the Lenders as such refinanced Bridge Junior Subordinated Debt or Permanent Junior Subordinated Debt, as the case may be, and (ii) the conditions contained in clause (a)(ii)(C) and (D) of this definition shall be met. "Permanent Senior Subordinated Debt": (a) unsecured notes or ---------------------------------- debentures of the Company, subordinated to the prior payment of the Loans, the other obligations under the Credit Documents, the Synthetic Lease Obligations and related Interest Rate Agreements, provided that either (i) -------- such notes or debentures (excluding, in the case of Cash Pay Permanent Senior Subordinated Debt (as defined below), provisions relating to accretion or accrual of interest without cash payments thereof) have terms which are as favorable to the Lenders as the terms with respect to the Senior Subordinated Discount Notes set forth in the Offering Memorandum and the conditions contained in clauses (a)(ii)(C) and (D) of this definition are met or (ii) (A) unless otherwise agreed to by the Required Lenders, no part of the principal amount of any such notes or 23 debentures shall have a scheduled maturity date earlier than the date that is one year after the Scheduled Termination Date, (B) unless otherwise agreed to by the Required Lenders, (I) the subordination provisions of which are as favorable to the Lenders as such provisions with respect to the Senior Subordinated Discount Notes set forth in the Offering Memorandum, (II) the terms and conditions thereof (including, without limitation, subordination, covenant and event of default provisions thereof but excluding any call protection provisions) taken as a whole shall be at least as favorable to the Company and the Lenders as such terms and conditions with respect to the Bridge Senior Subordinated Debt set forth in the Bridge Commitment Letter (or in the Bridge Loan Agreement if entered into by the parties thereto), and (III) no cash interest shall be payable thereon for a period of five years commencing on the Closing Date (except in the case of Permanent Senior Subordinated Debt issued to refinance Bridge Senior Subordinated Debt (any such cash pay Permanent Senior Subordinated Debt being referred to as "Cash Pay Permanent Senior ------------------------- Subordinated Debt")) and, thereafter, the non-default cash interest rate ----------------- thereon shall not exceed 16% per annum and the total non-default interest rate shall not exceed 18% per annum, (C) no covenant contained in this Agreement or any of the other Credit Documents would be violated on the proposed issuance date after giving effect to (I) the issuance of such notes or debentures, (II) the payment of all issuance costs, commissions, discounts, redemption premiums and other fees and charges associated therewith, (III) the use of proceeds thereof and (IV) the redemption, repayment, retirement and repurchase of all Indebtedness of the Company and its Subsidiaries to be redeemed, repaid or repurchased in connection therewith and (D) substantially final drafts of the documentation governing any such notes or debentures, showing the terms thereof, shall have been furnished to the Arranger and the Co-Arrangers at least 5 days prior to the date of issuance of such notes or debentures; and (b) unsecured notes or debentures of the Company, subordinated to the prior payment of the Loans, the other obligations under the Credit Documents, the Synthetic Lease Obligations and related Interest Rate Agreements, that may be issued by the Company to refinance previously issued Bridge Senior Subordinated Debt or Permanent Senior Subordinated Debt, provided that (i) unless otherwise -------- agreed to by the Required Lenders, (A) no part of the principal amount of any such notes or debentures shall have a scheduled amortization date earlier than the date that is one year after the Scheduled Termination Date and (B) the interest rate and subordination provisions shall be at least as favorable to the Company and the Lenders as such provisions of such refinanced Bridge Senior Subordinated Debt or Permanent Senior Subordinated Debt, as the case may be, and the other terms and conditions thereof (including, without limitation, the covenant and event of default provisions thereof but excluding any call protection provisions and provisions relating to accretion or accrual of interest without cash payments thereof) taken as a whole shall be at least as favorable to the Company and the Lenders as such refinanced Bridge Senior Subordinated Debt or Permanent Senior Subordinated Debt, as the case may be, and (ii) the conditions contained in clauses (a)(ii)(C) and (D) of this definition shall be met. "Permitted Liens": Liens permitted to exist under subsection 7.2. --------------- 24 "Person": an individual, partnership, corporation, business trust, ------ joint stock company, limited liability company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan": at a particular time, any employee benefit plan which is ---- covered by ERISA and in respect of which the Company or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Preferred Stock": the Company's exchangeable preferred stock, --------------- provided that (a) such preferred stock shall not have a scheduled -------- redemption date earlier than the date that is one year after the Scheduled Termination Date, (b) the terms of such preferred stock are substantially as set forth with respect to preferred stock in the Offering Memorandum and (c) substantially final drafts of the documentation governing any such preferred stock, showing the terms thereof, shall have been furnished to the Arranger and the Co-Arrangers at least 5 days prior to the date of issuance of such preferred stock. "Promissory Note": the promissory note in the original principal --------------- amount of $7,487,000, dated December 12, 1997, made by Harold J. Moffie and certain other entities listed therein for the benefit of the Company. "Purchase Option Acquisition": as defined in subsection 7.6. --------------------------- "Real Property": each Fee Property and Leased Property listed on ------------- Schedule 4.13. "Refunded Swing Line Loans": as defined in subsection 2.4(b). ------------------------- "Register": as defined in subsection 9.6(d). -------- "Reorganization": with respect to any Multiemployer Plan, the -------------- condition that such Plan is in reorganization as such term is used in Section 4241 of ERISA. "Reportable Event": any of the events set forth in Section 4043(c) of ---------------- ERISA, other than those events as to which the thirty day notice is waived under subpart B of PBGC Reg. (S) 4042. "Required Lenders": at a particular time, the holders of at least 51% ---------------- of the sum of (a) the aggregate unpaid principal amount of the Term Loans, if any, (b) the aggregate unpaid principal amount of the Term Synthetic Lease Obligations, if any, and (c) the Revolving Credit Commitments or, if the Revolving Credit Commitments are terminated, the aggregate unpaid principal amount of the Revolving Credit Loans, and participations in Swing Line Loans and the aggregate amount available to be drawn at such time under all outstanding Letters of Credit and L/C Obligations. The Term Loans, the Term Synthetic Lease Obligations and the Revolving Credit 25 Commitments (or, if the Revolving Credit Commitments are terminated, the aggregate unpaid principal amount of the Revolving Credit Loans, and participations in Swing Line Loans and the aggregate amount available to be drawn at such time under all outstanding Letters of Credit and L/C Obligations) of any Non-Funding Lender shall be disregarded in determining Required Lenders at any time. "Requirement of Law": as to any Person, the Articles or Certificate ------------------ of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, order or determination of an arbitrator or a court or other Governmental Authority, in each case, applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": with respect to any Person, the president, ------------------- chief executive officer, the chief operating officer, the chief financial officer, treasurer, controller or any vice president of such Person. "Revolving Credit Commitment": as to any Lender, its obligations to --------------------------- make Revolving Credit Loans to the Company pursuant to subsection 2.1 and participate in Swing Line Loans and Letters of Credit, in an aggregate principal and/or face amount not to exceed the amount set forth under such Lender's name in Schedule II opposite the caption "Revolving Credit Commitment" or in Schedule 1 to the Assignment and Acceptance by which such Lender acquired its Revolving Credit Commitment, as the same may be reduced from time to time pursuant to subsection 2.15, 3.3 or 3.4(b) or adjusted pursuant to subsection 9.6(c); collectively, as to all the Lenders, the "Revolving Credit Commitments". ----------------------------- "Revolving Credit Commitment Period": the period from and including ---------------------------------- the Closing Date to but not including the Termination Date. "Revolving Credit Lender": any Lender with a Revolving Credit ----------------------- Commitment or which is the holder of Revolving Credit Loans. "Revolving Credit Loan" and "Revolving Credit Loans": as defined in --------------------- ---------------------- subsection 2.1(a). "Revolving Credit Note": as defined in subsection 3.13(e). --------------------- "Revolving Credit Percentage": as to any Revolving Credit Lender at --------------------------- any time, the percentage which such Lender's Revolving Credit Commitment then constitutes of the total Revolving Credit Commitments (or, at any time after the Revolving Credit Commitments shall have expired or terminated, the percentage which the aggregate principal amount of such Lender's Revolving Credit Loans then outstanding constitutes of the aggregate principal amount of the Revolving Credit Loans then outstanding). 26 "Revolving Synthetic Lease Obligations": at any time, Synthetic Lease ------------------------------------- Obligations that have not been converted to term obligations pursuant to the provisions of the relevant documentation with respect to the Synthetic Lease Facility and in accordance with subsection 2.15. "Scheduled Termination Date": August 11, 2004. -------------------------- "Security Documents": the collective reference to the Collateral ------------------ Agreement, the Mortgages and all other security documents hereafter delivered to the Administrative Agent granting a Lien on any property of any Person to secure the obligations and liabilities of any Credit Party under any Credit Document. "Senior Subordinated Discount Notes": the senior subordinated ---------------------------------- discount notes (or any refinancing thereof permitted hereunder) which: (a) shall be issued under the Indenture, dated as of July 31, 1998 and as supplemented by Supplemental Indenture dated as of August 11, 1998, between the Company and United States Trust Company of New York, as Trustee, (b) shall not be mandatorily redeemable or mandatorily purchasable (except upon the occurrence of a change of control and assets sales (as defined therein) at a purchase price not in excess of the principal amount thereof plus redemption premium, if any, plus accrued and unpaid interest plus liquidated damages, if any) and shall not have any scheduled amortization or maturity prior to the date that is one year after the Scheduled Termination Date, and (c) shall have material terms and conditions as described in the Offering Memorandum. "Single Employer Plan": any Plan which is covered by Title IV of -------------------- ERISA, but which is not a Multiemployer Plan. "S&P": Standard and Poor's Ratings Services, a division of McGraw- --- Hill Companies, Inc. "Standby L/C": an irrevocable letter of credit under which the ----------- Issuing Lender agrees to make payments in Dollars for the account of the Company, on behalf of the Company or any Subsidiary in respect of obligations of the Company or such Subsidiary incurred pursuant to contracts made or performances undertaken or to be undertaken or like matters relating to contracts to which the Company or such Subsidiary is or proposes to become a party in the ordinary course of the Company's or such Subsidiary's business, including, without limiting the foregoing, for insurance purposes or in respect of advance payments or as bid or performance bonds or for any other purpose for which a standby letter of credit might customarily be issued. "Subordinated Debt": collectively, any Bridge Senior Subordinated ----------------- Debt, Bridge Junior Subordinated Debt, Senior Subordinated Discount Notes, Exchange Debentures, Permanent Junior Subordinated Debt and Permanent Senior Subordinated Debt. "Subsection 3.11(d)(2) Certificate": as defined in subsection --------------------------------- 3.11(d). 27 "Subsidiary": as to any Person, a corporation, partnership, limited ---------- liability company or other entity of which shares of stock of each class or other interests having ordinary voting power (other than stock or other interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, by such Person or by one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. A Subsidiary shall be deemed wholly owned by a Person who owns directly or indirectly all of the voting shares of stock or other interests of such Subsidiary having voting power under ordinary circumstances to vote for directors or other managers of such corporation, partnership or other entity, except for directors' qualifying shares. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company. Notwithstanding anything to the contrary in this definition, "Subsidiary" shall not include Bowie Center L.P. "Supermajority Lenders": at a particular time, the holders of at --------------------- least 66-2/3% of the sum of (a) the aggregate unpaid principal amount of the Term Loans, if any, and (b) the Revolving Credit Commitments or, if the Revolving Credit Commitments are terminated, the aggregate unpaid principal amount of the Revolving Credit Loans, and participations in Swing Line Loans and the aggregate amount available to be drawn at such time under all outstanding Letters of Credit and L/C Obligations. The Term Loans and the Revolving Credit Commitments (or, if the Revolving Credit Commitments are terminated, the aggregate unpaid principal amount of the Revolving Credit Loans, and participations in Swing Line Loans and the aggregate amount available to be drawn at such time under all outstanding Letters of Credit and L/C Obligations) of any Non-Funding Lender shall be disregarded in determining Supermajority Lenders at any time. "Swing Line Commitment": the Swing Line Lender's obligation to make --------------------- Swing Line Loans pursuant to subsection 2.4. "Swing Line Lender": Chase in its capacity as the lender of the Swing ----------------- Line Loans. "Swing Line Loan Participation Certificate": a certificate in ----------------------------------------- substantially the form of Exhibit H. "Swing Line Loans": as defined in subsection 2.4(a). ---------------- "Swing Line Note": as defined in subsection 3.13(e). --------------- "Syndication Agent": as defined in the Preamble hereto. ----------------- "Synthetic Investors": as defined in the Agency and Intercreditor ------------------- Agreement. 28 "Synthetic Lease Facility": the synthetic lease facility provided for ------------------------ in (a) the Participation Agreement, dated as of the date hereof, among the Company, the Trust, the Synthetic Investors, the Lenders and the Administrative Agent, (b) the Lease, dated as of the date hereof, between Harborside of Dayton Limited Partnership, as lessee, and the Trust, as the lessor, and (c) the Credit Agreement, dated as of the date hereof, among the Trust, as borrower, the Lenders, the Arranger, the Co-Arrangers, the Syndication Agent, the Documentation Agent and the Administrative Agent. "Synthetic Lease Obligations": the collective reference to (a) --------------------------- outstanding obligations under the Synthetic Lease Facility and (b) unreturned Investor Contributions. "Termination Date": the earlier of (a) the Scheduled Termination Date ---------------- and (b) such earlier date as the Revolving Credit Commitments shall terminate hereunder. "Term Loan Lender": any Lender which is the holder of a Term Loan. ---------------- "Term Loan Note": as defined in subsection 3.13(e). -------------- "Term Loans": as defined in subsection 2.15. ----------- "Term Synthetic Lease Obligations": as defined in subsection 2.15. --------------------------------- "Transferee": as defined in subsection 9.6(f). ---------- "Trust": HHC 1998-1 Trust, a Delaware business trust. ----- "Trust Guarantee": the Guarantee, substantially in the form of --------------- Exhibit N, to be made by the Trust in favor of the Administrative Agent for the benefit of the Lenders, as the same may be amended, supplemented or otherwise modified from time to time. "Type": as to any Loan, its nature as an Alternate Base Rate Loan or ---- Eurodollar Loan. "Uniform Customs": the Uniform Customs and Practice for Documentary --------------- Credits (1993 Revision), International Chamber of Commerce Publication No. 500, and any amendments thereof. "United States": the United States of America. ------------- "1997 Form 10-K": the annual report on Form 10-K of the Company filed -------------- with the Securities and Exchange Commission on March 31, 1998. 1.2 Other Definitional Provisions. (a) Unless otherwise specified ----------------------------- therein, all terms defined in this Agreement shall have the defined meanings when used in the Notes, 29 any other Credit Document or any certificate or other document made or delivered pursuant hereto. (b) As used herein and in the Notes, any other Credit Document and any certificate or other document made or delivered pursuant hereto, accounting terms relating to the Company and its Subsidiaries not defined in subsection 1.1 and accounting terms partly defined in subsection 1.1 to the extent not defined, shall have the respective meanings given to them under GAAP. To the extent there are any changes in GAAP from the date of this Agreement, the financial covenants set forth herein at the option of the Company will either (i) continue to be determined in accordance with GAAP in effect on the Closing Date, as applicable, or (ii) be adjusted or reset to reflect such changes in GAAP, such adjustments or resets to be mutually agreed to by the Company, as agent for the Borrowers, and the Administrative Agent. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section, subsection, schedule and exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to the singular and plural forms of such terms. SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS ------------------------------------- 2.1 Revolving Credit Commitments. (a) Subject to the terms and ---------------------------- conditions hereof, each Lender severally agrees to the extent of its Revolving Credit Commitment to extend credit to the Borrowers from time to time on any Borrowing Date during the Revolving Credit Commitment Period (i) by purchasing an L/C Participating Interest in each Letter of Credit issued by the Issuing Lender and (ii) by making loans in Dollars (individually, such a Loan is a "Revolving Credit Loan", and collectively such Loans are the "Revolving Credit - ---------------------- ---------------- Loans"; for purposes of clarity, Revolving Credit Loans do not include any - ----- Synthetic Lease Obligations) to the Borrowers from time to time; provided, -------- however, that in no event shall any Revolving Credit Loans be made, or Letter of - ------- Credit be issued, if the aggregate amount of the Revolving Credit Loans to be made or Letter of Credit to be issued would, after giving effect to the use of proceeds, if any, thereof, exceed the aggregate Available Revolving Credit Commitments, and no Letter of Credit shall be issued if after giving effect thereto the sum of the undrawn amount of all outstanding Letters of Credit and the amount of all L/C Obligations would exceed $25,000,000. During the Revolving Credit Commitment Period, the Borrowers may use the Revolving Credit Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof, and/or by having the Issuing Lender issue Letters of Credit, having such Letters of Credit expire undrawn upon or if drawn upon, reimbursing the Issuing Lender for such drawing, and having the Issuing Lender issue new Letters of Credit. 30 (b) Each borrowing of Revolving Credit Loans pursuant to the Revolving Credit Commitments shall be in an aggregate principal amount of the lesser of (i) $1,000,000 or a whole multiple of $100,000 in excess thereof in the case of Alternate Base Rate Loans, and $2,000,000 or a whole multiple of $1,000,000 in excess thereof, in the case of Eurodollar Loans and (ii) the Available Revolving Credit Commitments, except that any borrowing of Revolving Credit Loans to be used solely to pay a like amount of Swing Line Loans may be in the aggregate principal amount of such Swing Line Loans. 2.2 Commitment Fee. The Company agrees to pay to the Administrative -------------- Agent for the account of each Lender (other than any Non-Funding Lender) a commitment fee from and including the Closing Date to and including the Termination Date computed at the applicable rate (on each Adjustment Date pursuant to the guidelines set forth in the definition of Applicable Margin) per annum set forth on Schedule III on the average daily amount of the Available Revolving Credit Commitment of such Lender during the period for which payment is made (whether or not the Company shall have satisfied the applicable conditions to borrow or for the issuance of a Letter of Credit set forth in Section 5); provided that (a) from the Closing Date until the first Adjustment -------- Date occurring after the completion of four fiscal quarters of the Company after the Closing Date, the rate at which the commitment fee shall be calculated (the "Commitment Fee Rate") shall be 0.50% per annum and (b) if a Default or an Event ------------------- of Default shall have occurred and be continuing on any Adjustment Date or other date upon which the Commitment Fee Rate would otherwise be adjusted hereunder, the Commitment Fee Rate shall in no event be reduced on such Adjustment Date or other date from the Commitment Fee Rate in effect immediately prior to such Adjustment Date or other date. Such commitment fee shall be payable quarterly in arrears on the last day of each March, June, September and December and on the Termination Date, commencing on the later of (a) the first such date to occur on or following the Closing Date (or, if earlier, the Termination Date) and (b) September 30, 1998. 2.3 Proceeds of Revolving Credit Loans. The Borrowers shall use the ---------------------------------- proceeds of Revolving Credit Loans (a) to finance a portion of the cash consideration payable in the Merger and other payments pursuant to the Merger Agreement and to pay fees, expenses and financing costs in connection therewith, (b) to refinance certain of the existing Indebtedness of the Company and its Subsidiaries, (c) for working capital purposes of the Company and its Subsidiaries, (d) to finance acquisitions permitted by subsection 7.6(g) or other provisions of this Agreement, (e) to finance capital expenditures permitted hereunder and (f) for general corporate purposes. 2.4 Swing Line Commitment. (a) Subject to the terms and conditions --------------------- hereof, the Swing Line Lender agrees, so long as the Administrative Agent has not received notice that an Event of Default has occurred and is continuing, to make swing line loans (individually, a "Swing Line Loan"; collectively, the --------------- "Swing Line Loans") to the Company from time to time during the Revolving Credit - ----------------- Commitment Period in an aggregate principal amount at any one time outstanding not to exceed $10,000,000, provided that no Swing Line Loan may be made if the -------- aggregate principal amount of the Swing Line Loans to be made would exceed the aggregate Available Revolving Credit Commitments at such time. Amounts borrowed by the Company under this subsection 2.4 may be repaid and, through but 31 excluding the Termination Date, reborrowed. All Swing Line Loans shall be made as Alternate Base Rate Loans and shall not be entitled to be converted into Eurodollar Loans. The Company shall give the Swing Line Lender irrevocable notice (which notice must be received by the Swing Line Lender prior to 3:00 p.m., New York City time) on the requested Borrowing Date specifying the amount of each requested Swing Line Loan, which shall be in an aggregate minimum amount of $250,000 or a whole multiple of $100,000 in excess thereof. The proceeds of each Swing Line Loan will be made available by the Swing Line Lender to the Company by crediting the account of the Company at the office of the Swing Line Lender with such proceeds. The proceeds of Swing Line Loans may be used solely for the purposes referred to in subsection 2.3. (b) The Swing Line Lender at any time in its sole and absolute discretion may, and on the fifteenth day (or if such day is not a Business Day, the next Business Day) and last Business Day of each month shall, on behalf of the Company (which hereby irrevocably directs the Swing Line Lender to act on its behalf) request each Revolving Credit Lender, including the Swing Line Lender, to make a Revolving Credit Loan in an amount equal to such Lender's Revolving Credit Percentage of the amount of the Swing Line Loans (the "Refunded -------- Swing Line Loans") outstanding on the date such notice is given. Unless any of - ---------------- the events described in paragraph (f) of Section 8 shall have occurred (in which event the procedures of paragraph (c) of this subsection 2.4 shall apply) each such Lender shall make the proceeds of its Revolving Credit Loan available to the Swing Line Lender for the account of the Swing Line Lender at the office of the Swing Line Lender specified in subsection 9.2 (or such other location as the Swing Line Lender may direct) prior to 12:00 noon (New York City time) in funds immediately available on the Business Day next succeeding the date such notice is given. The proceeds of such Revolving Credit Loans shall be immediately applied to repay the Refunded Swing Line Loans. (c) If prior to the making of a Revolving Credit Loan pursuant to paragraph (b) of this subsection 2.4 one of the events described in paragraph (f) of Section 8 shall have occurred, each Revolving Credit Lender will, on the date such Loan was to have been made, purchase an undivided participating interest in the Refunded Swing Line Loan in an amount equal to its Revolving Credit Percentage of such Refunded Swing Line Loan. Each such Lender will immediately transfer to the Swing Line Lender in immediately available funds, the amount of its participation and upon receipt thereof the Swing Line Lender will deliver to such Lender a Swing Line Loan Participation Certificate dated the date of receipt of such funds and in such amount. (d) Whenever, at any time after the Swing Line Lender has received from any Revolving Credit Lender such Lender's participating interest in a Refunded Swing Line Loan, the Swing Line Lender receives any payment on account thereof, the Swing Line Lender will distribute to such Lender its participating interest in such amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender's participating interest was outstanding and funded) in like funds as received; provided that in -------- the event that such payment received by the Swing Line Lender is required to be returned, such Lender will return to the Swing Line Lender any portion thereof previously distributed 32 by the Swing Line Lender to it in like funds as such payment is required to be returned by the Swing Line Lender. (e) The obligation of each Revolving Credit Lender to purchase participating interests pursuant to subsection 2.4(c) shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the Swing Line Lender, any Borrower or any other Person for any reason whatsoever, (ii) the occurrence or continuance of an Event of Default, (iii) any adverse change in the condition (financial or otherwise) of any Borrower, (iv) any breach of this Agreement by any Borrower or any other Lender or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. 2.5 Issuance of Letters of Credit. (a) The Company, as agent for ----------------------------- the Borrowers, may from time to time request the Issuing Lender to issue a Standby L/C or a Commercial L/C by delivering to the Administrative Agent at its address specified in subsection 9.2 a letter of credit application in the Issuing Lender's then customary form (the "L/C Application") completed to the --------------- satisfaction of the Issuing Lender, together with the proposed form of such Letter of Credit (which shall comply with the applicable requirements of paragraph (b) below) and such other certificates, documents and other papers and information as the Issuing Lender may reasonably request; provided that if the -------- Issuing Lender informs the Company that it is for any reason unable to open such Letter of Credit, the Company, as agent for the Borrowers, may request any Lender to open such Letter of Credit upon the same terms offered to the Issuing Lender and each reference to the Issuing Lender for purposes of subsections 2.5 through 2.14, 5.1 and 5.2 shall be deemed to be a reference to such issuing Lender. The letters of credit identified on Schedule 2.5 shall at all times on and after the Closing Date be deemed to be a "Letter of Credit" or "Letters of Credit" for all purposes of this Agreement and the other Loan Documents. (b) Each Standby L/C and Commercial L/C issued hereunder shall, among other things, (i) be for the account of the Company, (ii) be in such form requested by the Company as shall be acceptable to the Issuing Lender in its sole discretion and (iii) have an expiry date occurring (A) in the case of any Standby L/C, not later than 365 days (or such later date as may be agreed to by the Issuing Lender) after the date of issuance of such Standby L/C and (B) in the case of any Commercial L/C, not later than 120 days (or such later date as may be agreed to by the Issuing Lender) after the date of issuance of such Commercial L/C. Each Letter of Credit issued hereunder may be automatically renewed on its expiry date for an additional period equal to the initial term, but in no case shall any Letter of Credit have an expiry date, or permit payment of any draft drawn thereunder on any date, occurring later than the Termination Date. Except as otherwise provided for in any Letter of Credit, each Letter of Credit shall be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the State of New York. 2.6 Participating Interests. Effective in the case of each Standby ----------------------- L/C and Commercial L/C (if applicable) as of the date of the opening thereof, the Issuing Lender agrees to allot and does allot, to itself and each other Revolving Credit Lender, and each such 33 Lender severally and irrevocably agrees to take and does take in such Letter of Credit and the related L/C Application (if applicable), an L/C Participating Interest in a percentage equal to such Lender's Revolving Credit Percentage. 2.7 Procedure for Opening Letters of Credit. Upon receipt of any L/C --------------------------------------- Application from the Company, the Issuing Lender will process such L/C Application, and the other certificates, documents and other papers delivered to the Issuing Lender in connection therewith, in accordance with its customary procedures and, subject to the terms and conditions hereof, shall promptly open such Letter of Credit by issuing the original of such Letter of Credit to the beneficiary thereof and by furnishing a copy thereof to the Company and, after the end of the calendar month in which such Letter of Credit was opened, to the other Lenders, provided that no such Letter of Credit shall be issued if -------- subsection 2.1 would be violated thereby. The Issuing Lender shall promptly furnish to the Administrative Agent, which shall in turn promptly furnish to the Lenders, notice of the issuance of each Letter of Credit (including the amount thereof). To the extent that any provision of any L/C Application related to any Letter of Credit is inconsistent with the provisions of this Section 2, the provisions of this Section 2 shall apply. 2.8 Payments in Respect of Letters of Credit. (a) The Company ---------------------------------------- agrees forthwith upon demand by the Issuing Lender and otherwise in accordance with the terms of the L/C Application relating thereto, (i) to reimburse the Issuing Lender for any payment made by the Issuing Lender under any Letter of Credit issued for the account of the Company and (ii) to pay interest on any unreimbursed portion of any such payment from the date of such payment until reimbursement in full thereof at a rate per annum equal to (A) on or prior to the date which is one Business Day after the day on which the Issuing Lender demands reimbursement from the Company for such payment, the Alternate Base Rate plus the Applicable Margin for the Revolving Credit Loans and (B) thereafter, the Alternate Base Rate plus the Applicable Margin for the Revolving Credit Loans plus 2%. (b) In the event that the Issuing Lender makes a payment under any Letter of Credit and is not reimbursed in full therefor forthwith upon demand of the Issuing Lender, and otherwise in accordance with the terms of the L/C Application relating to such Letter of Credit, the Issuing Lender will promptly notify each other Revolving Credit Lender. Forthwith upon its receipt of any such notice, each such other Lender will transfer to the Issuing Lender, in immediately available funds, an amount equal to such other Lender's pro rata --- ---- share (based on its Revolving Credit Percentage) of the L/C Obligation arising from such unreimbursed payment. Promptly upon its receipt from such other Lender of such amount, the Issuing Lender will complete, execute and deliver to such other Lender an L/C Participation Certificate dated the date of such receipt and in such amount. (c) Whenever, at any time after the Issuing Lender has made a payment under any Letter of Credit and has received from any other Revolving Credit Lender such other Lender's pro rata share of the L/C Obligation arising --- ---- therefrom, the Issuing Lender receives any reimbursement on account of such L/C Obligation or any payment of interest on account thereof, the Issuing Lender will distribute to such other Lender its pro rata share thereof in like funds as --- ---- received; provided that in the event that the receipt by the Issuing Lender of -------- 34 such reimbursement or such payment of interest (as the case may be) is required to be returned, such other Lender will return to the Issuing Lender any portion thereof previously distributed by the Issuing Lender to it in like funds as such reimbursement or payment is required to be returned by the Issuing Lender. 2.9 Letter of Credit Fees. (a) In lieu of any letter of credit --------------------- commissions and fees provided for in any L/C Application relating to Standby or Commercial L/Cs (other than standard issuance, amendment and negotiation fees), the Company agrees to pay the Administrative Agent, for the account of the Issuing Lender and the Participating Lenders, with respect to each Standby or Commercial L/C issued for the account of the Company, a Standby or Commercial L/C fee, as the case may be, at a per annum rate equal to the Applicable Margin for Revolving Credit Loans which are Eurodollar Loans (of which the Issuing Lender shall retain for its own account, as the issuing bank and not on account of its L/C Participating Interest therein, 1/4 of 1% per annum) on the daily average amount available to be drawn under each Standby L/C in the case of a Standby L/C and on the maximum face amount of each Commercial L/C in the case of a Commercial L/C, in either case, payable, in arrears, on the last day of each March, June, September and December and on the Termination Date. Notwithstanding the foregoing, the Company agrees to pay standard administrative, issuance, amendment, payment and negotiation fees to the Issuing Lender. (b) For purposes of any payment of fees required pursuant to this subsection 2.9, the Administrative Agent agrees to provide to the Company a statement of any such fees to be so paid; provided that the failure by the -------- Administrative Agent to provide the Company with any such invoice shall not relieve the Company of its obligation to pay such fees. 2.10 Letter of Credit Reserves. (a) If any Change in Law shall ------------------------- either (i) impose, modify, deem or make applicable any reserve, special deposit, assessment or similar requirement against letters of credit issued by the Issuing Lender or (ii) impose on the Issuing Lender any other condition regarding this Agreement (with respect to Letters of Credit) or any Letter of Credit, and the result of any event referred to in clause (i) or (ii) above shall be to increase the cost of the Issuing Lender of issuing or maintaining any Letter of Credit (which increase in cost shall be the result of the Issuing Lender's reasonable allocation of the aggregate of such cost increases resulting from such events), then, upon demand by the Issuing Lender, the Company shall immediately pay to the Issuing Lender, from time to time as specified by the Issuing Lender, additional amounts which shall be sufficient to compensate the Issuing Lender for such increased cost, together with interest on each such amount from the date demanded until payment in full thereof at a rate per annum equal to the rate applicable to Alternate Base Rate Loans pursuant to subsection 3.5(b). The Company shall not be required to make any payments to the Issuing Lender for any additional amounts pursuant to this subsection 2.10(a) unless the Issuing Lender has given written notice to the Company of its intent to request such payments prior to or within 60 days after the date on which the Issuing Lender incurred such amounts. A certificate, setting forth in reasonable detail the calculation of the amounts involved, submitted by the Issuing Lender to the Company concurrently with any such demand by the Issuing Lender, shall be conclusive, absent manifest error, as to the amount thereof. 35 (b) In the event that any Change in Law with respect to the Issuing Lender shall, in the opinion of the Issuing Lender, require that any obligation under any Letter of Credit be treated as an asset or otherwise be included for purposes of calculating the appropriate amount of capital to be maintained by the Issuing Lender or any corporation controlling the Issuing Lender, and such Change in Law shall have the effect of reducing the rate of return on the Issuing Lender's or such corporation's capital, as the case may be, as a consequence of the Issuing Lender's obligations under such Letter of Credit to a level below that which the Issuing Lender or such corporation, as the case may be, could have achieved but for such Change in Law (taking into account the Issuing Lender's or such corporation's policies, as the case may be, with respect to capital adequacy) by an amount deemed by the Issuing Lender to be material, then from time to time following notice by the Issuing Lender to the Company of such Change in Law, within 15 days after demand by the Issuing Lender, the Company shall pay to the Issuing Lender such additional amount or amounts as will compensate the Issuing Lender or such corporation, as the case may be, for such reduction. The Issuing Lender agrees that, upon the occurrence of any event giving rise to the operation of paragraph (a) or (b) of this subsection 2.10 with respect to the Issuing Lender, it will, if requested by the Company and to the extent permitted by law or by the relevant Governmental Authority, endeavor in good faith to avoid or minimize the increase in costs or reduction in payments resulting from such event; provided that such avoidance or -------- minimization can be made in such a manner that the Issuing Lender, in its sole determination, suffers no economic, legal or regulatory disadvantage. The Company shall not be required to make any payments to the Issuing Lender for any additional amounts pursuant to this subsection 2.10(b) unless the Issuing Lender has given written notice to the Company of its intent to request such payments prior to or within 60 days after the date on which the Issuing Lender incurred such amounts. A certificate, in reasonable detail setting forth the calculation of the amounts involved, submitted by the Issuing Lender to the Company concurrently with any such demand by the Issuing Lender, shall be conclusive, absent manifest error, as to the amount thereof. (c) The Company and each Participating Lender agree that the provisions of the foregoing paragraphs (a) and (b) shall apply equally to each Participating Lender in respect of its L/C Participating Interest in such Letter of Credit, as if the references in such paragraphs and provisions referred to, where applicable, such Participating Lender or, in the case of paragraph (b), any corporation controlling such Participating Lender. 2.11 Further Assurances. The Company hereby agrees, from time to ------------------ time, to do and perform any and all acts and to execute any and all further instruments reasonably requested by the Issuing Lender more fully to effect the purposes of this Agreement and the issuance of Letters of Credit hereunder. 2.12 Obligations Absolute. The payment obligations of the Company -------------------- under this Agreement with respect to the Letters of Credit shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including, without limitation, the following circumstances: 36 (a) the existence of any claim, set-off, defense or other right which the Company or any of its Subsidiaries may have at any time against any beneficiary, or any transferee, of any Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the Issuing Lender, the Administrative Agent or any Lender, or any other Person, whether in connection with this Agreement, any Credit Document, the transactions contemplated herein, or any unrelated transaction; (b) any statement or any other document presented under any Letter of Credit proving to be forged, fraudulent or invalid or any statement therein being untrue or inaccurate in any respect; (c) payment by the Issuing Lender under any Letter of Credit against presentation of a draft or certificate or other document which does not comply with the terms of such Letter of Credit or is insufficient in any respect, except where such payment constitutes gross negligence or willful misconduct on the part of the Issuing Lender; or (d) any other circumstances or happening whatsoever, whether or not similar to any of the foregoing, except for any such circumstances or happening constituting gross negligence or willful misconduct on the part of the Issuing Lender. 2.13 Assignments. No Participating Lender's participation in any ----------- Letter of Credit or any of its rights or duties hereunder shall be subdivided, assigned or transferred (other than in connection with a transfer of part or all of such Participating Lender's Revolving Credit Commitment in accordance with subsection 9.6(c)) without the prior written consent of the Issuing Lender, which consent will not be unreasonably withheld. Such consent may be given or withheld without the consent or agreement of any other Participating Lender. Notwithstanding the foregoing, a Participating Lender may subparticipate its L/C Participating Interest without obtaining the prior written consent of the Issuing Lender. 2.14 Participations. The obligation of each Revolving Credit Lender -------------- to purchase participating interests pursuant to subsection 2.6 shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (a) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the Issuing Lender, any Borrower or any other Person for any reason whatsoever, (b) the occurrence or continuance of an Event of Default, (c) any adverse change in the condition (financial or otherwise) of any Borrower, (d) any breach of this Agreement by any Borrower or any other Lender or (e) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. 2.15 Conversion to Term Loans. If, on any anniversary of the Closing ------------------------ Date, the sum of (a) the then outstanding Revolving Credit Loans and Swing Line Loans and (b) the then outstanding Revolving Synthetic Lease Obligations exceeds $75,000,000 (the "Excess Amount"), then the following actions shall be taken (if ------------- applicable) in the following order: 37 (i) the Revolving Credit Commitments shall be automatically reduced by an amount equal to the Excess Amount, (ii) any amount of outstanding Revolving Synthetic Lease Obligations up to the Excess Amount shall be converted to term loans (the "Term ---- Synthetic Lease Obligations") in accordance with the terms of the Synthetic --------------------------- Lease Facility and (iii) Revolving Credit Loans in an amount equal to (A) the Excess Amount minus (B) the amount of the Revolving Synthetic Lease Obligations ----- converted to Term Synthetic Lease Obligations on such date shall be automatically converted to term loans (any such Revolving Credit Loans so converted being herein called the "Term Loans"). ---------- SECTION 3. GENERAL PROVISIONS APPLICABLE TO LOANS -------------------------------------- 3.1 Procedure for Borrowing. (a) The Borrowers may borrow under the ----------------------- Commitments during the Revolving Credit Commitment Period on any Business Day, provided that, with respect to any borrowing, the Company, as agent for the - -------- Borrowers, shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 10:00 a.m. (or, with respect to Swing Line Loans, 3:00 p.m.), New York City time, (i) three Business Days prior to the requested Borrowing Date if all or any part of the Loans are to be Eurodollar Loans and (ii) one Business Day prior to the requested Borrowing Date (or, in the case of Swing Line Loans and, if the Closing Date occurs on the date this Agreement is executed and delivered, Loans made on the Closing Date, on the requested Borrowing Date) if the borrowing is to be solely of Alternate Base Rate Loans) and specifying (A) the amount of the borrowing, (B) whether such Loans are initially to be Eurodollar Loans or Alternate Base Rate Loans or a combination thereof, (C) if the borrowing is to be entirely or partly Eurodollar Loans, the length of the Interest Period for such Eurodollar Loans, (D) whether the Loan is a Swing Line Loan or a Revolving Credit Loan, (E) the requested Borrowing Date and (F) the Borrower with respect to such borrowing. Upon receipt of such notice the Administrative Agent shall promptly notify each Lender. Not later than 12:00 noon, New York City time, on the Borrowing Date specified in such notice, each Lender shall make available to the Administrative Agent at the office of the Administrative Agent specified in subsection 9.2 (or at such other location as the Administrative Agent may direct) an amount in immediately available funds equal to the amount of the Loan to be made by such Lender (except that proceeds of Swing Line Loans will be made available to the Company in accordance with subsection 2.4(a)). Loan proceeds received by the Administrative Agent hereunder shall promptly be made available to the Company, by the Administrative Agent's crediting the account of the Company, at the office of the Administrative Agent specified in subsection 9.2, with the aggregate amount actually received by the Administrative Agent from the Lenders and in like funds as received by the Administrative Agent. (b) Any borrowing of Eurodollar Loans hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, (i) the aggregate principal amount of all Eurodollar Loans having the same Interest Period shall not be less than $2,000,000 or a whole multiple of $1,000,000 in excess thereof and (ii) no more than 16 Interest Periods shall be in effect at any one time. 3.2 Conversion and Continuation Options. (a) Subject to subsection ----------------------------------- 3.12, the Company, as agent for the Borrowers, may elect from time to time to convert Eurodollar Loans into Alternate Base Rate Loans by giving the Administrative Agent irrevocable notice of such election, to be received by the Administrative Agent prior to 12:00 noon, New York City time, at least three Business Days prior to the proposed conversion date. The Company, as agent for the Borrowers, may elect from time to time to convert all or a portion of the Alternate Base Rate Loans (other than Swing Line Loans) then outstanding to Eurodollar Loans by giving the Administrative Agent irrevocable notice of such election, to be received by the Administrative Agent prior to 12:00 noon, New York City time, at least three Business Days prior to the proposed conversion date, specifying the Interest Period selected therefor, and, if no Default or Event of Default has occurred and is continuing, such conversion shall be made on the requested conversion date or, if such requested conversion date is not a Business Day, on the next succeeding Business Day. Upon receipt of any notice pursuant to this subsection 3.2, the Administrative Agent shall promptly notify each Lender thereof. All or any part of the outstanding Loans (other than Swing Line Loans) may be converted as provided herein, provided that partial -------- conversions of Alternate Base Loans shall be in the aggregate principal amount of $1,000,000 or a whole multiple of $100,000 in excess thereof and the aggregate principal amount of the resulting Eurodollar Loans outstanding in respect of any one Interest Period shall be at least $2,000,000 or a whole multiple of $1,000,000 in excess thereof; and provided, further, that no -------- ------- Alternate Base Rate Loan may be converted into a Eurodollar Loan (i) when any Event of Default has occurred and is continuing and the Administrative Agent has or the Required Lenders have, by written notice to the Company, determined that such a continuation is not appropriate or (ii) after the date that is one month prior to the Termination Date. (b) Any Eurodollar Loans may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Company, as agent for the Borrowers, giving notice to the Administrative Agent, in accordance with the applicable provisions of the term "Interest Period" set forth in subsection 1.1, of the length of the next Interest Period to be applicable to such Loans, provided that no Eurodollar Loan may be continued as -------- such (i) when any Event of Default has occurred and is continuing and the Administrative Agent has or the Required Lenders have, by written notice to the Company, determined that such a continuation is not appropriate, (ii) if, after giving effect thereto, subsection 3.1(b) would be contravened or (iii) after the date that is one month prior to the Termination Date. 3.3 Changes of Commitment Amounts. (a) The Company, as agent for ----------------------------- the Borrowers, shall have the right, upon not less than three Business Days' notice to the Administrative Agent, to terminate or from time to time to permanently reduce the Revolving Credit Commitments, subject to the provisions of this subsection 3.3. To the extent, if any, that the sum of the amount of the Revolving Credit Loans, Swing Line Loans, L/C Obligations then outstanding, amounts then available to be drawn under outstanding Letters of Credit and Revolving Synthetic Lease Obligations then outstanding exceeds the amount of the 39 Revolving Credit Commitments as then reduced, the Company, as agent for the Borrowers, shall be required to apply an amount equal to such excess amount (i) to prepay, in the order set forth in this subsection 3.3(a), the obligations hereunder and/or, at its option, (ii) to cash collateralize the Revolving Synthetic Lease Obligations and/or repurchase properties subject to the Synthetic Lease Facility. If the Company elects to have such amount applied as set forth in clause (i) of this subsection 3.3(a), such amount shall be applied, first, to payment of the Swing Line Loans then outstanding, second, to payment - ----- ------ of the Revolving Credit Loans then outstanding, third, to payment of any L/C ----- Obligations then outstanding, and fourth, to cash collateralize any outstanding ------ Letters of Credit on terms reasonably satisfactory to the Administrative Agent. Any such termination of the Revolving Credit Commitments shall be accompanied by prepayment in full of the Revolving Credit Loans, Swing Line Loans and L/C Obligations then outstanding, by cash collateralization of any outstanding Letters of Credit on terms reasonably satisfactory to the Administrative Agent and by payment in full of the Synthetic Lease Obligations. Upon termination of the Revolving Credit Commitments, any Letter of Credit then outstanding that has been so cash collateralized shall no longer be considered a "Letter of Credit" as defined in subsection 1.1, and any L/C Participating Interests heretofore granted by the Issuing Lender to the Lenders in such Letter of Credit shall be deemed terminated (subject to automatic reinstatement in the event that such cash collateral is returned and the Issuing Lender is not fully reimbursed for any such L/C Obligations) but the Letter of Credit fees payable under subsection 2.9 shall continue to accrue to the Issuing Lender and the Participating Lenders (or, in the event of any such automatic reinstatement, as provided in subsection 2.9) with respect to such Letter of Credit until the expiry thereof (provided -------- that in lieu of paying a Standby or Commercial L/C fee, as the case may be, at a rate per annum equal to the Applicable Margin for Revolving Credit Loans which are Eurodollar Loans, the Company shall pay to the Administrative Agent an amount equal to .25% per annum). (b) In the case of termination of the Revolving Credit Commitments, interest accrued on the amount of any prepayment relating thereto and any unpaid commitment fee accrued hereunder shall be paid on the date of such termination. Any such partial reduction of the Revolving Credit Commitments shall be in an amount of $2,000,000 or a whole multiple of $1,000,000 in excess thereof and shall, in each case, reduce permanently the amount of the Revolving Credit Commitments then in effect. 3.4 Optional and Mandatory Prepayments; Repayments of Term Loans. ------------------------------------------------------------ (a) Subject to subsection 3.12, the Company, as agent for the Borrowers, may at any time and from time to time prepay Loans, in whole or in part, without premium or penalty, by irrevocable notice to the Administrative Agent by 10:00 a.m., New York City time, on the same Business Day (or, in the case of Swing Line Loans, by irrevocable notice to the Administrative Agent by 12:00 noon, New York City time, on the same Business Day) in the case of Alternate Base Rate Loans, and three Business Days' irrevocable notice to the Administrative Agent in the case of Eurodollar Loans, specifying the date and amount of prepayment, the applicable Borrower of the Loans being prepaid and whether the prepayment is of Revolving Credit Loans or Term Loans. Upon receipt of such notice the Administrative Agent shall promptly notify each Lender thereof. If such notice is given, the Borrowers specified in such prepayment notice shall make such prepayment, and the payment amount 40 specified in such notice shall be due and payable, on the date specified therein. Partial prepayments (i) of Term Loans shall be in an aggregate principal amount equal to the lesser of (A) (I) $2,000,000, or a whole multiple of $1,000,000 in excess thereof with respect to Eurodollar Loans or (II) $1,000,000, or a whole multiple of $100,000 in excess thereof with respect to Alternate Base Rate Loans and (B) the aggregate unpaid principal amount of the Term Loans, and (ii) of Revolving Credit Loans shall be in an aggregate principal amount equal to the lesser of (A) (I) $2,000,000, or a whole multiple of $1,000,000 in excess thereof with respect to Eurodollar Loans or (II) $1,000,000 or a whole multiple of $100,000 in excess thereof with respect to Alternate Base Rate Loans and (B) the aggregate unpaid principal amount of the Revolving Credit Loans, as the case may be. (b) (i) If, subsequent to the Closing Date, the Company or any of its Subsidiaries shall issue any Capital Stock, 50% of the Net Proceeds thereof (excluding (A) amounts provided by the Investors or their Affiliates or by management employees of such issuer and (B) Net Proceeds in an aggregate amount not to exceed $35,000,000 of any issuance of preferred stock) shall be promptly applied toward the prepayment of the Term Loans, the reduction of the Revolving Credit Commitments, the cash collateralization of the Synthetic Lease Obligations and the repurchase of properties subject to the Synthetic Lease Facility, in each case as set forth in clause (v) of this subsection 3.4(b); provided that Net Proceeds of such issuance shall be deemed to be Net Proceeds - -------- of such issuance for purposes of this subsection 3.4(b)(i) only after deducting therefrom the redemption of the Subordinated Debt under any "equity clawback" provisions, the redemption of the Bridge Junior Subordinated Debt with the proceeds of preferred stock, the redemption of the Preferred Stock in its entirety (but only with the proceeds of common stock or other preferred stock), the redemption of preferred stock with the proceeds of other preferred stock, and the payment of any premium or penalties or accrued interest with respect thereto. (ii) If, subsequent to the Closing Date, the Company or any of its Subsidiaries shall incur any Indebtedness (other than Indebtedness permitted pursuant to subsection 7.1), 100% of the Net Proceeds thereof shall be promptly applied toward the prepayment of the Term Loans, the reduction of the Revolving Credit Commitments, the cash collateralization of the Synthetic Lease Obligations and the repurchase of properties subject to the Synthetic Lease Facility, in each case as set forth in clause (v) of this subsection 3.4(b). (iii) If, subsequent to the Closing Date, the Company or any of its Subsidiaries shall receive Net Proceeds from any Asset Sale, 100% of the Net Proceeds thereof shall be promptly applied toward the prepayment of the Term Loans, the reduction of Revolving Credit Commitments, the cash collateralization of the Synthetic Lease Obligations and the repurchase of properties subject to the Synthetic Lease Facility, in each case as set forth in clause (v) of this subsection 3.4(b); provided that such Net Proceeds need not be so applied until -------- the earlier of the date that the aggregate amount of Net Proceeds received by the Company or any of its Subsidiaries from any Asset Sales exceeds $2,000,000 (and has not yet been applied as set forth in clause (v) of this subsection 3.4(b)) and the date which is six months after the last application of Net Proceeds pursuant to this subsection 3.4(b)(iii). 41 (iv) If for any fiscal year commencing with its fiscal year ending December 31, 1999, there shall be Excess Cash Flow for such fiscal year, 50% of such Excess Cash Flow shall be applied toward the prepayment of the Term Loans, the reduction of the Revolving Credit Commitments, the cash collateralization of the Synthetic Lease Obligations and the repurchase of properties subject to the Synthetic Lease Facility, in each case as set forth in clause (v) of this subsection 3.4(b). Each such prepayment shall be made not later than 120 days after the end of such fiscal year. (v) Amounts to be applied by any Borrower pursuant to subsections 3.4(b)(i), (ii), (iii) or (iv) shall be applied (A) to prepay the Term Loans and reduce the Revolving Credit Commitments and/or, at the option of the Company, (B) to cash collateralize the Synthetic Lease Obligations and/or repurchase properties subject to the Synthetic Lease Facility. If the Company elects to have such amounts applied as set forth in clause (A) of this subsection 3.4(b)(v), such amounts shall be applied, first, to the prepayment of the Term ----- Loans and, second, to reduce permanently the Revolving Credit Commitments. Any ------ such reduction of the Revolving Credit Commitments shall be accompanied by prepayment of, first, the Swing Line Loans, second, the Revolving Credit Loans ----- ------ and, third, the L/C Obligations to the extent, if any, that the sum of the ----- aggregate outstanding principal amount of Revolving Credit Loans, the aggregate outstanding principal amount of all Swing Line Loans, the aggregate amount available to be drawn under all outstanding Letters of Credit, the aggregate outstanding amount of all L/C Obligations and the aggregate then outstanding amount of Revolving Synthetic Lease Obligations, in each case of all Lenders, exceeds the amount of the aggregate Revolving Credit Commitments as so reduced, provided that if the aggregate principal amount of Revolving Credit Loans, Swing - -------- Line Loans, L/C Obligations and Revolving Synthetic Lease Obligations then outstanding is less than the amount of such excess (because Letters of Credit constitute a portion thereof), the Company shall, to the extent of the balance of such excess, replace outstanding Letters of Credit and/or deposit an amount in cash in a cash collateral account established for the benefit of the Lenders. (vi) The Company, as agent for the Borrowers, shall give the Administrative Agent (which shall promptly notify each Lender) at least one Business Day's notice of each prepayment or mandatory reduction pursuant to this subsection 3.4(b) setting forth the date, amount and applicable Borrower thereof and the amount, if any, that has been applied to cash collateralize the Synthetic Lease Obligations or repurchase any properties subject to the Synthetic Lease Facility. Except as otherwise may be agreed by the Company, as agent for the Borrowers, and the Required Lenders, and subject to subsection 3.4(b)(v), any prepayment of Loans pursuant to this subsection 3.4 shall be applied, first, to any Alternate Base Rate Loans then outstanding and the ----- balance of such prepayment, if any, to the Eurodollar Loans then outstanding; provided that prepayments of Eurodollar Loans, if not on the last day of the - -------- Interest Period with respect thereto, shall, at the option of the Company, as agent for the Borrowers, be prepaid subject to the provisions of subsection 3.12 or the amount of such prepayment (after application to any Alternate Base Rate Loans) shall be deposited with the Administrative Agent as cash collateral for the Loans on terms reasonably satisfactory to the Administrative Agent and thereafter shall be applied in the order of the Interest Periods next ending most closely to the date such prepayment is required to be made and on the last day 42 of each such Interest Period. After such application, unless an Event of Default shall have occurred and be continuing, any remaining interest earned on such cash collateral shall be paid to the Company, as agent for the Borrowers. (c) Amounts repaid on account of the Term Loans pursuant to this subsection 3.4 or otherwise may not be reborrowed. Accrued interest on the amount of any prepayments shall be paid on the Interest Payment Date next succeeding the date of any partial prepayment and on the date of such prepayment in the case of a prepayment in full of the Term Loans. 3.5 Interest Rates and Payment Dates. (a) Eurodollar Loans shall -------------------------------- bear interest for each day during each Interest Period applicable thereto, commencing on (and including) the first day of such Interest Period to, but excluding, the last day of such Interest Period, on the unpaid principal amount thereof at a rate per annum equal to the Eurodollar Rate determined for such Interest Period plus the Applicable Margin from time to time in effect. (b) Alternate Base Rate Loans shall bear interest for the period from and including the date such Loans are made to, but excluding, the maturity date thereof, or to, but excluding, the conversion date if such Loans are earlier converted into Eurodollar Loans on the unpaid principal amount thereof at a rate per annum equal to the Alternate Base Rate plus the Applicable Margin from time to time in effect. (c) If all or a portion of (i) the principal amount of any of the Loans or (ii) any interest payable thereon shall not be paid when due (whether at the stated maturity, by acceleration or otherwise) such Loan, if a Eurodollar Loan, shall be converted into an Alternate Base Rate Loan at the end of the then-current Interest Period for said Eurodollar Loan (which conversion shall occur automatically and without need for compliance with the conditions for conversion set forth in subsection 3.2), and any such overdue amount shall, without limiting the rights of the Lenders under Section 8, bear interest (which shall be payable on demand) at a rate per annum which is 2% plus the Alternate Base Rate plus the Applicable Margin (or, in the case of a Eurodollar Loan, the Eurodollar Rate for the Interest Period plus the Applicable Margin from time to time in effect plus 2%, if higher) from the date of such non-payment until paid in full (as well after as before judgment). (d) Except as otherwise expressly provided for in this subsection 3.5, interest shall be payable in arrears on each Interest Payment Date. 3.6 Computation of Interest and Fees. (a) Interest in respect of -------------------------------- Alternate Base Rate Loans, at any time that the Alternate Base Rate is determined by reference to the Prime Rate, and all fees hereunder shall be calculated on the basis of a 365 (or 366 as the case may be) day year for the actual days elapsed. Interest in respect of Eurodollar Loans and in respect of Alternate Base Rate Loans at any time that the Alternate Base Rate is determined by reference to the Base CD Rate or the Federal Funds Effective Rate shall be calculated on the basis of a 360 day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Company and the Lenders of each determination of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a change in 43 the Alternate Base Rate or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change in the Alternate Base Rate is announced or such change in the Eurocurrency Reserve Requirements becomes effective, as the case may be. The Administrative Agent shall as soon as practicable notify the Company and the Lenders of the effective date and the amount of each such change. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrowers and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Company, as agent for the Borrowers, or any Lender, deliver to the Company or such Lender a statement showing the quotations used by the Administrative Agent in determining the Eurodollar Rate. 3.7 Certain Fees. The Borrowers agree to pay to the Administrative ------------ Agent, for its own account, a non-refundable agent's fee in an amount previously agreed to with the Administrative Agent, payable in advance on the Closing Date and on the first day of each fiscal year of the Company thereafter. 3.8 Inability to Determine Interest Rate. In the event that the ------------------------------------ Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrowers) that (a) by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for any Interest Period with respect to (i) proposed Loans that the Company, as agent for the Borrowers, has requested be made as Eurodollar Loans, (ii) any Eurodollar Loans that will result from the requested conversion of all or part of the Alternate Base Rate Loans into Eurodollar Loans or (iii) the continuation of any Eurodollar Loan as such for an additional Interest Period, or (b) dollar deposits in the relevant amount and for the relevant period with respect to any such Eurodollar Loan are not generally available to the Lenders in their respective Eurodollar Lending Offices' interbank eurodollar markets, the Administrative Agent shall forthwith give telecopy notice of such determination, confirmed in writing, to the Company and the Lenders at least one day prior to, as the case may be, the requested Borrowing Date, the conversion date or the last day of such Interest Period. If such notice is given (i) any requested Eurodollar Loans shall be made as Alternate Base Rate Loans, (ii) any Alternate Base Rate Loans that were to have been converted to Eurodollar Loans shall be continued as Alternate Base Rate Loans and (iii) any outstanding Eurodollar Loans shall be converted on the last day of the then current Interest Period applicable thereto into Alternate Base Rate Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made and no Alternate Base Rate Loans shall be converted to Eurodollar Loans. 3.9 Pro Rata Treatment and Payments. (a) Except to the extent ------------------------------- otherwise provided herein, each borrowing of Loans by the Borrowers from the Lenders, each conversion of Revolving Credit Loans to Term Loans and any reduction of the Revolving Credit Commitments of the Lenders hereunder shall be made pro rata according to the relevant Revolving Credit Percentages of the --- ---- Lenders with respect to the Loans borrowed or converted or the Revolving Credit Commitments to be reduced. 44 (b) Whenever any payment received by the Administrative Agent under this Agreement or any Note or any other Credit Document is insufficient to pay in full all amounts then due and payable to the Administrative Agent and the Lenders under this Agreement: (i) If the Administrative Agent has not received a Payment Sharing Notice (or, if the Administrative Agent has received a Payment Sharing Notice but the Event of Default specified in such Payment Sharing Notice has been cured or waived in accordance with the provisions of this Agreement), such payment shall be distributed by the Administrative Agent and applied by the Administrative Agent and the Lenders in the following order: first, to the payment of fees and expenses due and payable to the ----- Administrative Agent under and in connection with this Agreement and the other Credit Documents; second, to the payment of all expenses due and ------ payable under subsection 9.5, ratably among the Lenders in accordance with the aggregate amount of such payments owed to each such Lender; third, to ----- the payment of fees due and payable under subsections 2.2 and 2.9, ratably among the Lenders in accordance with the Revolving Credit Percentage of each Lender of the Revolving Credit Commitment for which such payment is owed and, in the case of the Issuing Lender, the amount retained by the Issuing Lender for its own account pursuant to subsection 2.9; fourth, to ------ the payment of interest then due and payable on the Loans and the L/C Obligations ratably in accordance with the aggregate amount of interest owed to each such Lender; and fifth, to the payment of the principal amount ----- of the Loans and the L/C Obligations which is then due and payable ratably among the Lenders in accordance with the aggregate principal amount owed to each such Lender; or (ii) If the Administrative Agent has received a Payment Sharing Notice which remains in effect, all payments received by the Administrative Agent under this Agreement or any Note shall be distributed by the Administrative Agent and applied by the Administrative Agent and the Lenders in the following order: first, to the payment of all amounts ----- described in clauses "first" through "third" of the foregoing clause (i) in ----- ----- the order set forth therein; second, to the payment of the interest accrued ------ on all Loans and L/C Obligations, regardless of whether any such amount is then due and payable, ratably among the Lenders in accordance with the aggregate accrued interest plus the aggregate principal amount of all Loans and L/C Obligations then due and payable and owed to such Lender; and third, to the payment of the principal amount of all Loans and L/C ----- Obligations, regardless of whether any such amount is then due and payable, ratably among the Lenders in accordance with the aggregate principal amount owed to such Lender. (c) If any Lender (a "Non-Funding Lender") has (x) failed to make a ------------------ Revolving Credit Loan required to be made by it hereunder, and the Administrative Agent has determined that such Lender is not likely to make such Revolving Credit Loan or (y) given notice to the Company or the Administrative Agent that it will not make, or that it has disaffirmed or repudiated any obligation to make, any Revolving Credit Loan, in each case by reason of the provisions of the Financial Institutions Reform, Recovery and Enforcement Act 45 of 1989, as amended, or otherwise, (i) any payment made on account of the principal of the Revolving Credit Loans outstanding shall be made as follows: (A) in the case of any such payment made on any date when and to the extent that in the determination of the Administrative Agent the Borrowers would be able under the terms and conditions hereof to reborrow the amount of such payment under the Commitments and to satisfy any applicable conditions precedent set forth in Section 5 to such reborrowing, such payment shall be made on account of the outstanding Revolving Credit Loans held by the Lenders other than the Non-Funding Lender pro rata according to --- ---- the respective outstanding principal amounts of the Revolving Credit Loans of such Lenders; and (B) otherwise, such payment shall be made on account of the outstanding Revolving Credit Loans held by the Lenders pro rata according --- ---- to the respective outstanding principal amounts of such Revolving Credit Loans; and (ii) any payment made on account of interest on the Revolving Credit Loans shall be made pro rata according to the respective amounts of accrued and unpaid --- ---- interest due and payable on the Revolving Credit Loans with respect to which such payment is being made. Each Borrower agrees to give the Administrative Agent such assistance in making any determination pursuant to subparagraph (i)(A) of this paragraph as the Administrative Agent may reasonably request. Any such determination by the Administrative Agent shall be conclusive and binding on the Lenders. (d) All payments (including prepayments) to be made by any Borrower on account of principal, interest and fees shall be made without set-off or counterclaim and shall be made to the Administrative Agent, for the account of the Lenders at the Administrative Agent's office located at 270 Park Avenue, New York, New York 10017, in lawful money of the United States and in immediately available funds. The Administrative Agent shall promptly distribute such payments in accordance with the provisions of subsection 3.9(b) upon receipt in like funds as received. If any payment hereunder (other than payments on Eurodollar Loans) would become due and payable on a day other than a Business Day, such payment shall become due and payable on the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day (and with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension), unless the result of such extension would be to extend such payment into another calendar month in which event such payment shall be made on the immediately preceding Business Day. (e) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount which would constitute its Revolving Credit Percentage of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent in accordance with subsection 3.1 and the 46 Administrative Agent may, in reliance upon such assumption, make available to the Company, as agent for the Borrowers, a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate equal to the daily average Federal Funds Effective Rate for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this subsection 3.9(e) shall be conclusive absent manifest error. If such Lender's Revolving Credit Percentage of such borrowing is not in fact made available to the Administrative Agent by such Lender within three Business Days of such Borrowing Date, the Administrative Agent shall also be entitled to recover such amount with interest thereon at the rate per annum applicable to Alternate Base Rate Loans hereunder (in lieu of any otherwise applicable interest), on demand, from the Borrowers, without prejudice to any rights which any such Borrower or the Administrative Agent may have against such Lender hereunder. Nothing contained in this subsection 3.9 shall relieve any Lender which has failed to make available its ratable portion of any borrowing hereunder from its obligation to do so in accordance with the terms hereof. (f) The failure of any Lender to make the Loan to be made by it on any Borrowing Date shall not relieve any other Lender of its obligation, if any, hereunder to make its Loan on such Borrowing Date, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on such Borrowing Date. (g) All payments and optional prepayments (other than prepayments as set forth in subsection 3.11 with respect to increased costs) of Eurodollar Loans hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of all Eurodollar Loans with the same Interest Period shall not be less than $2,000,000 or a whole multiple of $1,000,000 in excess thereof. 3.10 Illegality. Notwithstanding any other provision herein, if any ---------- Change in Law occurring after the date that any lender becomes a Lender party to this Agreement, shall make it unlawful for such Lender to make or maintain Eurodollar Loans as contemplated by this Agreement, the commitment of such Lender hereunder to make Eurodollar Loans or to convert all or a portion of Alternate Base Rate Loans into Eurodollar Loans shall forthwith be suspended until such time, if any, as such illegality shall no longer exist, and such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to Alternate Base Rate Loans for the duration of the respective Interest Periods (or, if permitted by applicable law, at the end of such Interest Periods) and all payments of principal which would otherwise be applied to such Eurodollar Loans shall be applied instead to such Lender's Alternate Base Rate Loans. The Borrowers hereby agree to pay any Lender, promptly upon its demand, any amounts payable pursuant to subsection 3.12 in connection with any conversion in accordance with this subsection 3.10 (such Lender's notice of such costs, as certified in reasonable detail as to such amounts to the Company through the Administrative Agent, to be conclusive absent manifest error). 47 3.11 Requirements of Law. (a) In the event that any Change in Law ------------------- or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority occurring after the date that any lender becomes a Lender party to this Agreement: (i) does or shall subject any such Lender or its Eurodollar Lending Office to any tax of any kind whatsoever with respect to this Agreement, any Note or any Eurodollar Loans made by it, or change the basis of taxation of payments to such Lender or its Eurodollar Lending Office of principal, the commitment fee, interest or any other amount payable hereunder (except for (x) net income and franchise taxes imposed on the net income of such Lender or its Eurodollar Lending Office by the jurisdiction under the laws of which such Lender is organized or any political subdivision or taxing authority thereof or therein, or by any jurisdiction in which such Lender's Eurodollar Lending Office is located or any political subdivision or taxing authority thereof or therein, including changes in the rate of tax on the overall net income of such Lender or such Eurodollar Lending Office, and (y) taxes resulting from the substitution of any such system by another system of taxation, provided that the taxes -------- payable by Lenders subject to such other system of taxation are not generally charged to borrowers from such Lenders having loans or advances bearing interest at a rate similar to the Eurodollar Rate); (ii) does or shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender which are not otherwise included in the determination of the Eurodollar Rate; or (iii) does or shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender or its Eurodollar Lending Office of making, converting, renewing or maintaining advances or extensions of credit or to reduce any amount receivable hereunder, in each case, in respect of its Eurodollar Loans, then, in any such case, the Borrowers shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such additional cost or reduced amount receivable which such Lender deems to be material as determined by such Lender with respect to such Eurodollar Loans, together with interest on each such amount from the date demanded until payment in full thereof at a rate per annum equal to the Alternate Base Rate plus 1%. (b) In the event that any Change in Law occurring after the date that any lender becomes a Lender party to this Agreement with respect to any such Lender shall, in the opinion of such Lender, require that any Commitment of such Lender be treated as an asset or otherwise be included for purposes of calculating the appropriate amount of capital to be maintained by such Lender or any corporation controlling such Lender, and such Change in Law shall have the effect of reducing the rate of return on such Lender's or such corporation's capital, as the case may be, as a consequence of such Lender's obligations 48 hereunder to a level below that which such Lender or such corporation, as the case may be, could have achieved but for such Change in Law (taking into account such Lender's or such corporation's policies, as the case may be, with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time following notice by such Lender to the Borrowers of such Change in Law as provided in paragraph (c) of this subsection 3.11, within 15 days after demand by such Lender, the Borrowers shall pay to such Lender such additional amount or amounts as will compensate such Lender or such corporation on an after-tax basis, as the case may be, for such reduction. (c) The Borrowers shall not be required to make any payments to any Lender for any additional amounts pursuant to this subsection 3.11 unless such Lender has given written notice to the Company, through the Administrative Agent, of its intent to request such payments prior to or within 60 days after the date on which such Lender incurred such amounts. If any Lender has notified the Company through the Administrative Agent of any increased costs pursuant to paragraph (a) of this subsection 3.11, the Borrowers at any time thereafter may, upon at least three Business Days' notice to the Administrative Agent (which shall promptly notify the Lenders thereof), and subject to subsection 3.12, prepay (or convert into Alternate Base Rate Loans) all (but not a part) of the Eurodollar Loans then outstanding. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of paragraph (a) of this subsection 3.11 with respect to such Lender, it will, if requested by the Company, as agent for the Borrowers, and to the extent permitted by law or by the relevant Governmental Authority, endeavor in good faith to avoid or minimize the increase in costs or reduction in payments resulting from such event (including, without limitation, endeavoring to change its Eurodollar Lending Office); provided, that -------- such avoidance or minimization can be made in such a manner that such Lender, in its sole determination, suffers no economic, legal or regulatory disadvantage. If any Lender requests compensation from any Borrower under this subsection 3.11, the Company, as agent for the Borrowers, may, by notice to such Lender (with a copy to the Administrative Agent), suspend the obligation of such Lender thereafter to make or continue Loans of the Type with respect to which such compensation is requested, or to convert Loans of any other Type into Loans of such Type, until the Requirement of Law giving rise to such request ceases to be in effect, provided that such suspension shall not affect the right of such -------- Lender to receive the compensation so requested. (d) Each Lender (and in case of an Assignee on the date it becomes a Lender) that is not a United States Person (as defined in Section 7701(a)(30) of the Code) for federal income tax purposes either (1) in the case of a Lender that is a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (i) represents to each Borrower (for the benefit of the Borrowers and the Administrative Agent) that under applicable law and treaties no taxes are required to be withheld by any Borrower or the Administrative Agent with respect to any payments to be made to such Lender in respect of the Loans or the L/C Participating Interests, (ii) agrees to furnish to the Company, with a copy to the Administrative Agent, either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein such Lender claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder) and (iii) agrees (for the benefit of the Borrowers and the Administrative Agent), to the extent it may lawfully do so at such times, to provide the Company, with a copy to the Administrative Agent, a new Form 4224 or Form 49 1001 upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such Lender, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption or (2) in the case of a Lender that is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (i) represents to each Borrower (for the benefit of the Borrowers and the Administrative Agent) that it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (ii) agrees to furnish to the Company, with a copy to the Administrative Agent, (A) a certificate substantially in the form of Exhibit I hereto (any such certificate, a "Subsection 3.11(d)(2) Certificate") and (B) two accurate and complete --------------------------------- original signed copies of Internal Revenue Service Form W-8, certifying to such Lender's legal entitlement at the Closing Date to an exemption from U.S. withholding tax under the provisions of Section 881(c) of the Code with respect to all payments to be made under this Agreement, and (iii) agrees, to the extent legally entitled to do so, upon reasonable request by the Company, to provide to the Company (for the benefit of the Borrowers and the Administrative Agent) such other forms as may be required in order to establish the legal entitlement of such Lender to an exemption from withholding with respect to payments under this Agreement. Notwithstanding any provision of this subsection 3.11 or 3.9(d) to the contrary, the Borrowers shall have no obligation to pay any amount to or for the account of any Lender (or the Eurodollar Lending Office of any Lender) on account of any taxes pursuant to this subsection 3.11, to the extent that such amount results from (i) the failure of any Lender to comply with its obligations pursuant to this subsection 3.11, (ii) any representation or warranty made or deemed to be made by any Lender pursuant to this subsection 3.11(d) proving to have been incorrect, false or misleading in any material respect when so made or deemed to be made or (iii) any Change in Law or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority, the effect of which would be to subject to any taxes any payment made pursuant to this Agreement to any Lender making the representation and covenants set forth in subsection 3.11(d)(2), which payment would not be subject to such taxes were such Lender eligible to make and comply with, and actually made and complied with, the representation and covenants set forth in subsection 3.11(d)(1) hereinabove. (e) A certificate in reasonable detail as to any amounts submitted by such Lender, through the Administrative Agent, to the Company, shall be conclusive in the absence of manifest error. The covenants contained in this subsection 3.11 shall survive the termination of this Agreement and repayment of the Loans. 3.12 Indemnity. The Borrowers agree to indemnify each Lender and to --------- hold such Lender harmless from any loss or expense (but without duplication of any amounts payable as default interest) which such Lender may sustain or incur as a consequence of (a) default by any Borrower in payment of the principal amount of or interest on any Eurodollar Loans of such Lender, including, but not limited to, any such loss or expense arising from interest or fees payable by such Lender to lenders of funds obtained by it in order to make or maintain its Eurodollar Loans hereunder, (b) default by any Borrower in making a borrowing after the Company, as agent for the Borrowers, has given a notice in accordance with subsection 3.1 or in making a conversion of Alternate Base Rate Loans to Eurodollar Loans 50 or in continuing Eurodollar Loans as such, in either case, after the Company, as agent for the Borrowers, has given notice in accordance with subsection 3.2, (c) default by any Borrower in making any prepayment after the Company, as agent for the Borrower, has given a notice in accordance with subsection 3.4 or (d) a payment or prepayment of a Eurodollar Loan or conversion (including without limitation, as a result of subsection 3.4 and/or a conversion pursuant to subsection 3.10) of any Eurodollar Loan into an Alternate Base Rate Loan, in either case on a day which is not the last day of an Interest Period with respect thereto, including, but not limited to, any such loss or expense arising from interest or fees payable by such Lender to lenders of funds obtained by it in order to maintain its Eurodollar Loans hereunder (but excluding loss of profit). This covenant shall survive termination of this Agreement and repayment of the Loans. 3.13 Repayment of Loans; Evidence of Debt. (a) The Borrowers hereby ------------------------------------ unconditionally promise to pay to the Administrative Agent for the account of each Lender (i) the then unpaid principal amount of each Revolving Credit Loan of such Lender on the Termination Date, (ii) the then unpaid principal amount of the Term Loans of such Lender on the Termination Date and (iii) the then unpaid principal amount of the Swing Line Loans of the Swing Line Lender on the Termination Date. The Borrowers hereby further agree to pay interest on the unpaid principal amount of the Loans from time to time outstanding from the date hereof until payment in full thereof at the rates per annum and on the dates set forth in subsection 3.5. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Borrowers to such Lender resulting from each Loan of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. (c) The Administrative Agent shall maintain the Register pursuant to subsection 9.6(d), and a subaccount therein for each Lender, in which shall be recorded (i) the amount of each Revolving Credit Loan and Term Loan made hereunder, the Type thereof and each Interest Period applicable thereto, (ii) the applicable Borrower, (iii) the amount of any principal or interest due and payable or to become due and payable from the Borrowers to each Lender hereunder and (iv) both the amount of any sum received by the Administrative Agent hereunder from the Borrowers and each Lender's share thereof. (d) The entries made in the Register and the accounts of each Lender maintained pursuant to subsection 3.13(b) shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the ----- ----- obligations of the Borrowers therein recorded; provided that the failure of any -------- Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of any Borrower to repay (with applicable interest) the Loans made to such Borrower by such Lender or to repay any other obligations in accordance with the terms of this Agreement. (e) Each Borrower agrees that, upon the request to the Administrative Agent by any Lender, such Borrower will execute and deliver to such Lender (i) a promissory note 51 of such Borrower evidencing the Revolving Credit Loans of such Lender, substantially in the form of Exhibit A with appropriate insertions as to date and principal amount (a "Revolving Credit Note"), and/or (ii) a promissory note --------------------- of such Borrower evidencing the Term Loan of such Lender, substantially in the form of Exhibit B with appropriate insertions as to date and principal amount (a "Term Loan Note"), and/or (iii) in the case of the Swing Line Lender, a -------------- promissory note of the Company evidencing the Swing Line Loans of the Swing Line Lender, substantially in the form of Exhibit C with appropriate insertions as to date and principal amount (the "Swing Line Note"). --------------- 3.14 Replacement of Lenders. In the event any Lender or the Issuing ---------------------- Lender is a Non-Funding Lender, exercises its rights pursuant to subsection 3.10 or requests payments pursuant to subsections 2.10 or 3.11, the Company, as agent for the Borrowers, may require, at the Borrowers' expense (including payment of any processing fees under subsection 9.6(e)) and subject to subsection 3.12, such Lender or the Issuing Lender to assign, at par plus accrued interest and fees, without recourse (in accordance with subsection 9.6) all of its interests, rights and obligations hereunder (including all of its Commitments and the Loans and other amounts at the time owing to it hereunder and its Notes and its interest in the Letters of Credit) to a bank, financial institution or other entity specified by the Company, provided that (i) such -------- assignment shall not conflict with or violate any law, rule or regulation or order of any court or other Governmental Authority, (ii) the Company shall have received the written consent of the Administrative Agent, which consent shall not unreasonably be withheld, to such assignment, (iii) the Borrowers shall have paid to the assigning Lender or the Issuing Lender all monies other than principal, interest and fees accrued and owing hereunder to it (including pursuant to subsections 2.10, 3.10, 3.11 and 3.12) and (iv) in the case of a required assignment by the Issuing Lender, the Letters of Credit shall be canceled and returned to the Issuing Lender. 3.15 Appointment of the Company and Reliance on Representation of the ---------------------------------------------------------------- Company. Each Borrower hereby appoints the Company as its agent for all - ------- purposes hereunder, and each Borrower agrees that the Administrative Agent and the Lenders may rely on any representations, warranty, certificate, notice, document or telephone request which purports to be executed or made, and which the Administrative Agent or the Lenders in good faith believe to have been executed or made, by the Company or any of its Authorized Officers, and each Borrower further agrees to indemnify and hold the Administrative Agent and the Lenders harmless for any action, including the making of the borrowings hereunder, and any loss or expense, taken or incurred by any of them as a result of their good faith reliance upon any such representations, warranty, certificate, notice, document or telephone request. All obligations of the Borrowers under this Agreement or any notes, instruments or agreements entered in connection herewith, shall be joint and several obligations of each of the Borrowers. SECTION 4. REPRESENTATIONS AND WARRANTIES ------------------------------ To induce the Lenders to enter into this Agreement and to make the Loans and to induce the Issuing Lender to issue, and the Participating Lenders to participate in, the 52 Letters of Credit, each Borrower hereby represents and warrants to each Lender and the Administrative Agent as of the Closing Date and as of the making of any extension of credit hereunder: 4.1 Financial Condition. (a) The consolidated audited balance ------------------- sheets of the Company and its consolidated Subsidiaries as at December 31, 1995, December 31, 1996 and December 31, 1997 the related consolidated statements of operations and of cash flows for the fiscal years ended on each such dates, audited by Coopers & Lybrand LLP, copies of which have heretofore been furnished to each Lender, present fairly in accordance with GAAP the consolidated financial condition of the Company and its consolidated Subsidiaries as at such dates, and the consolidated results of their operations and their consolidated cash flows for the fiscal year then ended. All such financial statements have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants and as disclosed therein). Neither the Company nor any of its consolidated Subsidiaries had, at the date of each balance sheet referred to above, any material Contingent Obligation, contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term commitment, including, without limitation, any material interest rate or foreign currency swap or exchange transaction, which is not reflected in the foregoing statements or in the notes thereto or expressly permitted to be incurred hereunder. (b) The unaudited consolidated balance sheet of the Company and its consolidated Subsidiaries as at March 31, 1998 and the related consolidated statements of operations and of cash flows for the three-month period then ended, certified by a Responsible Officer of the Company, copies of which have heretofore been furnished to each Lender, present fairly in accordance with GAAP the financial position of the Company and its consolidated Subsidiaries as at such date and the consolidated results of their operations and their consolidated cash flows for the three-month period then ended (subject to normal year-end adjustments). Such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP (except as approved by such Responsible Officer and disclosed therein). The Company and its consolidated Subsidiaries did not have at the date of such balance sheet, any material Contingent Obligation, contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term commitment, including, without limitation, any interest rate or foreign currency exchange transaction, which is not reflected in such balance sheet or in the notes thereto or in the notes to the Company's audited financial statements. During the period from December 31, 1997 to the Closing Date, no dividends or other distributions have been declared, paid or made upon the Capital Stock of the Company or any of its consolidated Subsidiaries nor has any of the Capital Stock of the Company or any of its consolidated Subsidiaries been redeemed, retired, purchased or otherwise acquired for value by the Company or any of its consolidated Subsidiaries, respectively, in each case, except as contemplated in connection with the Merger. (c) The unaudited consolidated pro forma balance sheet of the Company --- ----- and its consolidated Subsidiaries, as of March 31, 1998, certified by a Responsible Officer of the Company (the "Pro Forma Balance Sheet"), copies of ----------------------- which have been furnished to each Lender, is the unaudited balance sheet of the Company and its consolidated Subsidiaries 53 adjusted to give effect (as if such events had occurred on the date set forth therein) to (i) the Merger and each of the transactions contemplated by the Merger Agreement and (ii) the incurrence of the Loans and the issuance of the Letters of Credit to be incurred or issued, as the case may be, on the Closing Date, and all Indebtedness that the Company and its consolidated Subsidiaries expect to incur, and the payment of all amounts the Company and its consolidated Subsidiaries expect to pay, in connection with the Merger. The Pro Forma Balance Sheet, together with the notes thereto, was prepared based on good faith assumptions in accordance with GAAP and is based on the best information available to the Company as of the date of delivery thereof and reflects on a pro forma basis the financial position of the Company and its consolidated - --- ----- Subsidiaries as of March 31, 1998, as adjusted, as described above, assuming that the events specified in the preceding sentence had actually occurred as of March 31, 1998. 4.2 No Change. Since December 31, 1997, (a) there has been no --------- change, and (as of the Closing Date only) no development or event which has had or could reasonably be expected to have a material adverse effect on (i) the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole, (ii) the ability of the Company and its Subsidiaries to perform their obligations under the Credit Documents and with respect to the other financings contemplated hereby or (iii) the rights and remedies of the Lenders under the Credit Documents and (b) no dividends or other distributions have been declared, paid or made upon the Capital Stock of the Company nor has any of the Capital Stock of the Company been redeemed, retired, repurchased or otherwise acquired for value by the Company or any of its Subsidiaries, except as permitted by subsection 7.11 and, in each case, except as contemplated in connection with the Merger. 4.3 Corporate Existence; Compliance with Law. Each of the Company ---------------------------------------- and its Subsidiaries (a) is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation, (b) has full corporate power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to use its corporate name and to own, lease or otherwise hold its properties and assets and to carry on its business as presently conducted other than such franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, would not have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole, (c) is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership, leasing or holding of its properties makes such qualification necessary, except such jurisdictions where the failure so to qualify would not have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole, and (d) is in compliance with all applicable statutes, laws, ordinances, rules, orders, permits and regulations of any governmental authority or instrumentality, domestic or foreign (including, without limitation, those related to Hazardous Materials and substances), except where noncompliance would not have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole. Neither the Company nor any of its Subsidiaries has received prior to the date hereof any written communication from a Governmental Authority that alleges that the Company or any of its 54 Subsidiaries is not in compliance, in all material respects, with all material federal, state, local or foreign laws, ordinances, rules and regulations, which alleged non-compliance has not been remedied. 4.4 Corporate Power; Authorization. Each of the Company and its ------------------------------ Subsidiaries has the corporate power and authority to make, deliver and perform each of the Credit Documents to which it is a party, each Borrower has the corporate power and authority and legal right to borrow hereunder, and the Company has the corporate power and authority to have Letters of Credit issued for its account hereunder. Each of the Company and its Subsidiaries has taken all necessary corporate action to authorize the execution, delivery and performance of each of the Credit Documents to which it is or will be a party, each Borrower has taken all necessary corporate action to authorize the borrowings hereunder, and the Company has taken all necessary corporate action to authorize the issuance of Letters of Credit for its account hereunder. No consent or authorization of, or filing with, any Person (including, without limitation, any Governmental Authority) is required in connection with the execution, delivery or performance by the Company or any of its Subsidiaries, or for the validity or enforceability against the Company or any of its Subsidiaries, of any Credit Document except for consents, authorizations and filings which have been obtained or made and are in full force and effect and except (a) such consents, authorizations and filings, the failure to obtain or perform (i) which would not have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole and (ii) which would not adversely affect the validity or enforceability of any of the Credit Documents or the rights or remedies of the Administrative Agent or the Lenders thereunder, and (b) such filings as are necessary to perfect the Liens of the Lenders created pursuant to this Agreement and the Security Documents. 4.5 Enforceable Obligations. This Agreement and the Merger Agreement ----------------------- have been, and each of the other Credit Documents and any other agreement to be entered into by any Credit Party pursuant to the Merger Agreement will be, duly executed and delivered on behalf of such Credit Party that is party thereto. The Merger Agreement has been duly executed and delivered on behalf of the Company and AcquisitionCo. This Agreement and the Merger Agreement each constitutes, and each of the other Credit Documents and any other agreement to be entered into by any Credit Party pursuant to the Merger Agreement will constitute upon execution and delivery, the legal, valid and binding obligation of such Credit Party, enforceable against such Credit Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). The Merger Agreement constitutes the legal, valid and binding obligation of (a) the Company enforceable against the Company in accordance with its terms and (b) AcquisitionCo enforceable against AcquisitionCo in accordance with its terms, except, in each case, as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). 55 4.6 No Legal Bar. The execution, delivery and performance of each ------------ Credit Document, the incurrence or issuance of and use of the proceeds of the Loans, the Subordinated Debt, the Preferred Stock and drawings under the Letters of Credit, and the transactions contemplated by the Merger Agreement, the Credit Documents and the documentation for the Subordinated Debt and the Preferred Stock, (a) will not violate any Requirement of Law or any Contractual Obligation applicable to or binding upon AcquisitionCo, the Company or any Subsidiary or any of their respective properties or assets, in any manner which, individually or in the aggregate, (i) would have a material adverse effect on the ability of AcquisitionCo, the Company or any such Subsidiary to perform its obligations under the Credit Documents, the Merger Agreement, and any other agreement to be entered into pursuant to the Merger Agreement or in connection with the Subordinated Debt or the Preferred Stock, to which it is a party, (ii) would give rise to any liability on the part of the Administrative Agent or any Lender or (iii) would have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole, and (b) will not result in the creation or imposition of any Lien on any of its properties or assets pursuant to any Requirement of Law applicable to it, as the case may be, or any of its Contractual Obligations, except for the Liens arising under the Security Documents (some of which may be the subject of the Intercreditor Agreement or the Agency and Intercreditor Agreement). 4.7 No Material Litigation. No litigation by, investigation known to ---------------------- the Company by, or proceeding of, any Governmental Authority is pending against the Company or any of its Subsidiaries (including after giving effect to the Merger) that could reasonably be expected to affect (a) the validity, binding effect or enforceability of the Merger Agreement or any Credit Document, (b) the Loans made hereunder or the use of proceeds thereof, of the Subordinated Debt, of the Preferred Stock or of any drawings under a Letter of Credit or (c) the other transactions contemplated hereby or by the Merger Agreement. No lawsuits, claims, proceedings or investigations are pending or, to the best knowledge of the Company, threatened as of the Closing Date against or affecting the Company or a Subsidiary or any of their respective properties, assets, operations or businesses (including after giving effect to the Merger), in which there is a probability of an adverse determination, and is reasonably likely, if adversely decided, to have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole. 4.8 Investment Company Act. Neither the Company nor any Subsidiary ---------------------- is an "investment company" or a company "controlled" by an "investment company" (as each of the quoted terms is defined or used in the Investment Company Act of 1940, as amended). 4.9 Federal Regulation. No part of the proceeds of any of the Loans ------------------ or Subordinated Debt or any drawing under a Letter of Credit will be used for any purpose which violates the provisions of Regulation T, U or X of the Board. Neither the Company nor any of its Subsidiaries is engaged or will engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under said Regulation U. Following application of the proceeds of each Loan, not more than 25% of the 56 value of the assets (either of the Company only or the Company and its Subsidiaries on a consolidated basis) subject to the provisions of subsection 7.2, or subject to any restriction contained in any agreement or instrument between the Company and any Lender or any affiliate of any Lender relating to Indebtedness within the scope of Section 8(d), will be "margin stock". 4.10 No Default. The Company and each of its Subsidiaries have ---------- performed all material obligations required to be performed by them under their respective Contractual Obligations (including after giving effect to the Merger) and they are not (with or without the lapse of time or the giving of notice, or both) in breach or default in any respect thereunder, except to the extent that such breach or default would not have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole. Neither the Company nor any of its Subsidiaries (including after giving effect to the Merger) is in default under any material judgment, order or decree of any Governmental Authority, domestic or foreign, applicable to it or any of its respective properties, assets, operations or business, except to the extent that any such breaches or defaults would not, in the aggregate, have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole. 4.11 Taxes. Except as set forth on Schedule 4.11, each of the Company ----- and its Subsidiaries (including after giving effect to the Merger) has filed or caused to be filed all material tax returns which, to the knowledge of the Company, are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any the amount of which is currently being contested in good faith by appropriate proceedings and with respect to which reserves (or other sufficient provisions) in conformity with GAAP have been provided on the books of the Company or its Subsidiaries (including after giving effect to the Merger), as the case may be); and no tax Lien has been filed, and, to the knowledge of the Company, no written claim is being asserted, with respect to any such tax, fee or other charges. 4.12 Subsidiaries. After giving effect to the consummation of the ------------ Merger, the Subsidiaries and their respective jurisdictions of incorporation shall be as set forth on Schedule 4.12. 4.13 Ownership of Property; Liens. As of the Closing Date and as of ---------------------------- the making of any extension of credit hereunder (subject to transfers and dispositions of property permitted under subsection 7.5), each of the Company and its Subsidiaries has good and valid title to all of its material assets (other than real property or interests in real property) in each case free and clear of all mortgages, liens, security interests or encumbrances of any nature whatsoever except Permitted Liens. With respect to real property or interests in real property, as of the Closing Date, each of the Company and its Subsidiaries has (a) fee title to all of the real property listed on Schedule 4.13 under the heading "Fee Properties" (each, a "Fee Property"), and (b) good ------------ and valid title to the leasehold estates in all of the real property leased by it and listed on Schedule 4.13 under the heading "Leased Properties" (each, a 57 "Leased Property"), in each case, free and clear of all mortgages, liens, --------------- security interests, easements, covenants, rights-of-way and other similar restrictions of any nature whatsoever, except (i) Permitted Liens and (ii) as to Leased Property, the terms and provisions of the respective lease therefor, including, without limitation, the matters set forth on Schedule 4.13, and any matters affecting the fee title and any estate superior to the leasehold estate related thereto. The Fee Properties and the Leased Properties constitute, as of the Closing Date, all of the real property owned in fee or leased by the Company and its Subsidiaries. 4.14 ERISA. Neither a Reportable Event nor an "accumulated funding ----- deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan that would result in a material liability to the Company or any of its Subsidiaries, and each Plan has complied with the applicable provisions of ERISA and the Code except to the extent that any non-compliance would not result in a material liability to the Company. Neither the Company nor any Commonly Controlled Entity has: been involved in any transaction that would cause the Company or any of its Subsidiaries to be subject to material liability with respect to a Plan to which the Company or any Commonly Controlled Entity contributed or was obligated to contribute during the six-year period ending on the date this representation is made or deemed made; or incurred any material liability under Title IV of ERISA which would become or remain a material liability of the Company or any of its Subsidiaries after the Closing Date. No termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period that would result in a material liability to the Company or any of its Subsidiaries. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits that would result in a material liability to the Company or any of its Subsidiaries. Neither the Company nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan, and neither the Company nor any Commonly Controlled Entity would become subject to any liability under ERISA if the Company or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made, in either case that would result in a material liability to the Company or any of its Subsidiaries. To the knowledge of the Company, no such Multiemployer Plan is in Reorganization or Insolvent. The present value (determined using actuarial and other assumptions which are reasonable in respect of the benefits provided and the employees participating) of the liability of the Company and each Commonly Controlled Entity for post retirement benefits to be provided to their current and former employees under Plans which are welfare benefit plans (as defined in Section 3(1) of ERISA) does not, in the aggregate, exceed the assets under all such Plans allocable to such benefits by an amount that would result in a material liability to the Company or any of its Subsidiaries, except as disclosed in the Company's audited financial statements for the fiscal year ended December 31, 1997 provided to the Lenders prior to the Closing Date. For purposes of this subsection 4.14, a material liability shall exceed $7,500,000. 58 4.15 Security Documents. (a) Upon execution and delivery thereof by ------------------ the parties thereto, the Collateral Agreement will be effective to create in favor of the Administrative Agent, for the benefit of the Lenders, a legal, valid and enforceable security interest in the Collateral described therein. When stock certificates representing or constituting the pledged stock described in the Collateral Agreement are delivered to the Administrative Agent, such security interest shall constitute a perfected first lien on, and security interest in, all right, title and interest of the grantors party thereto in the pledged stock described therein to the extent that such liens and security interests are in accordance with the provisions of the Intercreditor Agreement and the Agency and Intercreditor Agreement. In the case of the other Collateral described in the Collateral Agreement, when Uniform Commercial Code financing statements have been filed in each of the jurisdictions listed on Schedule 4.15(a), or arrangements have been made for such filing in such jurisdictions, and upon such filing, and upon the taking of possession by the Administrative Agent of any such Collateral the security interests in which may be perfected only by possession, such security interests will, subject to the existence of Permitted Liens and the provisions of the Intercreditor Agreement, constitute perfected first priority liens on, and security interests in, all right, title and interest of the grantors' party thereto in such other Collateral, to the extent that such liens and security interests are in accordance with the provisions of the Intercreditor Agreement and the Agency and Intercreditor Agreement and except to the extent that a security interest cannot be perfected therein by the filing of a financing statement or the taking of possession under the Uniform Commercial Code of the relevant jurisdiction. (b) Upon execution and delivery thereof by the applicable Credit Party, each Mortgage will be effective to create in favor of the Administrative Agent, for the benefit of the Lenders, a legal, valid and enforceable security interest in the collateral described therein, and upon recording the Mortgages in the jurisdictions listed on Schedule 4.13 (or, in the case of a Mortgage delivered pursuant to subsection 6.9(c), the jurisdiction in which the property covered by such Mortgage is located), such security interests will, subject to the existence of Permitted Liens and the provisions of the Intercreditor Agreement, constitute first (or, in the case of the Mortgages granted by Meditrust Entities, second) priority liens on, and perfected security interests in, all rights, title and interest of the debtor party thereto in the collateral described therein to the extent that such liens and security interests are in accordance with the provisions of the Intercreditor Agreement and the Agency and Intercreditor Agreement. 4.16 Copyrights, Patents, Permits, Trademarks and Licenses. Schedule ----------------------------------------------------- 4.16 sets forth a true and complete list as of the Closing Date of all material trademarks (registered or unregistered), trade names, service marks, patents, pending patent applications and copyrights and applications therefor owned, used or filed by or licensed to the Company and its Subsidiaries (after giving effect to the Merger) and, with respect to registered trademarks (if any), contains a list of all jurisdictions in which such trademarks are registered or applied for and all registration and application numbers. Except as set forth on Schedule 4.16, the Company or a Subsidiary (after giving effect to the Merger) owns or has the right to use, trademarks (registered or unregistered), trade names, service marks, patents, pending patent applications and copyrights and applications therefor referred to in such Schedule. Except as set forth on Schedule 4.16, to the best knowledge of the Company, no claims are pending by 59 any Person with respect to the ownership, validity, enforceability or the Company's or any Subsidiary's use of any such trademarks (registered or unregistered), trade names, service marks, patents, pending patent applications and copyrights, or applications therefor, challenging or questioning the validity or effectiveness of any of the foregoing, in any jurisdiction, domestic or foreign, except to the extent such claims could not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries, taken as a whole. 4.17 Environmental Matters. Except insofar as any exceptions to the --------------------- following, individually or in the aggregate, could not reasonably be expected to result in a material adverse effect on the business, assets, conditions (financial or otherwise) or operations of the Company and its Subsidiaries, taken as a whole: (a) to the best knowledge of the Company, the properties owned, leased, or otherwise operated by the Company or any of its Subsidiaries do not contain, and have not previously contained, in, on or under, including, without limitation, the soil and groundwater thereunder, any Hazardous Materials in amounts or concentrations that constitute or constituted a violation of, or could reasonably give rise to liability under, Environmental Laws; (b) to the best knowledge of the Company, the properties owned or leased, or otherwise operated by the Company or any of its Subsidiaries and all operations and facilities at such properties are in compliance with all Environmental Laws, and there is no contamination or violation of any Environmental Law which could interfere with the continued operation of, or impair the fair saleable value of, such property; (c) neither the Company nor any of its Subsidiaries has received or is aware of any written complaint, notice of violation, alleged violation, or notice of investigation or of potential liability under Environmental Laws with regard to the Company or its Subsidiaries, nor does the Company or any of its Subsidiaries have knowledge that any such action is being contemplated, considered or threatened; (d) to the best knowledge of the Company, Hazardous Materials have not been generated, treated, stored or disposed of at, on or under any properties presently or formerly owned, leased, or otherwise operated by the Company or any of its Subsidiaries, nor have any Hazardous Materials been transported from any such property, or come to be located at any other property, in violation of or in a manner that could reasonably give rise to liability under any Environmental Laws; and (e) there are no governmental administrative actions or judicial proceedings pending or, to the best knowledge of the Company and its Subsidiaries, threatened under any Environmental Law to which the Company or any of its Subsidiaries is a party, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements, other than permits authorizing operations by the Company or any of its Subsidiaries, outstanding under any Environmental Law. 60 4.18 Accuracy and Completeness of Information. The factual ---------------------------------------- statements contained in the financial statements referred to in subsection 4.1, the Form S-4, the 1997 Form 10-K, the Credit Documents (including the schedules thereto), the Merger Agreement and any other certificates or documents furnished or to be furnished by any Credit Party or any of their representatives or advisors to the Administrative Agent or the Lenders from time to time in connection with this Agreement, taken as a whole, do not and will not, to the best knowledge of the Company, as of the date when made, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading in light of the circumstances in which the same were made, all except as otherwise qualified herein or therein, such knowledge qualification being given only with respect to factual statements made by Persons other than the Company or any of its Subsidiaries. 4.19 AcquisitionCo. To the best knowledge of the Company, ------------- AcquisitionCo is a Delaware corporation organized on behalf of the Investors to effect the Merger and has not carried on any activities, incurred any liabilities, assumed any obligations or acquired any assets prior to the Closing Date other than those incident to its formation and the transactions contemplated by the Merger Agreement or by the Credit Documents. 4.20 Health Care Permits. (a) Except as, in the aggregate, would not ------------------- reasonably be expected to have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole: (i) each of the Company and its Subsidiaries now has (after giving effect to the Merger), and has no reason to believe it will not be able to maintain in effect, all Health Care Permits necessary for the lawful conduct of its business or operations wherever now conducted and as planned to be conducted, including without limitation, the ownership and operation of its Health Care Facilities and Ancillary Businesses pursuant to all Requirements of Law, (ii) all such Health Care Permits are in full force and effect and have not been amended or otherwise modified, rescinded, revoked or assigned, (iii) the Company and each of its Subsidiaries is substantially complying with the requirements of each such Health Care Permit, and no event has occurred, and no condition exists, which, with the giving of notice, the passage of time, or both, would constitute a violation thereof, (iv) neither the Company nor any of its Subsidiaries, has received any written notice of any violation of any Requirement of Law, (v) to the knowledge of the Company, no condition exists or event has occurred which in itself or with the giving of notice or the lapse of time, or both, would result in the suspension, revocation, impairment, forfeiture or non-renewal of any such Health Care Permit, (vi) there is no claim filed with any Governmental Authority of which the Company or any of its Subsidiaries has been notified in writing challenging the validity of any such Health Care Permit and (vii) the continuation, validity and effectiveness of all such Health Care Permits will not be adversely affected by the Merger or the execution and performance of any of the Credit Documents. (b) All Health Care Facilities and Ancillary Businesses owned, leased, managed or operated by the Company or any of its Subsidiaries are entitled to participate in, and receive payment under, the appropriate Medicare, Medicaid and related reimbursement programs, and any similar state or local government-sponsored program, to the extent that the 61 Company or any of its Subsidiaries has decided to participate in any such program with respect to such Health Care Facility or Ancillary Business, as the case may be, and to receive reimbursement from private and commercial payers and health maintenance organizations to the extent applicable thereto. There are no proceedings pending or, to the knowledge of the Company, any proceedings threatened or investigations pending or threatened, by any Governmental Authority with respect to the Company's or any of its Subsidiaries' participation in the Medicare, Medicaid or related reimbursement programs and which would reasonably be expected to have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole. 4.21 Year 2000. Any reprogramming required to permit the proper --------- functioning, in and following the year 2000, of (a) the Borrowers' computer systems and (b) equipment containing embedded microchips (including systems and equipment supplied by others or with which the Borrowers' systems interface) and the testing of all such systems and equipment, as so reprogrammed, will be completed in all material respects by September 30, 1999. The cost to the Borrowers of such reprogramming and testing and of the reasonably foreseeable consequences of year 2000 to the Borrowers (including, without limitation, reprogramming errors and the failure of others' systems or equipment) would not reasonably be expected to result in a Default or Event of Default or a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole. Except for such of the reprogramming referred to in the preceding sentence as may be necessary, the computer and management information systems of the Borrowers are and, with ordinary course upgrading and maintenance, will continue for the term of this Agreement to be, sufficient to permit the Borrowers to conduct their respective businesses without resulting in a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole. SECTION 5. CONDITIONS PRECEDENT -------------------- 5.1 Conditions to Initial Revolving Credit Loans and Letters of ----------------------------------------------------------- Credit. The obligation of each Lender to make its Revolving Credit Loans, and - ------ the obligation of the Issuing Lender to issue any Letter of Credit, on the Closing Date are subject to the satisfaction, or waiver by such Lender, immediately prior to or concurrently with the making of such Revolving Credit Loans or the issuance of such Letters of Credit, as the case may be, of the following conditions: (a) Agreement; Notes; Merger Agreement. The Administrative Agent ---------------------------------- shall have received (i) a counterpart of this Agreement for each Lender duly executed and delivered by a duly authorized officer of each Borrower and (ii) for the account of each Revolving Credit Lender requesting the same pursuant to subsection 3.13, a Revolving Credit Note of the Borrowers conforming to the requirements hereof and executed by a duly authorized officer of each Borrower. The Administrative Agent shall have received a copy of the Merger Agreement. 62 (b) Merger. (i) The Merger shall be consummated simultaneously ------ pursuant to the Merger Agreement with all fees, costs and expenses incurred in connection therewith not to exceed approximately $45,000,000, all of the conditions precedent set forth in Article 6 of the Merger Agreement shall have been satisfied or waived by AcquisitionCo and no material provision of the Merger Agreement shall have been amended, supplemented, waived or otherwise modified without the prior written consent of the Administrative Agent, which consent shall not be unreasonably withheld. (ii) No more than approximately $362,000,000 exclusive of fees and expenses (which amount includes (A) the value attributable to common stock of the Company retained by the Existing Shareholders, (B) the aggregate amount expended in connection with the exercise of purchase options with respect to the properties, or the equity interests in the Persons that are the owners of such properties, that are the subject of the documentation relating to the Company's existing synthetic lease facility and (C) the assumption, repayment, maintenance and/or amendment of certain existing Indebtedness) shall be expended to repurchase shares of the Company's common stock from existing holders thereof and refinance existing Indebtedness. (c) Capitalization; Capital Structure (i) (A) The Company shall --------------------------------- have been capitalized by the Investors (directly or indirectly through AcquisitionCo) with at least approximately $157,000,000 in cash from the issuance of its common stock as described in the Form S-4 (or otherwise having material terms satisfactory to the Arranger and representing at least 90% of the voting Capital Stock of the Company) and (B) the value of the common stock of the Company held by Existing Shareholders (valued at a price per share equal to the price at which the Investors purchased their common stock), when added to the amount referred to in clause (A) above, shall equal at least $175,000,000; provided, however, that the common -------- ------- equity ownership amounts referred to in clauses (A) and (B) above shall each be reduced by an amount approximately equal to the excess of (x) the gross cash proceeds from the issuance by the Company on the Closing Date of Preferred Stock over (y) $40,000,000. (ii) The Company shall have received at least approximately $100,000,000 in gross cash proceeds from the issuance by the Company of (A) Bridge Senior Subordinated Debt pursuant to a Bridge Loan Agreement executed and delivered by the parties thereto in form and substance satisfactory to the Lenders, which Bridge Loan Agreement shall be in full force and effect and none of the provisions thereof shall have been amended, waived, supplemented or otherwise modified without the prior written consent of the Administrative Agent, (B) Senior Subordinated Discount Notes or (C) Permanent Senior Subordinated Debt. (iii) The Company shall have received approximately $40,000,000 (or at least such amount, in the case of the issuance of Preferred Stock) in gross cash proceeds from the issuance by the Company of (A) Bridge Junior Subordinated Debt pursuant to a Bridge Loan Agreement executed and delivered by the parties thereto in form and substance satisfactory to the Lenders, which Bridge Loan Agreement shall be 63 in full force and effect and none of the provisions thereof shall have been amended, waived, supplemented or otherwise modified without the prior written consent of the Administrative Agent or (B) Preferred Stock; provided, however, that in the event that the gross cash proceeds received -------- ------- by the Company in accordance with subsection 5.1(c)(ii) are more than $100,000,000 but less than or equal to $105,000,000, the gross cash proceeds required to be received by the Company pursuant to this subsection 5.1(c)(iii) shall be reduced by an amount equal to the amount by which such gross cash proceeds received in accordance with subsection 5.1(c)(ii) exceed $100,000,000; provided further, that in the event that the gross -------- ------- cash proceeds received by the Company in accordance with subsection 5.1(c)(i)(A) are more than $157,000,000, the gross cash proceeds required to be received by the Company pursuant to this subsection 5.1(c)(iii) from the issuance of Preferred Stock shall be reduced by an amount equal to the amount by which such gross cash proceeds received in accordance with subsection 5.1(c)(i)(A) exceed $157,000,000. (iv) The terms, conditions and documentation of all equity securities of the Company or any of its Subsidiaries to be outstanding at or after the Closing Date, the certificate of incorporation, by-laws, other governing documents and the corporate and capital structure of the Company and its Subsidiaries (excluding the identity and amount of equity contribution of any Investor), in each case after giving effect to the consummation of the Merger, shall be in form and substance satisfactory to the Administrative Agent. The execution and delivery of this Agreement by the Lenders and the Administrative Agent shall be deemed to evidence the satisfaction of the Lenders and the Administrative Agent with such of the matters referenced and in clauses (i) through (iv) of this paragraph (c) as shall have been disclosed and made available to the Administrative Agent prior to the date hereof. (d) Financial Statements. (i) The Lenders shall have received -------------------- audited consolidated financial statements of the Company for the 1995, 1996 and 1997 fiscal years, which financial statements shall have been prepared in accordance with GAAP; (ii) the Lenders shall have received unaudited interim consolidated financial statements of the Company for the quarterly period ended March 31, 1998, and such financial statements shall not reflect any material adverse change in the consolidated financial condition of the Company as reflected in the financial statements or projections previously delivered to the Lenders; and (iii) the Lenders shall have received a satisfactory pro forma balance sheet on a consolidated basis of --- ----- the Company and its Subsidiaries as of March 31, 1998 reflecting and giving effect to the Merger and the other transactions contemplated hereby. (e) Fees. The Administrative Agent, the Arranger and the Lenders ---- shall have received all fees required to be paid, and all expenses and other consideration for which invoices have been presented, on or before the Closing Date. 64 (f) Lien Searches; Lien Perfection. (i) The Administrative Agent ------------------------------ shall have received the results of a search of Uniform Commercial Code, tax and judgment filings made with respect to each of the Company and its Subsidiaries in the jurisdictions set forth on Schedule 4.15(a), together with copies of financing statements disclosed by such searches, and such searches shall disclose no Liens on any assets encumbered by any Security Document, except for Liens permitted hereunder or, if unpermitted Liens are disclosed, the Administrative Agent shall have received satisfactory evidence of the release of such Liens and (ii) the Administrative Agent shall have received duly executed financing statements on Form UCC-1, necessary or, in the opinion of the Administrative Agent, desirable to perfect the Liens created by the Security Documents. (g) Environmental. The Lenders shall be reasonably satisfied, based ------------- upon the results of the environmental diligence conducted by the Administrative Agent and its advisors in cooperation with the Company, with respect to environmental hazards, conditions or liabilities to which the Company or any of its Subsidiaries may be subject (the execution and delivery of this Agreement by the Lenders and the Administrative Agent being deemed to evidence the satisfaction of the Administrative Agent with such due diligence as shall have been disclosed and made available to the Administrative Agent prior to the date hereof). (h) Employee Benefit Matters. The Lenders shall be reasonably ------------------------ satisfied with all employee benefit matters involving the Company or any of its Subsidiaries. (i) Collateral Agreement. The Administrative Agent shall have -------------------- received the Collateral Agreement executed and delivered by a duly authorized officer of each of the parties thereto, together with stock certificates representing 100% of all issued and outstanding shares of Capital Stock of each of the Domestic Subsidiaries listed on Part A of Schedule V thereto, and undated stock powers for each certificate, executed in blank and delivered by a duly authorized officer of the applicable pledgor and the acknowledgment and consent of the issuer thereunder in the form annexed thereto. (j) Legal Opinion. The Administrative Agent shall have received, ------------- dated the Closing Date and addressed to the Administrative Agent and the Lenders, an opinion of (i) Gibson, Dunn & Crutcher LLP, counsel to the Credit Parties, in substantially the form of Exhibit J-1, with such changes thereto as may be approved by the Administrative Agent and its counsel and (ii) in-house counsel to the Company or special Massachusetts counsel, in substantially the form of Exhibit J-2, with such changes thereto as may be approved by the Administrative Agent and its counsel. (k) Closing Certificate. The Administrative Agent shall have ------------------- received a Closing Certificate of each Credit Party dated the Closing Date, in substantially the form of Exhibits K-1 and K-2, respectively, with appropriate insertions and attachments, in form and substance satisfactory to the Administrative Agent and its counsel, executed by the President or any Vice President and the Secretary or any Assistant Secretary of the Company and its Subsidiaries, respectively. 65 (l) Solvency Certificate. The Administrative Agent shall have -------------------- received a certificate of the chief financial officer of the Company, in form and substance reasonably satisfactory to the Administrative Agent, which shall document the solvency of the Company and its Subsidiaries after giving effect to the consummation of the Merger and the other transactions and related financings contemplated hereby. (m) Insurance. The Administrative Agent shall have received (i) a --------- schedule describing all insurance maintained by the Company and its Subsidiaries pursuant to subsection 6.5, Section 5(h) of the Collateral Agreement and Section 5 of the Mortgages and (ii) binders (or other customary evidence as to the obtaining and maintenance by the Company of such insurance) for each policy set forth on such schedule insuring against casualty and other usual and customary risks. (n) Other Agreements. The Administrative Agent shall have received ---------------- each additional legal opinion, document or instrument reasonably requested by the Required Lenders. (o) Litigation. On the Closing Date, there shall be no actions, ---------- suits, injunctions, restraining orders or proceedings pending or threatened against any Credit Party (i) with respect to this Agreement or any other Credit Document or the transactions contemplated hereby or thereby (including the Merger) which would be reasonably expected to have a material adverse effect on the rights or remedies of the Lenders under the Credit Documents or on the ability of any Credit Party to perform its respective obligations to the Lenders hereunder or under any other Credit Document or (ii) which the Administrative Agent or the Required Lenders shall determine could reasonably be expected to have a material adverse effect on the rights or remedies of the Lenders hereunder or under any other Credit Document or on the ability of any Credit Party to perform its respective obligations to the Lenders hereunder or under any other Credit Document. (p) Consents, Approvals and Filings. Except for the financing ------------------------------- statements contemplated by the Collateral Agreement and the Mortgages, on the Closing Date, all necessary governmental and other third party filings, authorizations, consents, approvals or waivers required in connection with the execution, delivery and performance by the Credit Parties, and the validity and enforceability against the Credit Parties, of the Credit Documents to which any of them is a party, or otherwise in connection with the transactions contemplated by the Credit Documents and the Merger Agreement, shall have been obtained or made and remain in full force and effect (except where the failure to do so would not reasonably be expected to have a material adverse effect on (i) the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole, or (ii) (A) the validity or enforceability of this Agreement, any of the Notes or the other Credit Documents or (B) the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder), and all applicable waiting periods shall have expired without any action being taken by any competent authority which restrains or prevents such 66 transactions or imposes materially adverse conditions upon the consummation of such transactions. (q) Contractual Restrictions. The Company and its Subsidiaries shall ------------------------ not be subject to any contractual or other restrictions that would be violated by the Merger or the other transactions contemplated hereby, including the granting of security interests and guarantees under the Credit Documents and the documentation with respect to the Synthetic Lease Facility, except to the extent that any such violation would not reasonably be expected to have a material adverse effect on (i) the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole, (ii) (A) the validity or enforceability of this Agreement, any of the Notes or the other Credit Documents or (B) the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder, or (iii) the ability of the Borrowers to satisfy their obligations hereunder or thereunder. (r) Existing Credit Agreement. (i) On the Closing Date, the ------------------------- commitments under the Existing Credit Agreement shall have been terminated, all loans thereunder shall have been repaid in full, together with interest thereon, all letters of credit issued thereunder shall have been terminated or incorporated hereunder as, or supported hereunder by, Letters of Credit, and all other amounts owing pursuant to the Existing Credit Agreement shall have been repaid in full, and the Administrative Agent shall have received evidence in form, scope and substance reasonably satisfactory to it that the matters set forth in this subsection have been satisfied at such time. (ii) On the Closing Date, the creditors under the Existing Credit Agreement shall have terminated and released, or assigned to the Administrative Agent for the benefit of the Lenders, all Liens on the capital stock of and assets owned by the Company and its Subsidiaries, and the Administrative Agent shall have received all such releases as may have been requested by the Administrative Agent, which releases shall be in form and substance reasonably satisfactory to the Administrative Agent. (s) Intercreditor Agreement. The Administrative Agent shall have ----------------------- received the Intercreditor Agreement executed and delivered by a duly authorized officer of each of the parties thereto. (t) Agency and Intercreditor Agreement. The Administrative Agent ---------------------------------- shall have received the Agency and Intercreditor Agreement executed and delivered by a duly authorized officer of each of the parties thereto. (u) Trust Guarantee. The Administrative Agent shall have received --------------- the Trust Guarantee executed and delivered by a duly authorized officer of the Trust. 5.2 Conditions to All Loans and Letters of Credit. The obligation of --------------------------------------------- each Lender to make any Loan (other than any Revolving Credit Loan the proceeds of which are to be used to repay Refunded Swing Line Loans) and the obligation of the Issuing Lender to 67 issue any Letter of Credit are subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date: (a) Representations and Warranties. Each of the representations and ------------------------------ warranties made in or pursuant to Section 4 or which are contained in any other Credit Document shall be true and correct in all material respects on and as of the date of such Loan or of the issuance of such Letter of Credit as if made on and as of such date (unless stated to relate to a specific earlier date, in which case, such representations and warranties shall be true and correct in all material respects as of such earlier date). (b) No Default or Event of Default. No Default or Event of Default ------------------------------ shall have occurred and be continuing on such Borrowing Date or after giving effect to such Loan to be made or such Letter of Credit to be issued on such Borrowing Date. Each borrowing by the Company hereunder and the issuance of each Letter of Credit by the Issuing Lender hereunder shall constitute a representation and warranty by the Company as of the date of such borrowing or issuance that the conditions in clauses (a) and (b) and of this subsection 5.2 have been satisfied. SECTION 6. AFFIRMATIVE COVENANTS --------------------- The Company hereby agrees that, so long as the Commitments remain in effect, any Loan, Note or L/C Obligation remains outstanding and unpaid, any amount (unless cash in an amount equal to such amount has been deposited to a cash collateral account established by the Administrative Agent) remains available to be drawn under any Letter of Credit or any other amount is owing to any Lender or the Administrative Agent hereunder or under any of the other Credit Documents, it shall, and, in the case of the agreements contained in subsections 6.3 through 6.6, and 6.8 through 6.10, the Company shall cause each of its Subsidiaries to: 6.1 Financial Statements. Furnish to the Administrative Agent (with -------------------- sufficient copies for each Lender which the Administrative Agent shall promptly furnish to each Lender): (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Company, a copy of the consolidated balance sheet of the Company and its consolidated Subsidiaries as at the end of such fiscal year and the related consolidated statements of stockholders' equity and cash flows and the consolidated statements of income of the Company and its Subsidiaries for such fiscal year, setting forth in each case in comparative form the figures for the previous year and, in the case of the consolidated balance sheet referred to above, reported on, without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, or qualification which would affect the computation of financial covenants, by independent certified public accountants of nationally recognized standing; provided -------- 68 that delivery within the time period specified above of copies of the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission (together with the adjustments to such consolidated financial statements necessary to provide consolidating information for each of its Subsidiaries in the same manner, to the same extent and on the same basis as historically provided to Meditrust) shall be deemed to satisfy the requirements of this subsection 6.1(a) so long as such Form 10- K as so adjusted shall contain the information referred to in this subsection 6.1(a); (b) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of the Company, the unaudited consolidated balance sheet of the Company and its Subsidiaries as at the end of each such quarter and the related unaudited consolidated statements of income and cash flows of the Company and its Subsidiaries for such quarterly period and the portion of the fiscal year of the Company through such date, setting forth in each case in comparative form the figures for the corresponding quarter in, and year to date portion of, the previous year, and the figures for such periods in the budget prepared by the Company and furnished to the Administrative Agent, certified by the chief financial officer, controller or treasurer of the Company as being fairly stated in all material respects; provided that delivery within the time period specified above of -------- copies of the Quarterly Report on Form 10-Q of the Company filed with the Securities and Exchange Commission (together with the adjustments to such consolidated financial statements necessary to provide consolidating information for each of its Subsidiaries in the same manner, to the same extent and on the same basis as historically provided to Meditrust) shall be deemed to satisfy the requirements of this subsection 6.1(b) so long as such Form 10-K as so adjusted shall contain the information referred to in this subsection 6.1(b); (c) as soon as available, but in any event not later than 45 days after the beginning of each fiscal year of the Company to which such budget relates, a preliminary consolidated operating budget for the Company and its Subsidiaries taken as a whole; and as soon as available, any material revision to or any final revision of any such preliminary annual operating budget or any such consolidated operating budget; and (d) concurrently with the delivery of financial statements pursuant to subsection 6.1(a) or (b), a certificate of the chief financial officer or treasurer of the Company setting forth, in reasonable detail, the computations of Capital Expenditures as of the last day of the fiscal period covered by such financial statements, the Leverage Ratio as of such last day, and the Coverage Ratio as of such last day; all such financial statements to be complete and correct in all material respects (subject, in the case of interim statements, to normal year-end audit adjustments) and to be prepared in reasonable detail and (except in the case of the statements referred to in paragraphs (c) and (d) of this subsection 6.1) in accordance with GAAP. 69 6.2 Certificates; Other Information. Furnish to the Administrative ------------------------------- Agent (with sufficient copies for each Lender which the Administrative Agent shall promptly deliver to each Lender): (a) concurrently with the delivery of the consolidated financial statements referred to in subsection 6.1(a), a letter from the independent certified public accountants reporting on such financial statements stating that in making the examination necessary to express their opinion on such financial statements no knowledge was obtained of any Default or Event of Default under subsections 3.4(b), 7.1, 7.3, and 7.5 through 7.11, except as specified in such letter; (b) within 15 days of the delivery of the financial statements referred to in subsections 6.1(a) and (b) (except that the certificate as to the statements referred to in clause (iii) below shall be delivered concurrently with such financial statements), a certificate of the chief financial officer or treasurer of the Company stating that, to the best of such officer's knowledge, during such period (i) no Subsidiary has been formed or acquired (or, if any such Subsidiary has been formed or acquired, the Company has complied with the requirements of subsection 6.9 with respect thereto), (ii) neither the Company nor any of its Subsidiaries has changed its name, its principal place of business, its chief executive office or the location of any material amount of tangible Collateral without complying with the requirements of this Agreement and the Security Documents with respect thereto, (iii) each of the Company and its Subsidiaries has observed or performed all of its respective covenants and other agreements, and satisfied every material condition, contained in this Agreement, the Notes and the other Credit Documents to be observed, performed or satisfied by it, and that such officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate, (iv) showing in detail as of the end of the related fiscal period the figures and calculations supporting such statement in respect of clauses (c), (e), (f), (h), (i), (j), (k), (l), (m), (n) and (o) of subsection 7.1, clauses (b), (c), (d), (f) and (i) of subsection 7.3 and subsections 7.5 through 7.11 and any other calculations reasonably requested by the Administrative Agent with respect to the quantitative aspects of the other covenants contained herein, (v) if not specified in the financial statements delivered pursuant to subsection 6.1, specifying the aggregate amount of interest paid or accrued by the Company and its Subsidiaries, and the aggregate amount of depreciation, depletion and amortization charged on the books of the Company and its Subsidiaries, during such accounting period, and (vi) (A) identify any owned Real Property of the Company or a Subsidiary acquired during such accounting period that, together with any improvements thereon, has a value of at least $2,500,000 and (B) in the event that the aggregate value of all Real Properties (other than Real Properties for which the granting of an Additional Mortgage would be prohibited under the circumstances set forth in clause (i) or (ii) of the proviso to subsection 6.9(c)) for which Additional Mortgages are not granted hereunder is $10,000,000, identify any owned Real Property of the Company or a Subsidiary acquired during such accounting period; 70 (c) promptly upon receipt thereof, copies of all final reports submitted to the Company or to any of its Subsidiaries by independent certified public accountants in connection with each annual, interim or special audit of the books of the Company or any of its Subsidiaries made by such accountants, and, upon the request of any Lender (through the Administrative Agent), any final comment letter submitted by such accountants to management in connection with their annual audit; (d) promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available to the public generally by the Company or any of its Subsidiaries, if any, and all regular and periodic reports and all final registration statements and final prospectuses, if any, filed by the Company or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any Governmental Authority succeeding to any of its functions; (e) concurrently with the delivery of the financial statements referred to in subsections 6.1(a) and (b), a management summary describing and analyzing the performance of the Company and its Subsidiaries during the periods covered by such financial statements; (f) within 45 days after the end of each fiscal quarter, a summary of all Asset Sales during such fiscal quarter including the amount of all Net Proceeds from such Asset Sales not previously applied to prepayments of the Loans and reductions of the Commitments pursuant to the proviso to subsection 3.4(b)(iii); (g) contemporaneously with the delivery to Meditrust by any Borrower, copies of all compliance certificates and similar periodic reports and any and all notices of default which any Borrower delivers or is required to deliver to Meditrust; and (h) promptly, such additional financial and other information as any Lender may from time to time reasonably request (through the Administrative Agent). 6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at ---------------------- or before maturity or before they become delinquent, as the case may be, all its taxes and other obligations and liabilities of whatever nature, except (a) when the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Company or any of its Subsidiaries, as the case may be, (b) for delinquent obligations which do not have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole, and (c) for trade and other accounts payable in the ordinary course of business which are not overdue for a period of more than 120 days or, if overdue for more than 120 days, as to which a dispute exists and adequate reserves in conformity with GAAP have been established on the books of the Company or any of its Subsidiaries, as the case may be. 71 6.4 Conduct of Business and Maintenance of Existence. Continue to ------------------------------------------------ engage in businesses of the same general type as now conducted by it (after giving effect to the Merger), and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all material rights, material privileges, franchises, copyrights, patents, trademarks and trade names necessary or desirable in the normal conduct of its business except for rights, privileges, franchises, copyrights, patents, trademarks and tradenames the loss of which would not in the aggregate have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole, and except as otherwise permitted by subsections 7.4 and 7.5; and comply with all applicable Requirements of Law except to the extent that the failure to comply therewith would not, in the aggregate, have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole. 6.5 Maintenance of Property; Insurance. (a) Keep all property ---------------------------------- useful and necessary in its business in good working order and condition (ordinary wear and tear excepted); and (b) Maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and with only such deductibles as are usually maintained by, and against at least such risks (but including, in any event, public liability insurance) as are usually insured against in the same general area by, companies engaged in the same or a similar business, and furnish to each Lender, (i) annually, a schedule disclosing (in a manner substantially similar to that used in the schedule provided pursuant to subsection 5.1(m)) all insurance against products liability risk maintained by the Company and its Subsidiaries pursuant to this subsection 6.5(b) or otherwise and (ii) upon written request of any Lender, full information as to the insurance carried; provided that the Company may implement programs of self -------- insurance in the ordinary course of business and in accordance with industry standards for a company of similar size so long as reserves are maintained in accordance with GAAP for the liabilities associated therewith. 6.6 Inspection of Property; Books and Records; Discussions. Keep ------------------------------------------------------ proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities which permit financial statements to be prepared in conformity with GAAP and all Requirements of Law; and permit representatives of any Lender upon reasonable notice (made through the Administrative Agent and no more frequently than quarterly unless a Default or Event of Default shall have occurred and be continuing) to visit and inspect any of its properties and examine and make abstracts from any of its books and records, and to discuss the business, operations, assets and financial and other condition of the Company and its Subsidiaries with officers and employees thereof and with their independent certified public accountants with prior reasonable notice to, and coordination with, the chief financial officer or the treasurer of the Company. 72 6.7 Notices. Promptly give notice to the Administrative Agent (to be ------- distributed by the Administrative Agent to the Lenders): (a) of the occurrence of any Default or Event of Default; (b) of any (i) default or event of default under any instrument or other agreement, guarantee or collateral document of the Company or any of its Subsidiaries which default or event of default has not been waived and would have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole, or any other default or event of default under any such instrument, agreement, guarantee or other collateral document which, if the amount referred to in the proviso to clause (e) of Section 8 were $2,000,000, would have constituted a Default or Event of Default under this Agreement, or (ii) litigation, investigation or proceeding which may exist at any time between the Company or any of its Subsidiaries and any Governmental Authority, or receipt of any notice of any environmental claim or assessment against the Company or any of its Subsidiaries by any Governmental Authority, which in any such case would have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole; (c) of any litigation or proceeding against the Company or any of its Subsidiaries (i) in which more than $5,000,000 of the amount claimed is not covered by insurance or (ii) in which injunctive or similar relief is sought which if obtained would have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole; (d) of the following events, as soon as practicable after, and in any event within 30 days after, the Company knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Plan which Reportable Event could reasonably result in material liability to the Company and its Subsidiaries, taken as a whole, or (ii) the institution of proceedings or the taking of any other action by the PBGC, the Company or any Commonly Controlled Entity to terminate, withdraw or partially withdraw from any Plan and, with respect to a Multiemployer Plan, the Reorganization or Insolvency of such Plan, in each of the foregoing cases which could reasonably result in material liability to the Company and its Subsidiaries, taken as a whole, and in addition to such notice, deliver to the Administrative Agent and each Lender whichever of the following may be applicable: (A) a certificate of a Responsible Officer of the Company setting forth details as to such Reportable Event and the action that the Company or such Commonly Controlled Entity proposes to take with respect thereto, together with a copy of any notice of such Reportable Event that may be required to be filed with the PBGC, or (B) any notice delivered by the PBGC evidencing its intent to institute such proceedings or any notice to the PBGC that such Plan is to be terminated, as the case may be; 73 (e) concurrently with the delivery of the information delivered pursuant to subsection 6.2(f) and each prepayment required pursuant to subsection 3.4(b)(iii), of any Asset Sale or substantially like-kind exchange of real property by the Company or any of its Subsidiaries; and (f) of the following events, as soon as practicable and in any event within five Business Days (i) after obtaining knowledge thereof, the occurrence of any event that would (with the giving of notice, the passage of time, or both) be a violation of any Health Care Permit that is necessary for the lawful conduct of the business or operations of the Company or any of its Subsidiaries (other than violations which the Company does not reasonably expect to be able to cure within a reasonable period of time and which could not reasonably be expected to have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole), including, without limitation, the ownership and operation of its Health Care Facilities and Ancillary Businesses, (ii) after receipt thereof, any notice of any violation of any Requirements of Law which would (with the giving of notice, the passage of time, or both) cause any of the Health Care Permits referred to in clause (i) to be modified, rescinded or revoked and which the Company does not reasonably expect to be able to cure within a reasonable period of time, (iii) after receipt thereof, any notice, summons, citation or other proceeding imposing a revocation, suspension or a materially adverse modification of any Medicare provider agreement, Medicaid provider agreement, Medicare certification or Medicaid certification applicable to any of the Health Care Businesses of the Company or any of its Subsidiaries in any manner which would reasonably be expected to have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole, or (iv) after obtaining knowledge thereof, any revocation or involuntary termination of any Medicare provider agreement, Medicaid provider agreement, Medicare certification or Medicaid certification applicable to any of the Health Care Businesses of the Company or any of its Subsidiaries that could reasonably be expected to have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole. Each notice pursuant to this subsection 6.7 shall be accompanied by a statement of a Responsible Officer of the Company setting forth details of the occurrence referred to therein and (in the cases of clauses (a) through (d)) stating what action the Company proposes to take with respect thereto. 6.8 Environmental Laws. (a) (i) Comply with all Environmental Laws ------------------ applicable to it, and obtain, comply with and maintain any and all Environmental Permits necessary for its operations as conducted and as planned and (ii) take reasonable efforts to ensure that all of its tenants, subtenants, contractors, subcontractors, and invitees comply with all Environmental Laws, and obtain, comply with and maintain any and all Environmental Permits, applicable to any of them insofar as any failure of the Company, its Subsidiaries or any of the foregoing so to comply, obtain or maintain could result in a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the 74 Company and its Subsidiaries, taken as a whole. Noncompliance by the Company or any of its Subsidiaries with any applicable Environmental Law or Environmental Permit shall be deemed not to constitute a breach of this subsection 6.8(a), provided that, upon learning of any such noncompliance, the Company and its - -------- Subsidiaries shall promptly undertake reasonable efforts to achieve compliance or to contest by appropriate proceedings any alleged noncompliance and, provided, further, that, in any case, such noncompliance, and any other - -------- ------- noncompliance with Environmental Law and any contesting of allegations of noncompliance with Environmental Laws, individually or in the aggregate, could not reasonably be expected to give rise to a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole. (b) Comply in a timely manner with all orders and lawful directives regarding Environmental Laws issued to the Company or any of its Subsidiaries by any Governmental Authority, other than such orders and lawful directives as to which an appeal or other challenge has been timely and properly taken in good faith and the pendency of any and all such appeals and other challenges could not reasonably be expected to give rise to a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole. (c) Maintain, update as appropriate, and implement in all material respects an environmental program reasonably designed to (i) ensure that the Company, its Subsidiaries, any of their respective operations (including, without limitation, disposal), and any properties owned, leased or operated by any of them, attain and remain in substantial compliance with all applicable Environmental Laws, (ii) reasonably and prudently manage any liabilities or potential liabilities that the Company, any of the other Credit Parties, any of their respective operations (including, without limitation, disposal), and any properties owned or leased by any of them, may have under all applicable Environmental Laws, and (iii) ensure that the Company and its Subsidiaries undertake reasonable efforts to identify, and reasonably evaluate, issues of compliance with and liability under Environmental Laws prior to acquiring, directly or indirectly, any ownership or leasehold interest in real property, or other interest in any real property that could give rise to Company or any of its Subsidiaries being subjected to liability under any Environmental Law as a result of such acquisition. 6.9 Additional Collateral. (a) Subject to the limitations set forth --------------------- in subsection 6.9(b) and subsection 6.9(c) and except with respect to any joint venture investments permitted by subsection 7.6(h), with respect to any assets acquired after the Closing Date by the Company or any of its Subsidiaries (other than (x) any assets described in paragraph (b), (c) or (d) of this subsection and (y) immaterial assets) as to which the Administrative Agent, for the benefit of the Lenders, does not have a perfected Lien, promptly (and in any event within 30 days after the acquisition thereof): (i) execute and deliver to the Administrative Agent such amendments or supplements to the relevant Security Documents or such other documents as the Administrative Agent shall deem necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, a Lien on such assets, and (ii) take all actions necessary or advisable to cause such Lien to be duly perfected to the extent required by such Security Document in accordance with all applicable 75 Requirements of Law, including, without limitation, the filing of financing statements in such jurisdictions as may be reasonably requested by the Administrative Agent. (b) With respect to any Person that is or becomes a Domestic Subsidiary, promptly upon the request of the Administrative Agent (i) execute and deliver to the Administrative Agent, for the benefit of the Lenders, a new pledge agreement or such amendments to the Collateral Agreement as the Administrative Agent reasonably shall deem necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, a Lien on the Capital Stock of such Subsidiary which is owned by the Company or any of its Subsidiaries, (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers executed and delivered in blank by a duly authorized officer of the Company or such Domestic Subsidiary, as the case may be, and (iii) cause such new Domestic Subsidiaries (A) to become a party to this Agreement as a Borrower (or to become a guarantor of the obligations hereunder and under the Synthetic Lease Facility), to become a party to the Collateral Agreement and to become a party to the Agency and Intercreditor Agreement or, in each case, to become a party to such comparable documentation which is in form and substance reasonably satisfactory to the Administrative Agent and (B) to take all actions necessary or advisable to cause the Lien created by the Collateral Agreement or such comparable documentation, as the case may be, to be duly perfected to the extent required by such agreement or document in accordance with all applicable Requirements of Law, including, without limitation, the filing of financing statements in such jurisdictions as may be reasonably requested by the Administrative Agent, provided, that the Company and its Subsidiaries shall not be required to comply - -------- with the requirements of this subsection 6.9(b) with respect to a Domestic Subsidiary if (x) such compliance is prohibited by such Domestic Subsidiary's Contractual Obligations with third parties in connection with lease arrangements or Indebtedness for borrowed money and (y) the aggregate Acquisition Consideration for all Domestic Subsidiaries acquired subsequent to the date hereof which are not Borrowers hereunder or guarantors of the obligations hereunder and under the Synthetic Lease Facility shall not exceed $30,000,000. (c) Upon the request of the Administrative Agent, the Company will, and will cause its Domestic Subsidiaries to, promptly grant to the Administrative Agent, within 60 days of such request, security interests and mortgages (an "Additional Mortgage") in such owned Real Property of the Company ------------------- and its Domestic Subsidiaries as are acquired after the Closing Date by the Company or such Domestic Subsidiary as additional security for the obligations of the Credit Parties under any Credit Document, provided that an Additional -------- Mortgage covering any such owned Real Property will not be required if (i) such Real Property is already mortgaged to a third party to the extent permitted by subsection 7.2, (ii) with respect to a Domestic Subsidiary, such Additional Mortgage is not permitted by such Domestic Subsidiary's Contractual Obligations with third parties in connection with lease arrangements or Indebtedness for borrowed money or (iii) (A) the value of such Real Property, together with any improvements thereon, is less than $2,500,000 and (B) the aggregate value of all Real Properties (other than Real Properties for which the granting of an Additional Mortgage would be prohibited under the circumstances set forth in clause (i) or (ii) of this proviso) for which Additional Mortgages are not granted hereunder shall not exceed $10,000,000. Each such Additional Mortgage shall be granted pursuant to documentation 76 substantially similar to the form of Mortgage attached hereto as Exhibit L and shall constitute valid and enforceable perfected Liens subject only to Permitted Liens and such other Liens reasonably acceptable to the Administrative Agent. The Additional Mortgages or instruments related thereto shall be duly recorded or filed in such manner and in such places as are required by law to establish, perfect, preserve and protect the Liens in favor of the Administrative Agent, for the benefit of the Lenders, required to be granted pursuant to the Additional Mortgages and all taxes, fees and other charges payable in connection therewith shall be paid in full. If requested by the Administrative Agent or the Required Lenders, the Company shall provide a lender's title policy with respect to each such Additional Mortgage conforming to the requirements of subsection 6.12. (d) With respect to any new Foreign Subsidiary created or acquired after the Closing Date by the Company or any of its Subsidiaries, promptly (i) execute and deliver to the Administrative Agent such amendments to the Collateral Agreement, or such other Security Document, as the Administrative Agent deems necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, a perfected first priority security interest in the Capital Stock of such new Subsidiary that is owned by the Company or any of its Subsidiaries (provided that in no event shall more than 65% of the total outstanding voting Capital Stock of any such new Subsidiary be required to be so pledged), (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the Company or such Subsidiary, as the case may be, and take such other action as may be necessary or, in the opinion of the Administrative Agent, desirable to perfect the Administrative Agent's security interest therein, and (iii) if reasonably requested by the Administrative Agent (taking into account the cost involved in relation to the value of the collateral security to be afforded thereby), deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent, provided that the Company and its -------- Subsidiaries shall not be required to comply with the requirements of this subsection 6.9(c) with respect to a Foreign Subsidiary if such compliance is prohibited by such Foreign Subsidiary's Contractual Obligations with third parties in connection with lease arrangements or Indebtedness for borrowed money. 6.10 Health Care Permits and Approvals. Take all action reasonably --------------------------------- necessary (a) to maintain in full force and effect all Health Care Permits reasonably necessary for the lawful conduct of its business or operations where now conducted and as planned to be conducted, including the ownership and operation of its Health Care Facilities and Ancillary Businesses pursuant to all Requirements of Law and (b) to ensure that each Health Care Facility and Ancillary Business owned, leased, managed or operated by the Company or any of its Subsidiaries are entitled to participate in, and receive payment under, the appropriate Medicare, Medicaid and related reimbursement programs, and any similar state or local government-sponsored program, to the extent the Company or any of its Subsidiaries has decided to participate in any such program with respect to such Health Care Facility or Ancillary Business, as the case may be, and to receive reimbursement from private and commercial payers and health maintenance organizations to the extent applicable thereto, except, in each case, where a failure to do so could not reasonably be expected to have a 77 material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole. 6.11 Operating Leases. Furnish to the Administrative Agent, at the ---------------- time of the acquisition of any Encumbered Subsidiary the principal asset of which is the subject of an operating lease under which such Encumbered Subsidiary is the lessee, or of the acquisition by any Encumbered Subsidiary of any assets the principal one of which is the subject of an operating lease under which such Encumbered Subsidiary is the lessee, an appraisal prepared by an appraiser of recognized standing in the area in which such leased property is located of the fair market value of such property. 6.12 Mortgages. Furnish to the Administrative Agent, within 60 days --------- after the Closing Date, (a) fully executed counterparts of deeds of trust, mortgages and similar documents in each case in form and substance reasonably satisfactory to the Administrative Agent and substantially in the form of Exhibit L (each a "Mortgage" and collectively, the "Mortgages") covering all the -------- --------- Mortgaged Properties, and arrangements reasonably satisfactory to the Administrative Agent shall be in place by the 60th day after the Closing Date to provide that counterparts of such Mortgages shall be promptly recorded upon execution in all places to the extent necessary or desirable, in the reasonable judgment of the Administrative Agent, effectively to create a valid and enforceable first (or, in the case of the Mortgages granted by the Meditrust Entities, second) priority Lien, subject only to Permitted Liens, on each Mortgaged Property in favor of the Administrative Agent (or such other trustee as may be required or desired under local law) for the benefit of the Lenders, (b) a lender's title insurance policy, paid for by the Company, issued by a nationally recognized title insurance company, together with such endorsements, coinsurance and reinsurance as may be reasonably requested by the Administrative Agent, in form and substance reasonably acceptable to the Administrative Agent, insuring each Mortgage as a first (or, in the case of the Mortgages granted by the Meditrust Entities, second) lien on the relevant Mortgaged Property and subject only to Permitted Liens and Liens expressly agreed to by the Administrative Agent and (c) such other documents (including without limitation, ALTA/ASCM surveys of each Mortgaged Property made in accordance with ALTA/ASCM standards, including Table A, Items Nos. 1-4 and 6-13 as updated by inspection) as are reasonably required by the Administrative Agent. SECTION 7. NEGATIVE COVENANTS ------------------ The Company hereby agrees that it shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly so long as the Commitments remain in effect or any Loan, Note or L/C Obligation remains outstanding and unpaid, any amount (unless cash in an amount equal to such amount has been deposited to a cash collateral account established by the Administrative Agent) remains available to be drawn under any Letter of Credit or any other amount is owing to any Lender or the Administrative Agent hereunder or under any other Credit Document (it being understood that each of the permitted exceptions to each of the covenants in this Section 7 is in addition to, and not overlapping with, any other of such permitted exceptions except to the extent expressly provided): 78 7.1 Indebtedness. Create, incur, assume or suffer to exist any ------------ Indebtedness, except: (a) the Indebtedness outstanding on the Closing Date and reflected on Schedule 7.1(a), including the refinancing of any such Indebtedness on terms and conditions that, in the good faith judgment of the Company, taken as a whole are no less favorable to the Company and its Subsidiaries or the Lenders; (b) Indebtedness of any Credit Party pursuant to (i) any Credit Document and (ii) the Synthetic Lease Facility; (c) Indebtedness (i) of the Company to any Domestic Subsidiary, (ii) of any Domestic Subsidiary to the Company or any other Domestic Subsidiary and (iii) of any Foreign Subsidiary to the Company or any other Subsidiary in an aggregate principal amount at any one time outstanding for all Foreign Subsidiaries not to exceed the sum of $15,000,000 plus the sum of any amounts ---- dividended or distributed to the Company or any Domestic Subsidiary (other than an Encumbered Subsidiary) subsequent to the date hereof by any Foreign Subsidiary, less the sum of (A) the aggregate amount of any Contingent ---- Obligations of the Borrowers in respect of then outstanding obligations of Foreign Subsidiaries pursuant to subsection 7.3(c)(ii) and (B) the aggregate amount of any investments made in Foreign Subsidiaries subsequent to the date hereof pursuant to subsection 7.6(b)(iii), provided that such Indebtedness -------- referred to in this clause (c) is evidenced, if requested by the Administrative Agent, by a promissory note or promissory notes which has or have been pledged to the Administrative Agent on terms and conditions satisfactory to the Administrative Agent and provided, further, that at no time shall (x) the sum, -------- ------- calculated for each Encumbered Subsidiary and then aggregated for all Encumbered Subsidiaries, of the excess, if any, of (1) the aggregate amount of all loans, advances and investments (other than any investments in connection with acquisitions of Encumbered Subsidiaries permitted by subsection 7.6(g)(iv)) by the Company or any Subsidiary (other than an Encumbered Subsidiary) to or in such Encumbered Subsidiary subsequent to the date hereof as permitted by this subsection and subsection 7.6(b)(ii)(B) over (2) the aggregate amount of loan repayments and dividends and distributions from such Encumbered Subsidiary to the Company or any Subsidiary (other than an Encumbered Subsidiary) subsequent to the date hereof exceed (y) the sum of $25,000,000 plus the then Added Amount; ---- (d) Indebtedness of the Company in respect of: (i)(A) up to $105,000,000 principal amount of Bridge Senior Subordinated Debt issued on the Closing Date, and additional principal amount of Bridge Senior Subordinated Debt issued in lieu of cash interest on the outstanding Bridge Senior Subordinated Debt and otherwise as contemplated by the Bridge Loan Agreement upon exchange of Bridge Senior Subordinated Debt into exchange notes or (B) Senior Subordinated Discount Notes issued on the Closing Date for gross cash proceeds to the Company of up to $105,000,000; 79 (ii) Permanent Senior Subordinated Debt in an aggregate principal amount not to exceed the accreted value of such Senior Subordinated Discount Notes (or any refinancing thereof permitted hereunder) at the time of such refinancing and 10% of such value, the proceeds (net of any fees and expenses in connection therewith) of which shall be applied to prepay, redeem, retire or repurchase either (A) the outstanding principal amount of the Bridge Senior Subordinated Debt, (B) the accreted value of the Senior Subordinated Discount Notes at the time of such refinancing or (C) other Permanent Senior Subordinated Debt; (iii) up to $40,000,000 principal amount of Bridge Junior Subordinated Debt issued on the Closing Date, and additional principal amount of Bridge Junior Subordinated Debt issued in lieu of cash interest on the outstanding Bridge Junior Subordinated Debt and otherwise as contemplated by the Bridge Loan Agreement upon exchange of Bridge Junior Subordinated Debt into exchange notes; provided, -------- however, that in the event that the aggregate principal amount of ------- Bridge Senior Subordinated Debt or Senior Subordinated Discount Notes, as the case may be, issued as permitted by subsection 7.1(d)(i) is more than $100,000,000 but less than or equal to $105,000,000, the principal amount of Indebtedness permitted by this subsection 7.1(d)(iii) shall be reduced by an amount equal to the amount by which such Bridge Senior Subordinated Debt or Senior Subordinated Discount Notes, as the case may be, exceeds $100,000,000; and (iv) Permanent Junior Subordinated Debt in an aggregate principal amount not to exceed the principal amount of the Bridge Junior Subordinated Debt or, if the issuance thereof to refinance Preferred Stock shall be consented to by the Required Lenders, the Exchange Debentures (or, in either case, any refinancing thereof permitted hereunder) at the time of such refinancing and 10% of such value, the proceeds (net of any fees and expenses in connection therewith) of which shall be applied to prepay, redeem, retire or repurchase either (A) the outstanding principal amount of Bridge Junior Subordinated Debt, (B) the outstanding amount of Preferred Stock, (C) the outstanding principal amount of Exchange Debentures, if any, or (D) other Permanent Junior Subordinated Debt. (e) (i) Indebtedness of the Company and its Subsidiaries for (A) industrial revenue bonds or other similar governmental and municipal bonds and (B) the deferred purchase price of newly acquired equipment of the Company and its Subsidiaries (pursuant to purchase money mortgages or otherwise and whether owed to the seller or a third party) used in the ordinary course of business (provided such financing is entered into within 180 days of the acquisition of - --------- such property) of the Company and its Subsidiaries in an amount (based on the remaining balance of the obligations therefor on the books of the Company and its Subsidiaries) which shall not exceed $10,000,000 in the aggregate at any one time outstanding for Indebtedness described in this clause (i), and (ii) Indebtedness of the Company and its 80 Subsidiaries in respect of Financing Leases to the extent subsections 7.7 and 7.10 would not be contravened; (f) (i) Indebtedness assumed in connection with acquisitions permitted by subsection 7.6(g) (so long as such Indebtedness was not incurred in anticipation of such acquisitions), (ii) Indebtedness of newly acquired Subsidiaries acquired in such acquisitions (so long as such Indebtedness was not incurred in anticipation of such acquisition), (iii) Indebtedness owed to the seller in any acquisition permitted by subsection 7.6(g) constituting part of the purchase price thereof and (iv) Indebtedness of the Company or any Subsidiary incurred to finance any acquisition permitted by subsection 7.6(g), all of which Indebtedness permitted by this subsection 7.1(f) (including refinancings thereof as permitted by subsection 7.1(m)), when added to the aggregate principal amount of Indebtedness permitted by subsection 7.1(h) or 7.1(n) the Net Proceeds of which shall have been applied to refinance preferred stock the proceeds of which were originally used to finance the acquisition of an Encumbered Subsidiary permitted by subsection 7.6(g), shall not exceed in the aggregate at any one time outstanding an amount equal to the excess, if any, of (x) $175,000,000 over (y) the excess, if any, of (1) the aggregate Acquisition Consideration given subsequent to the date hereof in connection with acquisitions permitted by subsection 7.6(g)(iv) (excluding (A) Capital Stock of the Company issued in connection with such acquisitions, (B) the Net Proceeds of issuances of Capital Stock to the extent such Net Proceeds are contemporaneously applied toward such acquisitions, (C) any Indebtedness constituting a portion of such Acquisition Consideration and (D) the Net Proceeds of any bond issuance as permitted by subsection 7.1(e) to the extent such Net Proceeds are contemporaneously applied toward such acquisition) over (2) an amount equal to the aggregate Acquisition Consideration (or in the event of one or more partial sales of assets or Capital Stock as set forth in clause (aa) below, the proceeds thereof not to exceed, individually or in the aggregate, the total Acquisition Consideration therefor) given subsequent to the date hereof in connection with acquisitions permitted by subsection 7.6(g)(iv) (excluding Capital Stock, Net Proceeds of issuances thereof, any Indebtedness constituting a portion of such Acquisition Consideration and Net Proceeds of certain bond issuances as aforesaid) with respect to which either (aa) all or a portion of the assets or Capital Stock so acquired shall have been subsequently sold or (bb) in any case where the Subsidiary that is the subject of such acquisition or that is the holder of the assets so acquired is, immediately after giving effect to such acquisition, an Encumbered Subsidiary, such Encumbered Subsidiary shall have ceased to be an Encumbered Subsidiary; provided that the aggregate principal -------- amount of outstanding Indebtedness permitted by this clause (iv) at any time outstanding shall be increased by an amount equal to the aggregate amount which the Company would then be permitted to borrow under subsection 7.1(e)(i) and invest under subsection 7.6(h); (g) Indebtedness in connection with workmen's compensation obligations and general liability exposure of the Company and its Subsidiaries; (h) unsecured subordinated indebtedness of the Company and its Subsidiaries, provided that (i) such Indebtedness shall not exceed $10,000,000 -------- in aggregate principal amount at any one time outstanding plus any additional principal amount of such Indebtedness issued in lieu of cash interest on such outstanding Indebtedness or any 81 refinancing thereof, (ii) no part of the principal amount of such Indebtedness shall have a maturity date earlier than the one-year anniversary of the Termination Date and (iii) the non-default interest rate thereon shall not exceed 12% per annum; (i) additional Indebtedness of the Company and its Subsidiaries in an aggregate principal amount at any one time outstanding not in excess of $15,000,000. (j) Indebtedness in respect of letters of credit (other than Letters of Credit issued hereunder) in an aggregate principal amount equal to $5,000,000 at any one time outstanding; (k) Indebtedness of Foreign Subsidiaries owing to Persons other than the Company or any other Subsidiary in an aggregate principal amount at any one time outstanding not in excess of $15,000,000; (l) Indebtedness of a Domestic Subsidiary in an aggregate principal amount at any one time outstanding not in excess of $18,000,000 assumed in connection with the exercise of purchase options with respect to the properties, or the equity interests in the Persons that are the owners of such properties, that are the subject of the currently existing Financing Leases to which Harborside of Cleveland, L.P. is a party; (m) refinancings on market terms and conditions of Indebtedness permitted pursuant to subsection 7.1(f), provided that either (i) the Available -------- Revolving Credit Commitment at the time of any such refinancing is less than the amount being refinanced or (ii) such refinancing is of Indebtedness of an Encumbered Subsidiary that occurs at the final maturity of such Indebtedness and the payment of such Indebtedness in full at such final maturity would not (as a result of Contractual Obligations with third parties in connection with lease arrangements or other Indebtedness for borrowed money) result in such Encumbered Subsidiary ceasing to be an Encumbered Subsidiary; (n) Indebtedness the aggregate gross proceeds received by the Company in connection with the issuance of which do not exceed $25,000,000 on terms and conditions (other than those relating to the rate of interest payable thereon, provided that such rate may not exceed the then prevailing market rate for similar issues by comparable issuers) substantially similar to those described in the Offering Memorandum as being applicable to the Senior Subordinated Discount Notes; and (o) additional secured Indebtedness of the Company and its Subsidiaries in an aggregate principal amount of any one time outstanding not in excess of $10,000,000. For the purposes of this subsection 7.1, Indebtedness incurred in connection with the payment by the Company or any Subsidiary of expenses, operating costs and maintenance capital expenditures of any Domestic Subsidiary in the ordinary course of the business of such Domestic Subsidiary shall not be considered to be a loan of, or advance by, the Company or any Subsidiary to such Domestic Subsidiary and shall be permitted under this Agreement. 82 7.2 Limitation on Liens. Create, incur, assume or suffer to exist ------------------- any Lien upon any of its property, assets, income or profits, whether now owned or hereafter acquired, except: (a) Liens for taxes, assessments or other governmental charges not yet delinquent or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company or such Subsidiary, as the case may be, in accordance with GAAP; (b) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other like Liens arising in the ordinary course of business in respect of obligations which are not yet due or which are bonded or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company or such Subsidiary, as the case may be, in accordance with GAAP; (c) pledges or deposits in connection with workmen's compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of bids, tenders, trade or government contracts (other than for borrowed money), leases, licenses, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements (including, without limitation, reciprocal easement agreements), rights-of-way, building, zoning and similar restrictions, utility agreements, covenants, reservations, restrictions, encroachments, changes, and other similar encumbrances or title defects incurred, or leases or subleases granted to others, in the ordinary course of business, which do not in the aggregate materially detract from the aggregate value of the properties of the Company and its Subsidiaries, taken as a whole, or in the aggregate materially interfere with or adversely affect in any material respect the ordinary conduct of the business of the Company and its Subsidiaries on the properties subject thereto, taken as a whole; (f) Liens in favor of the Administrative Agent and the Lenders pursuant to the Credit Documents, including Liens pursuant to the Credit Documents in respect of Interest Rate Agreements, and bankers' liens arising by operation of law; (g) Liens on property of the Company or any Subsidiary created solely for the purpose of securing Indebtedness permitted by subsection 7.1(e) representing or incurred to finance, refinance or refund the purchase price of property or the cost of making improvements thereto, provided that (i) no such -------- Lien shall extend to or cover property of the Company or such Subsidiary other than the respective property so acquired or improved and (ii) the principal amount of Indebtedness secured by any such Lien shall not exceed the fair market value of such property at the time of the creation of such Indebtedness; 83 (h) Liens on property of the Company or any Subsidiary acquired with the proceeds of any Indebtedness permitted by subsection 7.1(f), or on the Capital Stock of any such acquired Subsidiary, to secure such Indebtedness, provided that (i) no such Lien shall extend to or cover other property of the - -------- Company or such Subsidiary and (ii) the principal amount of Indebtedness secured by any such Lien shall not exceed the original purchase price of such property; (i) Liens existing on the Closing Date after giving effect to the consummation of the Merger and described in subsection 4.13 or Schedule 7.2(i) (including the extension of any Liens listed on such Schedule relating to any Indebtedness permitted under subsection 7.1(a) in connection with any refinancing of such Indebtedness permitted by such subsection and any Liens securing Indebtedness to be repaid on the Closing Date to the extent the Company has made arrangements to terminate such Liens in a manner satisfactory to the Administrative Agent), provided that no such Lien shall extend to or cover other -------- property of the Company or the respective Subsidiary other than the respective property so encumbered and the principal amount of Indebtedness secured by any such Lien shall at no time exceed the original principal amount of the Indebtedness so secured; (j) Liens on documents of title and the property covered thereby securing Indebtedness in respect of the Commercial L/Cs; (k) (i) mortgages, liens, security interests, restrictions, encumbrances or any other matter of record that have been placed by any developer, landlord or other third party on property over which the Company or any Subsidiary has easement rights or on any Leased Property and subordination or similar agreements relating thereto and (ii) any condemnation or eminent domain proceedings affecting any real property; (l) Liens in connection with workmen's compensation obligations and general liability exposure of the Company and its Subsidiaries; (m) Liens on goods (and proceeds thereof) securing reimbursement obligations in respect of commercial letters of credit issued in accordance with the terms of this Agreement; (n) Liens on the Capital Stock or assets of any Foreign Subsidiary securing Indebtedness of such Foreign Subsidiary permitted by subsection 7.1(k); (o) Liens on the Capital Stock or personal property of any Subsidiary securing operating leases of such Subsidiary; and (p) Liens on property of the Company or any Subsidiary created solely for the purpose of securing Indebtedness permitted by subsection 7.1(o). 7.3 Limitation on Contingent Obligations. Create, incur, assume or ------------------------------------ suffer to exist any Contingent Obligation except: 84 (a) pursuant to this Agreement, the Collateral Agreement or the Synthetic Lease Facility; (b) guarantees by the Company incurred in the ordinary course of business for an aggregate amount not to exceed $5,000,000 at any one time outstanding; (c) guarantees by the Company or any Domestic Subsidiary of (i) obligations of the Company or of Domestic Subsidiaries (other than Encumbered Subsidiaries) and (ii) obligations of Foreign Subsidiaries in an aggregate principal amount at any one time outstanding not to exceed $15,000,000 plus the ---- sum of any amounts dividended or distributed to the Company or any Domestic Subsidiary (other than an Encumbered Subsidiary) subsequent to the date hereof by Foreign Subsidiaries, less the sum of (A) the aggregate amount of any ---- Indebtedness of Foreign Subsidiaries pursuant to subsection 7.1(c)(iii) and (B) the aggregate amount of any investments made in Foreign Subsidiaries subsequent to the date hereof pursuant to subsection 7.6(b)(iii); (d) guarantees by the Company or any Subsidiary of Indebtedness of Encumbered Subsidiaries in an aggregate principal amount not to exceed at any one time outstanding $35,000,000; (e) Contingent Obligations existing on the Closing Date and described in Schedule 7.3(e) and Contingent Obligations relating to any Indebtedness permitted under subsection 7.1(a); (f) guarantees of obligations to third parties in connection with travel and entertainment advances and relocation and other loans to employees of the Company or any of its Subsidiaries, in an amount which, together with all loans and advances made pursuant to subsection 7.6(f), shall not exceed $5,000,000 at any one time outstanding; (g) Contingent Obligations in connection with workmen's compensation obligations and general liability exposure of the Company and its Subsidiaries; (h) subordinated guarantees in respect of the Subordinated Debt issued by Subsidiaries, provided that such subordinated guarantees are -------- subordinated to the Borrowers' obligations under this Agreement on substantially the same basis as the Subordinated Debt is subordinated to the Loans; and (i) guarantees by the Company or any Domestic Subsidiary of Indebtedness of joint ventures in or to which the Company or any of its Subsidiaries has made investments or loans or advances as permitted by subsection 7.6(h) in an aggregate principal amount (when added to the aggregate then outstanding amount of such investments, loans and advances) not to exceed at any one time outstanding $10,000,000 plus the sum of (i) any amounts ---- dividended or distributed to the Company or any Domestic Subsidiary (other than an Encumbered Subsidiary) subsequent to the date hereof by such joint ventures and (ii) the proceeds of any sale permitted by subsection 7.5(j) to the extent that such proceeds are not otherwise reinvested. 85 7.4 Prohibition of Fundamental Changes. Enter into any merger or ---------------------------------- consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or engage in any type of business other than of the same general type now conducted by it, except (a) for the Merger, (b) for the transactions otherwise permitted pursuant to subsection 7.5(b), (c) Subsidiaries with a net book value not greater than $100,000 may be dissolved and (d) any Subsidiary may otherwise be dissolved, provided that upon -------- dissolution, the assets of such Subsidiary are transferred to the Company or a wholly owned Domestic Subsidiary of the Company on the terms and subject to the conditions set forth in subsection 7.5(b). 7.5 Prohibition on Disposition of Assets. Convey, sell, lease, ------------------------------------ assign, transfer or otherwise dispose of (including through a transaction of merger or consolidation of any Subsidiary of the Company) any of its property, business or assets (including, without limitation, receivables and other payments and Health Care Businesses), whether now owned or hereafter acquired, except: (a) the sale or other disposition of inventory in the ordinary course of business; (b) the Company or any Subsidiary of the Company may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to, and any Subsidiary of the Company may merge with and into, the Company or a wholly owned Domestic Subsidiary of the Company, and the Company or any Subsidiary of the Company may sell or otherwise dispose of, or part with control of any or all of, the Capital Stock of any Subsidiary to a wholly owned Domestic Subsidiary of the Company or the Company, provided that no -------- such transaction may be effected if it would result in the transfer of any assets of, or any Capital Stock of, the Company or a Subsidiary (other than an Encumbered Subsidiary) to, or the merger with and into, an Encumbered Subsidiary unless such Encumbered Subsidiary (directly or through a series of mergers and transfers) promptly transfers the assets transferred to it by such Subsidiary, or, as the case may be, any Capital Stock thereof, to the Company or a Domestic Subsidiary (other than an Encumbered Subsidiary); (c) the lease in the ordinary course of business of Fee Properties and other real property owned in fee; (d) any condemnation or eminent domain proceeding affecting any real property, provided that the parties hereto agree that the net proceeds received -------- in connection with such proceeding shall be deemed not to constitute "Net Proceeds" if such net proceeds are reinvested in new or existing properties or used for capital expenditures within 18 months; (e) any substantially like-kind exchange of real property, provided -------- that only any cash received by the Company or any Subsidiary of the Company in connection with such an exchange (net of all costs and expenses incurred in connection with such transaction or with the commencement of operation of real property received in such exchange) and not reinvested in real property or used for capital expenditures within 360 days (or, in the event 86 there is a definitive agreement in existence committing such net proceeds to such reinvestment or capital expenditure within 360 days of receipt of the same, such 360-day period will be extended for a period not to exceed 180 days with respect to the amount of net proceeds so committed until required to be paid in accordance with such agreement (or, if earlier, until termination of such agreement)) of receipt of the same shall be deemed to be Net Proceeds and shall be applied as provided for in subsection 3.4(b)(iii) and provided, further, that -------- ------- the aggregate outstanding amount of net proceeds held by the Company at any time for reinvestment in respect of any real property exchanged pursuant to this paragraph (e) and real property sold pursuant to subsection 7.5(h) shall not exceed $40,000,000; (f) the sale or other disposition of any property that, in the reasonable judgment of the Company has become uneconomic, obsolete or worn out, and which is sold or disposed of in the ordinary course of business; (g) the sale or other disposition of any property, the aggregate amount of the net proceeds received in respect of which shall not exceed $10,000,000 during the term of this Agreement; (h) the sale or other disposition of any interest in real property, provided that (i) the net proceeds of any such sale shall constitute Net - -------- Proceeds only to the extent such net proceeds are not reinvested in real property or used for capital expenditures within 360 days (or, in the event there is a definitive agreement in existence committing such net proceeds to such reinvestment or capital expenditure within 360 days from the date of such sale, such 360-day period will be extended for a period not to exceed 180 days with respect to the amount of net proceeds so committed until required to be paid in accordance with such agreement (or, if earlier, until termination of such agreement)) from the date of such sale, (ii) if the real property so sold constituted Collateral under the Security Documents then any real property purchased with the net proceeds thereof shall be mortgaged for the benefit of the Lenders if required by subsection 6.9(c) and in accordance therewith and (iii) the aggregate outstanding amount of net proceeds held by the Company at any time for reinvestment in respect of any real property sold pursuant to this paragraph (h) and real property exchanged pursuant to subsection 7.5(e) shall not exceed $40,000,000; (i) the sale of all or any part of the Company's or any Subsidiary's ownership of Bowie Center L.P. and the pharmacy joint venture with Neighborcare; (j) the sale of all or any part of any joint venture interest permitted by subsection 7.6(h), provided that the net proceeds of any such sale -------- shall constitute Net Proceeds only to the extent such net proceeds are not reinvested in joint ventures (as permitted by subsection 7.6(h)) or used for capital expenditures or for acquisitions permitted by subsection 7.6(g) within 360 days (or, in the event there is a definitive agreement in existence committing such net proceeds to such reinvestment, capital expenditure or acquisition within 360 days from the date of such sale, such 360-day period will be extended for a period not to exceed 180 days with respect to the amount of net proceeds so committed until required to be paid in accordance with such agreement (or, if earlier, until termination of such agreement)) from the date of such sale; and 87 (k) the sublease in the ordinary course of business of any assets or properties, provided that the Company and its Subsidiaries may not sublease all -------- or substantially all of the assets of more than seven Health Care Facilities to Persons that are not Affiliates of the Company. 7.6 Limitation on Investments, Loans and Advances. Make any advance, --------------------------------------------- loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of, or make any other investment in (including, without limitation, any acquisition of all or any substantial portion of the assets, and any acquisition of a business or a product line, of other companies, other than the acquisition of inventory in the ordinary course of business and it being understood that this covenant is not intended to limit the ability of the Company or any Subsidiary to enter into any lease of real or personal property but that this covenant is intended to cover the acquisition of a business, the principal asset or assets of which is or are the subject of an operating lease under which the Company or any Subsidiary is the lessee and it being further understood that this covenant is intended to cover the acquisition by the Company or any Subsidiary of any real property and related personal property that is the subject of such an operating lease pursuant to the exercise by the Company or such Subsidiary of a purchase option provided for in such lease (a "Purchase Option Acquisition")), any Person (except to the extent --------------------------- permitted by subsection 7.7), except: (a) the Company may make loans or advances to any Domestic Subsidiary (other than an Encumbered Subsidiary), and any Subsidiary may make loans or advances to the Company or any Domestic Subsidiary (other than an Encumbered Subsidiary), to the extent in each case the Indebtedness created thereby is permitted by subsection 7.1(c); (b) (i) any Subsidiary may make investments in the Company (by way of capital contribution or otherwise), (ii) the Company and any Subsidiary may make investments in, or create, any wholly owned Domestic Subsidiary (by way of capital contribution or otherwise) or make investments permitted by subsection 7.5(b), provided that, in any such case, (A) the requirements of subsection 6.9 -------- are satisfied and (B) at no time shall (x) the sum, calculated for each Encumbered Subsidiary and then aggregated for all Encumbered Subsidiaries, of the excess, if any, of (1) the aggregate amount of all loans, advances and investments (other than any investments in connection with acquisitions of Encumbered Subsidiaries permitted by subsection 7.6(g)(iv)) by the Company or any Subsidiary (other than an Encumbered Subsidiary) to or in such Encumbered Subsidiary subsequent to the date hereof as permitted by this subsection and subsection 7.1(c) over (2) the aggregate amount of loan repayments and dividends and distributions from such Encumbered Subsidiary to the Company or any Subsidiary (other than an Encumbered Subsidiary) subsequent to the date hereof exceed (y) the sum of $25,000,000 plus the then Added Amount, and (iii) the ---- Company and any Subsidiary may make investments in, or create, any Foreign Subsidiary (by way of capital contribution or otherwise), provided that (A) the -------- requirements of subsection 6.9 are satisfied and (B) the aggregate amount of all investments in such Foreign Subsidiaries shall not exceed at any one time outstanding the sum of $15,000,000 plus any amounts dividended or distributed by ---- such Foreign Subsidiaries subsequent to the date hereof to the Company or any Domestic Subsidiary (other than an Encumbered Subsidiary), less the sum of (x) ---- the aggregate amount of any Indebtedness of 88 Foreign Subsidiaries pursuant to subsection 7.1(c)(iii) and (y) the aggregate amount of any Contingent Obligations of the Borrowers in respect of then outstanding obligations of Foreign Subsidiaries pursuant to subsection 7.3(c)(ii); (c) the Company and its Subsidiaries may invest in, acquire and hold Cash Equivalents and Investment Grade Securities; (d) the Company or any of its Subsidiaries may make payroll advances in the ordinary course of business; (e) the Company or any of its Subsidiaries may acquire and hold receivables owing to it, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms, provided that nothing in this clause (e) shall prevent the Company or any - -------- Subsidiary from offering such concessionary trade terms, or from receiving such investments, in connection with the bankruptcy or reorganization of their respective suppliers or customers or the settlement of disputes with such customers or suppliers arising in the ordinary course of business, as management deems reasonable in the circumstances; (f) the Company or any of its Subsidiaries may make travel and entertainment advances and relocation and other loans to officers and employees of the Company or any such Subsidiary, provided that the aggregate principal -------- amount of all such loans and advances outstanding at any one time, together with the guarantees of such loans and advances made pursuant to subsection 7.3(f), shall not exceed $5,000,000 at any one time outstanding; and (g) the Company and its Subsidiaries may make Purchase Option Acquisitions and may make expenditures to acquire all or a portion of the Capital Stock or assets of any Person engaged primarily in one or more businesses in which the Company and its Subsidiaries are engaged or directly related thereto or in the ownership or operation of Health Care Facilities or Ancillary Businesses generally (it being understood that this paragraph (g) shall be applicable to any like-kind exchange of property effected pursuant to subsection 7.5(e) to the extent that the fair market value of the property received by the Company or any Subsidiary in such exchange exceeds the fair market value of the property transferred by the Company or any Subsidiary in connection therewith), provided that, after giving pro forma effect to any such -------- --- ----- acquisition permitted by this paragraph (g) and the financing thereof and any Indebtedness incurred or assumed in connection therewith: (i) the provisions of subsection 6.9 are satisfied, (ii) either (A) the ratio of Consolidated Senior Indebtedness as of the day of such acquisition to Consolidated EBITDA for the period of four fiscal quarters ending as at the last day of the most recently ended fiscal quarter is less than or equal to 4.25 to 1.00, provided that for purposes -------- of calculating such ratio, the unencumbered (other than Liens permitted pursuant to subsection 7.2(f)) cash and Cash Equivalent balances of the Company and its Subsidiaries as of the day of such acquisition shall be deducted from the amount of Consolidated Senior Indebtedness on such date and 89 provided, further, that for purposes of calculating Consolidated EBITDA for -------- ------- any period, the Consolidated EBITDA of any Acquired Business acquired during such period (as the Consolidated EBITDA of such Acquired Business may be adjusted (w) for those items that occur by reason of such acquisition that would be substantially in conformity with the calculation of Consolidated EBITDA in accordance with Regulation S-X, (x) in accordance with the adjustment to EBITDA for the fiscal year ending December 31, 1997 described in the Confidential Information Memorandum in an aggregate approximate amount of $1,300,000, (y) to reflect a full year of occupancy for newly constructed beds and (z) for any cost reduction resulting from the termination of any contracts of the Acquired Business which are in existence at the time of the acquisition of such Acquired Business and any additional costs incurred in connection with the services that were terminated) shall be included on a pro forma basis for such period --- ----- (assuming the consummation of such acquisition and the incurrence, assumption or guarantee of any Indebtedness in connection therewith occurred on the first day of such period), (B) the amount of expenditures in connection with each such acquisition does not exceed $2,500,000 and the Company elects (by prior written notice to the Administrative Agent) to treat such expenditures as Capital Expenditures for purposes of this Agreement, including but not limited to subsection 7.7, or (C) such acquisition constitutes an acquisition of a business, the principal asset or assets of which is or are the subject of an operating lease under which the Company or any Subsidiary is the lessee and the Trust is not the lessor, and with respect to which no amounts are expended by the Company or any Subsidiary in connection therewith other than (w) regularly scheduled lease payments, (x) customary closing costs and expenses, (y) customary security deposits and (z) payments to acquire temporary working capital of such business so long as the Company or such Subsidiary reasonably expects to receive at least an equivalent amount of cash from such business within 90 days of such expenditure, (iii) no Default or Event of Default has occurred and is continuing or would result therefrom, (iv) the excess, if any, of (1) the aggregate Acquisition Consideration given subsequent to the date hereof in connection with all acquisitions of or by Encumbered Subsidiaries as permitted by this subsection 7.6(g) (excluding (A) Capital Stock of the Company issued in connection with such acquisitions, (B) the Net Proceeds of issuances of Capital Stock to the extent such Net Proceeds are contemporaneously applied toward such acquisitions, (C) any Indebtedness constituting a portion of such Acquisition Consideration and (D) the Net Proceeds of any bond issuance as permitted by subsection 7.1(e) to the extent such Net Proceeds are contemporaneously applied toward such acquisition) over (2) an amount equal to the aggregate Acquisition Consideration (or in the event of one or more partial sales of assets or Capital Stock as set forth in clause (aa) below, the proceeds thereof not to exceed, individually or in the aggregate, the total Acquisition Consideration therefor) given subsequent to the date hereof in connection with acquisitions permitted by this subsection 7.6(g)(iv) (excluding Capital Stock, Net Proceeds of issuances thereof, any Indebtedness constituting a portion of such Acquisition Consideration and Net Proceeds of certain 90 bond issuances as aforesaid) with respect to which either (aa) all or a portion of the assets or Capital Stock so acquired shall have been subsequently sold or (bb) in any case where the Subsidiary that is the subject of such acquisition or that is the holder of the assets so acquired is, immediately after giving effect to such acquisition, an Encumbered Subsidiary, such Encumbered Subsidiary shall have ceased to be an Encumbered Subsidiary, shall not exceed an amount equal to the excess, if any, of (x) $175,000,000 over (y) the sum of (I) the aggregate then outstanding principal amount of Indebtedness permitted by subsection 7.1(f) (including refinancings thereof permitted by subsection 7.1(m)) plus (II) ---- the aggregate principal amount of Indebtedness permitted by subsection 7.1(h) or 7.1(n) the Net Proceeds of which shall have been applied to refinance preferred stock the proceeds of which were originally used to finance the acquisition of an Encumbered Subsidiary permitted by this subsection 7.6(g)); provided that the aggregate amount that the Company or -------- any Subsidiary may at any time expend to acquire Encumbered Subsidiaries shall be increased by an amount equal to the aggregate amount which the Company would then be permitted to borrow under subsection 7.1(e)(i) and invest under subsection 7.6(h) and (v) in any case where such acquisition (other than an acquisition of the Capital Stock of a Person and other than a Purchase Option Acquisition) is made by a Subsidiary (other than an Encumbered Subsidiary) that conducts a Health Care Business, such Subsidiary shall not, as a result of or in connection with such acquisition, have become a party to any Contractual Obligations with third parties in connection with lease arrangements or Indebtedness for borrowed money that prohibit the transfer, assignment or grant of a security interest in any asset that, but for such prohibition, would constitute Collateral; (h) the Company or any of its Subsidiaries may make investments in, or loans or advances to, joint ventures or other Persons (other than Subsidiaries) engaged primarily in one or more businesses in which the Company and its Subsidiaries are engaged or directly related thereto or in the ownership or operation of Health Care Facilities or Ancillary Businesses generally, in an aggregate principal amount (when added to the aggregate then outstanding principal amount of Indebtedness supported by Contingent Obligations as permitted by subsection 7.3(i)) at any one time outstanding not to exceed $10,000,000 plus the sum of (i) any amounts dividended or distributed to the ---- Company or any Domestic Subsidiary (other than an Encumbered Subsidiary) subsequent to the date hereof by such joint venture or other Person and (ii) the proceeds of any sales permitted by subsection 7.5(j) to the extent that such proceeds are not otherwise reinvested; provided that at the time of and after -------- giving effect thereto no Default or Event of Default shall have occurred and be continuing or would result therefrom; (i) the Company or any of its Subsidiaries may make investments in connection with the exercise of purchase options with respect to the properties, or the equity interests in the Persons that are the owners of such properties, that are the subject of the currently existing Financing Leases to which Harborside of Cleveland, L.P. is a party in an 91 aggregate amount not to exceed $57,125,000 less the aggregate principal amount ---- of Indebtedness assumed in connection therewith as permitted by subsection 7.1(l); (j) the Company or any of its Subsidiaries (other than an Encumbered Subsidiary) may make Purchase Option Acquisitions of the properties that are the subject of the Synthetic Lease Facility, provided that the Company or such -------- Subsidiary promptly, and in any event within 60 days after such Purchase Option Acquisition by the Company or such Subsidiary, grants to the Administrative Agent for the benefit of the Lenders an Additional Mortgage covering the real property that is the subject thereof and otherwise complies with the requirements of subsection 6.9 with respect to such Purchase Option Acquisition; and (k) the Company or any of its Subsidiaries may make loans to, and hold investments in promissory notes issued by, purchasers, sellers or lessors of assets in transactions permitted by subsection 7.5 or 7.6 in an aggregate principal amount not to exceed $10,000,000 at any one time outstanding and may hold the Promissory Note. For the purposes of this subsection 7.6, the payment by the Company or any Subsidiary of expenses, operating costs or maintenance capital expenditures of any Domestic Subsidiary incurred in the ordinary course of its business shall not be considered to be a loan to, advance by or other investment of the Company or any Subsidiary in, such Domestic Subsidiary and shall be permitted under this Agreement. 7.7 Capital Expenditures. Make or commit to make any Capital -------------------- Expenditures, except that the Company and its Subsidiaries may make or commit to make Capital Expenditures not exceeding the amount set forth below (the "Base ---- Amount") for each of the fiscal years or periods of the Company (or other - ------ period) set forth below:
Fiscal Year or Period Base Amount ----------- ----------- Closing Date to December 31, 1999 $ 23,000,000 2000 $ 16,000,000 2001 $ 17,000,000 2002 $ 18,000,000 2003 $ 19,000,000 January 1, 2004 to $10,000,000; Scheduled Termination Date
provided that (a) for any period set forth above, the Base Amount set forth - -------- above may be increased by a maximum of 50% of the Base Amount for any such period by carrying over to any such period any portion of the Base Amount (as increased) not spent in the immediately preceding period, (b) for each period set forth above after the fiscal year in which any Person or assets of such Person (an "Acquired Person") is acquired as permitted herein, the Base Amount --------------- set forth above shall be increased by an amount equal to the product of $1,000 times 92 the number of beds of each such Acquired Person at the time of acquisition thereof ("Acquired Capital Expenditures"), (c) with respect to the fiscal year ----------------------------- in which such Person becomes an Acquired Person, the Base Amount shall be increased by the product of (i) the Acquired Capital Expenditures of such Acquired Person times (ii) a fraction, the numerator of which is the number of days remaining in the fiscal year of the Company in which such Acquired Person was acquired and the denominator of which is 365, (d) for each period set forth above after the fiscal year in which the Company or any Subsidiary adds new beds ("Acquired Beds") to any then existing Health Care Facility, the Base Amount set ------------- forth above shall be increased by an amount equal to the product of $1,000 times the number of such Acquired Beds ("Acquired Bed Expenditures") and (e) with ------------------------- respect to the fiscal year in which the Company or any Subsidiary adds Acquired Beds to any then existing Health Care Facility, the Base Amount shall be increased by the product of (i) the Acquired Bed Expenditures for such Acquired Beds times (ii) a fraction, the numerator of which is the number of days remaining in the fiscal year of the Company in which the Acquired Beds were acquired and the denominator of which is 365; and provided, further, that, -------- ------- notwithstanding anything to the contrary herein, additional Capital Expenditures may be made with net proceeds received in property sales or dispositions permitted under subsection 7.5(g). Notwithstanding anything to the contrary in this subsection 7.7, no expenditure to acquire real or personal property pursuant to a Purchase Option Acquisition shall be deemed to constitute a Capital Expenditure for purposes of this subsection. 7.8 Interest Rate Agreements. Enter into, create, incur, assume or ------------------------ suffer to exist any Interest Rate Agreements or obligations in respect thereof except in the ordinary course of business for non-speculative purposes. 7.9 Debt to EBITDA. At the last day of any fiscal quarter set forth -------------- below, permit the ratio (the "Leverage Ratio") of Consolidated Indebtedness as -------------- of such day to Consolidated EBITDA for the period of four fiscal quarters ending on such day to be greater than the ratio set forth below for such fiscal quarter: Fiscal Year Fiscal Quarter Ratio ------------- -------------- ------------ 1998 Fourth 6.85 to 1.00 1999 First 6.85 to 1.00 Second 6.85 to 1.00 Third 6.85 to 1.00 Fourth 6.85 to 1.00 93 2000 First 6.85 to 1.00 Second 6.85 to 1.00 Third 6.85 to 1.00 Fourth 6.50 to 1.00 2001 First 6.50 to 1.00 Second 6.50 to 1.00 Third 6.50 to 1.00 Fourth 6.25 to 1.00 2002 First 6.25 to 1.00 Second 6.25 to 1.00 Third 6.25 to 1.00 Fourth 6.00 to 1.00 Thereafter 6.00 to 1.00; provided that for purposes of calculating Consolidated EBITDA for any period, - -------- the Consolidated EBITDA of any Acquired Business acquired during such period (as the Consolidated EBITDA of such Acquired Business may be adjusted (w) for those items that occur by reason of such acquisition that would be substantially in conformity with the calculation of Consolidated EBITDA in accordance with Regulation S-X, (x) in accordance with the adjustment to EBITDA for the fiscal year ending December 31, 1997 described in the Confidential Information Memorandum in an aggregate approximate amount of $1,300,000, (y) to reflect a full year of occupancy of newly constructed beds and (z) for any cost reduction resulting from the termination of any contracts of the Acquired Business which are in existence at the time of the acquisition of such Acquired Business and any additional costs incurred in connection with the services that were terminated) shall be included on a pro forma basis for such period (assuming the --- ----- consummation of such acquisition and the incurrence, assumption or guarantee of any Indebtedness in connection therewith occurred on the first day of such period). 7.10 Coverage Ratio. At the last day of any fiscal quarter set forth -------------- below, permit the Coverage Ratio to be less than the ratio set forth below for such fiscal quarter: Fiscal Year Fiscal Quarter Coverage Ratio ------------- -------------- -------------- 1998 Fourth 1.50 to 1.00 1999 First 1.50 to 1.00 Second 1.50 to 1.00 Third 1.50 to 1.00 Fourth 1.50 to 1.00 2000 First 1.50 to 1.00 Second 1.50 to 1.00 94 Interest Coverage Fiscal Year Fiscal Quarter Ratio ----------- -------------- ----- Third 1.50 to 1.00 Fourth 1.50 to 1.00 2001 First 1.50 to 1.00 Second 1.50 to 1.00 Third 1.50 to 1.00 Fourth 1.50 to 1.00 2002 First 1.50 to 1.00 Second 1.50 to 1.00 Third 1.50 to 1.00 Fourth 1.50 to 1.00 2003 First 1.50 to 1.00 Second 1.50 to 1.00 Third 1.50 to 1.00 Fourth 1.40 to 1.00 2004 First 1.35 to 1.00 Second 1.30 to 1.00 Thereafter 1.30 to 1.00; provided that for purposes of calculating Consolidated EBITDA for any period, - -------- the Consolidated EBITDA of any Acquired Business acquired during such period in an acquisition permitted by subsection 7.6(g) (as the Consolidated EBITDA of such Acquired Business may be adjusted (w) for those items that occur by reason of such acquisition that would be substantially in conformity with the calculation of Consolidated EBITDA in accordance with Regulation S-X, (x) in accordance with the adjustment to EBITDA for the fiscal year ending December 31, 1997 described in the Confidential Information Memorandum in an aggregate approximate amount of $1,300,000, (y) to reflect a full year of occupancy for newly constructed beds and (z) for any cost reduction resulting from the termination of any contracts of the Acquired Business which are in existence at the time of the acquisition of such Acquired Business and any additional costs incurred in connection with the services that were terminated) shall be included on a pro forma basis for such period (assuming the consummation of such --- ----- acquisition and the incurrence, assumption or guarantee of any Indebtedness in connection therewith occurred on the first day of such period); provided -------- further, that for purposes of calculating interest expense for any period, pro - ------- --- forma effect shall be given to any incurrence, assumption or guarantee of - ----- Indebtedness of any Person acquired by the Company or its Subsidiaries during such period (assuming the consummation of such acquisition and the incurrence, assumption or guarantee of any Indebtedness in connection therewith occurred on the first day of such period and assuming that, with respect to any Indebtedness that bears a floating rate of interest, the rate in effect on the last day of such period had been the applicable rate for the entire period). 95 7.11 Limitation on Dividends. Declare any dividends on any shares of ----------------------- any class of Capital Stock, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of any shares of any class of Capital Stock, or any warrants or options to purchase such Capital Stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Company or any of its Subsidiaries; except that: (a) (i) Subsidiaries may pay dividends or distributions to the Company or to Domestic Subsidiaries (other than Encumbered Subsidiaries) which are directly or indirectly wholly owned by the Company, (ii) Subsidiaries may pay dividends or distributions to Encumbered Subsidiaries that (directly or through a series of dividends or distributions) promptly pay such dividends or distributions to the Company or a Domestic Subsidiary (other than an Encumbered Subsidiary) and (iii) Encumbered Subsidiaries may pay dividends or distributions to other Encumbered Subsidiaries; (b) the Company may pay or make dividends or distributions to any holder of its Capital Stock in the form of additional shares of Capital Stock of the same class and type; (c) the Company may repurchase Capital Stock of the Company owned by former, present or future employees of the Company or its Subsidiaries or their assigns, estates and heirs, provided that the aggregate amount expended by the -------- Company pursuant to this clause (c) shall not in the aggregate exceed (i) $5,000,000 in any fiscal year or (ii) $10,000,000 during the term of this Agreement, plus any amounts contributed to the Company as a result of resales of such repurchased shares of Capital Stock; (d) the Company may after the fifth anniversary of the date of the issuance thereof make scheduled payments or dividends on the Preferred Stock when due at a rate per annum no greater than the rate per annum applicable to such Preferred Stock on the original date of issuance thereof, to the extent required to be paid in cash, provided that no Default or Event of Default shall -------- have occurred and be continuing or would result therefrom; (e) the Company may redeem Preferred Stock with the proceeds of issuances of common stock and preferred stock as referred to in subsection 3.4(b)(i); and (f) the Company may redeem preferred stock with the proceeds of issuances of other preferred stock as referred to in subsection 3.4(b)(i) and/or with the proceeds of Indebtedness issued as permitted by subsection 7.1(h) or 7.1(n). 7.12 Transactions with Affiliates. Enter into any transaction, ---------------------------- including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate except for transactions which are otherwise permitted under this Agreement and which are in the ordinary course of the Company's or a Subsidiary's business and which are upon fair and reasonable terms no less favorable to the Company or such Subsidiary than it would obtain in a hypothetical comparable arm's length transaction with a Person not an Affiliate, provided that nothing in this subsection 7.12 shall prohibit -------- the 96 Company or its Subsidiaries from engaging in the following transactions: (a) the performance of the Company's or any Subsidiary's obligations under any employment contract, collective bargaining agreement, employee benefit plan, related trust agreement or any other similar arrangement heretofore or hereafter entered into in the ordinary course of business, (b) the payment of compensation to employees, officers, directors or consultants in the ordinary course of business or (c) the maintenance of benefit programs or arrangements for employees, officers or directors, including, without limitation, vacation plans, health and life insurance plans, deferred compensation plans, and retirement or savings plans and similar plans, in each case, in the ordinary course of business. 7.13 Prepayments and Amendments of Subordinated Debt. (a) Optionally ----------------------------------------------- prepay, retire, redeem, purchase, defease or exchange any Subordinated Debt (other than (i) any redemption of the Bridge Senior Subordinated Debt or the Senior Subordinated Discount Notes with proceeds of Permanent Senior Subordinated Debt as permitted by subsection 7.1(d), (ii) any refinancing of the Permanent Junior Subordinated Debt or Permanent Senior Subordinated Debt contemplated in the definition thereof, (iii) any redemption of the Bridge Junior Subordinated Debt with the proceeds of the issuance of Preferred Stock to the extent permitted by subsection 3.4(b)(i), or (iv) any other redemption of Subordinated Debt with the proceeds of the issuance of Capital Stock to the extent permitted by subsection 3.4(b)(i)), (b) pay any interest on Subordinated Debt in cash if such interest may be paid by the issuance of additional Subordinated Debt or (c) waive, amend, supplement, modify, terminate or release the provisions of any Subordinated Debt, to the extent that any such waiver, amendment, supplement, modification, termination or release would be materially adverse to the Lenders. 7.14 Limitation on Changes in Fiscal Year. Permit the fiscal year of ------------------------------------ the Company to end on a day other than December 31 in any calendar year. 7.15 Limitation on Lines of Business. Enter into any business, either ------------------------------- directly or through any Subsidiary, except for those businesses in which the Company or any Subsidiary is engaged on the date of this Agreement (or which are directly related thereto or those related generally to the ownership or operation of Health Care Facilities or Ancillary Businesses). 7.16 Health Care Permits and Approvals. Engage in any activity that --------------------------------- (a) constitutes or, with the giving of notice, the passage of time, or both, would result in a material violation of, any Health Care Permit necessary for the lawful conduct of its business or operations or (b) constitutes or, with the giving of notice, the passage of time, or both, would result in the loss by any Health Care Facility or Ancillary Business owned, leased, managed or operated by the Company or any of its Subsidiaries of the right to participate in, and receive payment under, the appropriate Medicare, Medicaid and related reimbursement programs, and any similar state or local government-sponsored program, to the extent that such Credit Party has decided to participate in any such program with respect to such Health Care Facility or Ancillary Business, as the case may be, and to receive reimbursement from private and commercial payers and health maintenance organizations to the extent applicable thereto, in each case described in clauses (a) or (b) above, except where such violation or the loss of such Health Care Permit or rights to participate in or receive payments under such 97 programs could not reasonably be expected to have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole. 7.17 Preferred Stock. Convert any shares of Preferred Stock into, or --------------- exchange any shares of Preferred Stock for, any Indebtedness. SECTION 8. EVENTS OF DEFAULT ----------------- Upon the occurrence and during the continuance of any of the following events: (a) Any Borrower shall fail to (i) pay any principal of any Loan or Note when due in accordance with the terms hereof or thereof or to reimburse the Issuing Lender in accordance with subsection 2.8 or (ii) pay any interest on any Loan or Note or any other amount payable hereunder within five days after any such interest or other amount becomes due in accordance with the terms thereof or hereof; or (b) Any representation or warranty made or deemed made by any Credit Party in any Credit Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) The Company or any other Borrower shall default in the observance or performance of any agreement contained in subsection 6.7(a) or 6.9 or Section 7 of this Agreement or the Company or any Subsidiary shall default in the observance or performance of any agreement contained in Section 5(a), 5(i), 5(j), 5(k), 5(l), 5(p), 5(s)(i) or 5(s)(ii) of the Collateral Agreement or Section 5, 6 or 7 of any Mortgage; or (d) Any Credit Party shall default in the observance or performance of any other agreement contained in any Credit Document and such default shall continue unremedied for a period of 30 days; or (e) The Company or any of its Subsidiaries shall (i) default in any payment of principal of or interest on or other amounts in respect of any Indebtedness (other than the Loans, the L/C Obligations and any inter-company debt) or Interest Rate Agreement or in the payment of any Contingent Obligation, beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness, Interest Rate Agreement or Contingent Obligation was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness, Interest Rate Agreement or Contingent Obligation or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Contingent Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity, any 98 applicable grace period having expired, or such Contingent Obligation to become payable, any applicable grace period having expired; in each case, provided that -------- the aggregate principal amount of all such Indebtedness, Interest Rate Agreements and Contingent Obligations under which a default exists or which would then become due or payable equals or exceeds $7,500,000; or (f) (i) The Company or any of its Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Company or any of its Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Company or any of its Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Company or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Company or any of its Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Company or any of its Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Company or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Company or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan, and such event or condition, together with all other such events or conditions, relating to a Plan, if any, would be reasonably likely to subject the Company or any of its Subsidiaries to any tax, penalty or other liabilities in the aggregate resulting in a material adverse effect on the 99 business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole; or (h) One or more judgments or decrees shall be entered against the Company or any of its Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance) of $7,500,000 or more and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within the time required by the terms of such judgment; or (i) Any Credit Document shall cease, for any reason, to be in full force and effect or any Credit Party or any of its Subsidiaries shall so assert in writing, or any Security Document shall cease to be effective to grant a perfected Lien on the collateral described therein with the priority purported to be created thereby (other than as a result of any action or inaction on the part of the Administrative Agent or the Lenders), subject to such exceptions as may be permitted therein or herein, and such condition shall continue unremedied for 30 days after notice thereof to the Company by the Administrative Agent or any Lender; or (j) There shall have occurred a Change of Control; or (k) The subordination provisions of any document governing any Subordinated Debt shall cease, for any reason, to be valid or any Credit Party or any of its Subsidiaries shall so assert in writing; or (l) There shall have occurred and be continuing an Event of Default under and as defined in the documentation for the Synthetic Lease Facility; then, and in any such event, (a) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to any Borrower, automatically (i) the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes shall immediately become due and payable, and (ii) all obligations of the Company in respect of the Letters of Credit, although contingent and unmatured, shall become immediately due and payable and the Issuing Lender's obligations to issue the Letters of Credit shall immediately terminate and (b) if such event is any other Event of Default, so long as any such Event of Default shall be continuing, either or both of the following actions may be taken: (i) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Company, declare the Commitments and the Issuing Lender's obligations to issue the Letters of Credit to be terminated forthwith, whereupon the Commitments and such obligations shall immediately terminate; and (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice of default to the Company, (A) declare all or a portion of the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable, and (B) declare all or a portion of the obligations of the Company in respect of the Letters of Credit, although 100 contingent and unmatured, to be due and payable forthwith, whereupon the same shall immediately become due and payable and/or demand that the Company discharge any or all of the obligations supported by the Letters of Credit by paying or prepaying any amount due or to become due in respect of such obligations. All payments under this Section 8 on account of undrawn Letters of Credit shall be made by the Company directly to a cash collateral account established by the Administrative Agent for such purpose for application to the Company's reimbursement obligations under subsection 2.8 as drafts are presented under the Letters of Credit, with the balance, if any, to be applied to the Borrowers' obligations under this Agreement and the Notes as the Administrative Agent shall determine with the approval of the Required Lenders. Except as expressly provided above in this Section 8, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 9. MISCELLANEOUS ------------- 9.1 Amendments and Waivers. Except as otherwise expressly set forth ---------------------- in this Agreement, no Credit Document nor any terms thereof may be amended, supplemented, waived or modified except in accordance with the provisions of this subsection 9.1. With the written consent of the Required Lenders, the Administrative Agent and the respective Credit Parties or their Subsidiaries may, from time to time, enter into written amendments, supplements or modifications hereto for the purpose of adding any provisions to any Credit Document to which they are parties or changing in any manner the rights of the Lenders or of any such Credit Party or its Subsidiaries thereunder or waiving, on such terms and conditions as the Administrative Agent may specify in such instrument, any of the requirements of any such Credit Document or any Default or Event of Default and its consequences; provided that: -------- (a) no such waiver and no such amendment, supplement or modification shall release collateral not required or permitted by any Credit Document to be released and which, in the aggregate with all other collateral released pursuant to this clause (a) (other than collateral released pursuant to the proviso to this clause (a)) during the calendar year in which such proposed release would be effected and the immediately preceding calendar year, has fair market value on the proposed date of release in excess of 20% of the fair market value of all collateral (including any guarantee of the obligations hereunder) on such date without the written consent of the Supermajority Lenders; provided that, notwithstanding the -------- foregoing, this clause (a) shall not be applicable to and no consent shall be required for (i) releases of collateral in connection with any Asset Sales permitted by subsection 7.5, (ii) releases of collateral in accordance with subsection 9.11 or (iii) upon the reincorporation of the Company or any Subsidiary in a new jurisdiction or the creation of a new Subsidiary of the Company, any release of collateral in connection with the transfer of such released collateral to such reincorporated entity or new Subsidiary in compliance with subsection 7.4, provided that the -------- Administrative Agent, in its sole discretion, determines that such release and transfer, together with any grant and perfection of a new Lien therein in favor of the Administrative Agent, will cause no material 101 impairment of the value of the collateral taken as a whole, after giving effect to such release and transfer; (b) no such waiver and no such amendment, supplement or modification shall extend the final maturity date of any Note or reduce the rate or extend the time of payment of interest thereon, or change the method of calculating interest thereon, or reduce or extend the time of payment of any fee payable to the Lenders hereunder, or reduce the principal amount thereof, or change the amount of any Lender's Commitment or Revolving Credit Percentage, or amend, modify or waive any provision of subsection 3.9(b) or this subsection 9.1 or reduce the percentage specified in the definition of Required Lenders or reduce the percentage specified in the definition of Supermajority Lenders or consent to the assignment or transfer by any Credit Party of any of its rights and obligations under any Credit Document, in each case, without the prior written consent of each Lender, and each holder of Term Synthetic Lease Obligations, directly affected thereby; (c) no such waiver and no such amendment, supplement or modification affecting the then Administrative Agent or Issuing Lender shall amend, modify or waive any provision of Section 5 of the Agency and Intercreditor Agreement without the written consent of such Administrative Agent and Issuing Lender; and (d) no such waiver, and no such amendment, supplement or modification shall amend, modify or waive the order of application of prepayments specified in subsection 3.4(b)(v) without the written consent of the holders of at least 51% of each of (i) the aggregate unpaid principal amount of the Term Loans, if any, (ii) the Term Synthetic Lease Obligations, if any, and (iii) the Revolving Credit Commitments or, if the Revolving Credit Commitments are terminated, the aggregate unpaid principal amount of the Revolving Credit Loans (the Term Loans, the Term Synthetic Lease Obligations and the Revolving Credit Commitments (or, if the Revolving Credit Commitments are terminated, the aggregate unpaid principal amount of the Revolving Credit Loans, and participations in Swing Line Loans and the aggregate amount available to be drawn at such time under all outstanding Letters of Credit and L/C Obligations) of any Non-Funding Lender to be disregarded in determining such percentage at any time); any such waiver and any such amendment, supplement or modification described in this subsection 9.1 shall apply equally to each of the Lenders and shall be binding upon each Credit Party and its Subsidiaries, the Lenders, the Administrative Agent, the Documentation Agent, the Syndication Agent and the Issuing Lender and all future holders of the Notes and the Loans. Any extension of a Letter of Credit by the Issuing Lender shall be treated hereunder as a new Letter of Credit. In the case of any waiver, the Credit Parties, the Lenders, the Administrative Agent and Issuing Lender shall be restored to their former position and rights hereunder and under the outstanding Notes, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 102 9.2 Notices. All notices, requests and demands to or upon the ------- respective parties hereto to be effective shall be in writing (including by telecopy) and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when sent, confirmation of receipt received, addressed as follows in the case of the Company, the other Borrowers and the Administrative Agent, and as set forth in Schedule II in the case of any Lender, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes: The Company and the other Borrowers: Harborside Healthcare Corporation 470 Atlantic Avenue Boston, Massachusetts 02210 Attention: William H. Stephan Telecopy: (617) 556-1565 With a copy to: Gibson, Dunn & Crutcher LLP 200 Park Avenue New York, New York 10166 Attention: Janet Vance, Esq. Telecopy: (212) 351-4035 The Administrative Agent and Swing Line Lender: The Chase Manhattan Bank c/o The Loan and Agency Services Group One Chase Manhattan Plaza, 8th floor New York, New York 10081 Attention: Janet M. Belden Telecopy: (212) 552-5658 With a copy to: Chase New England Corporation 85 Wells Avenue, Suite 200 Newton, Massachusetts 02159 Attention: Roger A. Stone Telecopy: (617) 928-3057 provided that any notice, request or demand to or upon the Administrative Agent - -------- or the Lenders pursuant to subsections 2.4, 2.5, 3.1, 3.2, 3.3 and 3.4 shall not be effective until received and, provided, further, that the failure to provide -------- ------- the copies of notices to the Company and the other Borrowers provided for in this subsection 9.2 shall not result in any liability to the Administrative Agent. 9.3 No Waiver; Cumulative Remedies. No failure to exercise and no ------------------------------ delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial 103 exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 9.4 Survival of Representations and Warranties. All representations ------------------------------------------ and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement, the Letters of Credit and the Notes. 9.5 Payment of Expenses and Taxes. Each Borrower agrees (a) to pay ----------------------------- or reimburse the Administrative Agent, the Arranger, the Co-Arrangers, the Syndication Agent and the Documentation Agent for all their reasonable out-of- pocket costs and expenses incurred in connection with the development, negotiation, preparation and execution of the Credit Documents and any other documents prepared in connection herewith, and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of one counsel to the Administrative Agent, the Arranger, the Co-Arrangers, the Syndication Agent and the Documentation Agent, (b) to pay or reimburse all of the reasonable expenses, including without limitation, reasonable fees and expenses of counsel, incurred by the Administrative Agent in connection with the administration of the facilities provided for herein or in connection with any amendments, waivers, work-outs or restructurings in respect thereof, (c) to pay or reimburse the Administrative Agent, the Arranger, each Co-Arranger, the Syndication Agent, the Documentation Agent, the Issuing Lender and each Lender for all their costs and expenses incurred in connection with, and to pay, indemnify, and hold the Administrative Agent, the Arranger, each Co-Arranger, the Syndication Agent, the Documentation Agent, the Issuing Bank and each Lender harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever arising out of or in connection with, the enforcement or preservation of any rights under any Credit Document and any such other documents, including, without limitation, reasonable fees and disbursements of counsel to the Administrative Agent, the Arranger, each Co-Arranger, the Syndication Agent, the Documentation Agent and each Lender incurred in connection with the foregoing and in connection with advising the Administrative Agent with respect to its rights and responsibilities under this Agreement and the documentation relating thereto, (d) to pay, indemnify, and to hold the Administrative Agent, the Arranger, each Co-Arranger, the Syndication Agent, the Documentation Agent and each Lender harmless from any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other similar taxes (other than withholding taxes), if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, any Credit Document and any such other documents, and (e) to pay, indemnify, and hold the Administrative Agent, the Arranger, each Co-Arranger, the Syndication Agent, the Documentation Agent, the Issuing Bank and each Lender and their respective affiliates, officers, directors and trustees harmless from and against any and all other liabilities, 104 obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including, without limitation, reasonable fees and disbursements of counsel) which may be incurred by or asserted against the Administrative Agent, the Arranger, each Co-Arranger, the Syndication Agent, the Documentation Agent, the Issuing Bank or the Lenders or such affiliates, officers, directors or trustees (x) arising out of or in connection with any investigation, litigation or proceeding related to this Agreement, the other Credit Documents, the proceeds of the Loans, the Preferred Stock or the Subordinated Debt and the transactions contemplated by or in respect of such use of proceeds, or any of the other transactions contemplated hereby, whether or not the Administrative Agent, the Arranger, each Co-Arranger, the Syndication Agent, the Documentation Agent, the Issuing Bank or any of the Lenders or such affiliates, officers, directors or trustees is a party thereto, including, without limitation, any of the foregoing relating to the violation of, noncompliance with or liability under, any Environmental Law applicable to the Company, any of its Subsidiaries or any of the facilities and properties owned, leased or operated by the Company or any of its Subsidiaries, or (y) without limiting the generality of the foregoing, by reason of or in connection with the execution and delivery or transfer of, or payment or failure to make payments under, Letters of Credit (it being agreed that nothing in this subsection 9.5(d)(y) is intended to limit the Company's obligations pursuant to subsection 2.8) (all the foregoing, collectively, the "indemnified ----------- liabilities"), provided that no Borrower shall have any obligation hereunder -------- with respect to indemnified liabilities of the Administrative Agent, the Arranger, any Co-Arranger, the Syndication Agent, the Documentation Agent, the Issuing Bank or any Lender or any of their respective affiliates, officers, directors and trustees arising from (i) the gross negligence or willful misconduct of the person seeking indemnification or (ii) legal proceedings commenced against the Administrative Agent, the Arranger, any such Co-Arranger, the Syndication Agent, the Documentation Agent, the Issuing Bank or any such Lender by any security holder or creditor thereof arising out of and based upon rights afforded any such security holder or creditor solely in its capacity as such or (iii) legal proceedings commenced against the Administrative Agent, the Arranger, any such Co-Arranger, the Syndication Agent, the Documentation Agent, the Issuing Bank or any such Lender by any Transferee. Without limiting the foregoing, and to the extent permitted by applicable law, the Company agrees not to assert, and hereby waives (and shall cause the Subsidiaries not to assert and to waive) all rights for contribution or any other rights of recovery with respect to all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever, under or related to Environmental Laws, that any of them might have by statute or otherwise against the Administrative Agent, the Arranger, any Co- Arranger, the Syndication Agent, the Documentation Agent, the Issuing Lender or any Lender. The agreements in this subsection 9.5 shall survive repayment of the Loans and all other amounts payable hereunder. 9.6 Successors and Assigns; Participations and Assignments. (a) ------------------------------------------------------ This Agreement shall be binding upon and inure to the benefit of the Borrowers, the Lenders, the Administrative Agent, the Arranger, the Co-Arrangers, the Syndication Agent, the Documentation Agent, all future holders of the Notes and the Loans, and their respective successors and assigns, except that no Borrower may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. 105 (b) Any Lender may, in the ordinary course of its commercial banking or lending business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in ------------ any Loan owing to such Lender, any participating interest in the Letters of Credit of such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender hereunder. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Note for all purposes under this Agreement and the Company and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Credit Documents. Each Borrower agrees that if amounts outstanding under this Agreement and the Notes are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement and any Note to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement or any Note; provided that such right of -------- setoff shall be subject to the obligation of such Participant to share with the Lenders, and the Lenders agree to share with such Participant, as provided in the Agency and Intercreditor Agreement. Each Borrower also agrees that each Participant shall be entitled to the benefits of subsections 2.10, 3.11 and 3.12 with respect to its participation in the Letters of Credit and in the Commitments and the Loans outstanding from time to time as if it were a Lender; and provided, further, that no Participant shall be entitled to receive any -------- ------- greater amount pursuant to any such subsection than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. Each Lender agrees that the participation agreement pursuant to which any Participant acquires its participating interest (or any other document) may afford voting rights to such Participant, or any right to instruct such Lender with respect to voting hereunder, only with respect to matters requiring the consent of (i) all of the Lenders hereunder, (ii) such Lender (with respect to matters specified in subsection 9.1(b) only), if it is affected thereby or (iii) all of the Lenders holding the relevant Loans or Revolving Credit Commitments subject to such participation. (c) Subject to paragraph (g) of this subsection 9.6, any Lender may, in the ordinary course of its commercial banking, lending or investment business and in accordance with applicable law, (i) at any time and from time to time assign all or any part of its rights and obligations under this Agreement and the Notes to any Lender or any Affiliate thereof, provided that, in the event of -------- a sale of less than all of such rights and obligations, such assigning Lender after any such sale to any other Lender or any Affiliate of such Lender shall retain Commitments and/or Loans and/or L/C Participating Interests aggregating at least $5,000,000 (or such lesser amount as the Administrative Agent may determine) and (ii) with the consent of the Company, as agent for the Borrowers, and the Administrative Agent (which in each case shall not be unreasonably withheld or delayed) at any time and from time to time assign to one or more additional banks, mutual funds or financial institutions or entities (each, an "Assignee"), all or any part of its rights and obligations under this Agreement - --------- and the Notes, pursuant to an Assignment and Acceptance, executed by such Assignee, such transferor 106 Lender (and, in the case of an Assignee that is not then a Lender or an Affiliate thereof, by the Company, as agent for the Borrowers, and the Administrative Agent), and delivered to the Administrative Agent for its acceptance and recording in the Register (as defined below); provided that (A) -------- each such sale pursuant to clause (ii) of this subsection 9.6(c) shall be in a principal amount of $5,000,000 or more unless the Assigning Lender is transferring all of its rights and obligations and (B) in the event of a sale of less than all of such rights and obligations, such Lender after any such sale shall retain Commitments and/or Loans and/or L/C Participating Interests aggregating at least $5,000,000 (or such lesser amount as the Administrative Agent and the Company may determine). Each assignment of Commitments, Revolving Credit Loans and L/C Participating Interests to an Assignee pursuant to this subsection 9.6(c) shall automatically include an assignment to such Assignee of an equal percentage of all the assigning Lender's rights and obligations in respect of the Revolving Synthetic Lease Obligations and commitments to make revolving credit loans under the Synthetic Lease Facility. Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and to the Agency and Intercreditor Agreement and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with a Commitment as set forth therein, and (y) the assigning Lender thereunder shall, to the extent of the interest transferred, as reflected in such Assignment and Acceptance, be released from its obligations under this Agreement and the Agency and Intercreditor Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of a transferor Lender's rights and obligations under this Agreement, such transferor Lender shall cease to be a party hereto and to the Agency and Intercreditor Agreement but shall continue to be entitled to the benefits of the indemnification provisions set forth in subsection 9.5). (d) The Administrative Agent, which for purposes of this subsection 9.6(d) only shall be deemed to be the agent of the Borrowers, shall maintain at the address of the Administrative Agent referred to in subsection 9.2 a copy of each Assignment and Acceptance delivered to it and a register (the "Register") -------- for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amounts of the Loans owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrowers, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register as the owner of a Loan or other obligation hereunder as the owner thereof for all purposes of this Agreement and the other Credit Documents, notwithstanding any notice to the contrary. Any assignment of any Loan or other obligation hereunder shall be effective only upon appropriate entries with respect thereto being made in the Register. The Register shall be available for inspection by the Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an Assignee (and, in the case of an Assignee that is not then a Lender or an affiliate thereof, by the Company, as agent for the Borrowers, and the Administrative Agent), together with payment to the Administrative Agent of a registration and processing fee of $4,000 if the Assignee is not a Lender prior to the execution of such supplement and $1,000 otherwise (which fee need not be paid in the case of any assignment by a Lender to 107 an affiliate of such Lender), the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Lenders and the Company. On or prior to such effective date, the applicable Borrower at its own expense, shall execute and deliver to the Administrative Agent (in exchange for any or all of the Term Loan Notes or Revolving Credit Notes of the assigning Lender, if any) new Term Loan Notes or Revolving Credit Notes, as the case may be, to the order of such Assignee (if requested) in an amount equal to the Revolving Credit Commitment or the Term Loans, as the case may be, assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Commitment or any Term Loans hereunder, new Term Loan Notes or Revolving Credit Notes, as the case may be, to the order of the assigning Lender in an amount equal to the Commitment or such Term Loans, as the case may be, retained by it hereunder (if requested). Such new Notes shall be dated the Closing Date and shall otherwise be in the form of the Notes replaced thereby. (f) The Administrative Agent, the Arranger, the Co-Arrangers, the Syndication Agent, the Documentation Agent and the Lenders agree that they will use reasonable efforts to protect the confidentiality of any confidential information concerning the Company and its Subsidiaries and Affiliates. Notwithstanding the foregoing, each Borrower authorizes each Lender to disclose to any Participant or Assignee (each, a "Transferee") and any prospective ---------- Transferee any and all information in such Lender's possession concerning the Company and its Subsidiaries and Affiliates which has been delivered to such Lender by or on behalf of the Company pursuant to this Agreement or which has been delivered to such Lender by or on behalf of any Borrower in connection with such Lender's credit evaluation of the Company and its Subsidiaries prior to becoming a party to this Agreement; provided that each Lender shall cause its -------- respective prospective Transferees to agree in writing to protect the confidentiality of any confidential information concerning the Company and its Subsidiaries and Affiliates. (g) If, pursuant to this subsection 9.6, any interest in this Agreement or any Note is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer either (1) in the case of a Transferee that is a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (i) to represent to the transferor Lender (for the benefit of the transferor Lender, the Administrative Agent and the Company) that under applicable law and treaties no taxes will be required to be withheld by the Administrative Agent, any Borrower or the transferor Lender with respect to any payments to be made to such Transferee in respect of the Loans or L/C Participating Interests, (ii) to furnish to the transferor Lender (and, in the case of any Transferee registered in the Register, the Administrative Agent and the Company) either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein such Transferee claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder) and (iii) to agree (for the benefit of the transferor Lender, the Administrative Agent and the Borrowers) to the extent permitted by then-current law to provide the transferor Lender (and, in the case of any Transferee registered in the Register, the Administrative Agent and the Company) a new Form 4224 or Form 1001 upon the 108 expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such Transferee, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption or (2) in the case of any Transferee that is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (i) to represent to the transferor Lender (for the benefit of the transferor Lender, the Administrative Agent and the Borrowers) that it is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (ii) to furnish to the transferor Lender (and, in the case of any Transferee registered in the Register, to the Company), with a copy to the Administrative Agent, (A) a Subsection 3.11(d)(2) Certificate and (B) two accurate and complete original signed copies of Internal Revenue Service Form W-8, certifying to such Transferee's legal entitlement on the date of the effectiveness of such transfer to an exemption from U.S. withholding tax under the provisions of Section 881(c) of the Code with respect to all payments to be made under this Agreement, and (iii) to agree (for the benefit of the transferor Lender, the Administrative Agent and the Borrowers), to the extent legally entitled to do so, upon reasonable request by the transferor Lender (or, in the case of any Transferee registered in the Register, the Administrative Agent or the Company), to provide to the transferor Lender, the Administrative Agent and the Company such other forms as may be required to establish the legal entitlement of such Transferee to an exemption from withholding tax with respect to payments under this Agreement. (h) For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this subsection concerning assignments of Loans and Notes relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests, including, without limitation, any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank in accordance with applicable law. 9.7 Set-off. In addition to any rights and remedies of the Lenders ------- provided by law, each Lender shall have the right, without prior notice to any Borrower, any such notice being expressly waived by each Borrower to the extent permitted by applicable law, upon the filing of a petition under any of the provisions of the federal bankruptcy code or amendments thereto, by or against; the making of an assignment for the benefit of creditors by; the application for the appointment, or the appointment, of any receiver of, or of any substantial portion of the property of; the issuance of any execution against any substantial portion of the property of; the issuance of a subpoena or order, in supplementary proceedings, against or with respect to any substantial portion of the property of; or the issuance of a warrant of attachment against any substantial portion of the property of; any Borrower to set off and apply against any indebtedness, whether matured or unmatured, of any Borrower to such Lender, any amount owing from such Lender to any Borrower, at or at any time after, the happening of any of the above mentioned events, and as security for such indebtedness, each Borrower hereby grants to each Lender a continuing security interest in any and all deposits, accounts or moneys of such Borrower then or thereafter maintained with such Lender, subject in each case to the Agency and Intercreditor Agreement. The aforesaid right of set-off may be exercised by such Lender against any Borrower or against any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver or execution, judgment or attachment creditor of any Borrower, or against anyone else claiming through or 109 against any Borrower or such trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver, or execution, judgment or attachment creditor, notwithstanding the fact that such right of set-off shall not have been exercised by such Lender prior to the making, filing or issuance, or service upon such Lender of, or of notice of, any such petition; assignment for the benefit of creditors; appointment or application for the appointment of a receiver; or issuance of execution, subpoena, order or warrant. Each Lender agrees promptly to notify the Company and the Administrative Agent after any such set-off and application made by such Lender, provided that the failure to -------- give such notice shall not affect the validity of such set-off and application. 9.8 Counterparts. This Agreement may be executed by one or more of ------------ the parties to this Agreement on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Company and the Administrative Agent. This Agreement shall become effective when the Administrative Agent shall have received copies of this Agreement executed by the Borrowers, the Administrative Agent, the Arranger, the Co-Arrangers, the Syndication Agent, the Documentation Agent and the Lenders, or, in the case of any Lender, shall have received telephonic confirmation from such Lender stating that such Lender has executed counterparts of this Agreement or the signature pages hereto and sent the same to the Administrative Agent. 9.9 Governing Law; No Third Party Rights. THIS AGREEMENT AND THE ------------------------------------ NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. This Agreement is solely for the benefit of the parties hereto and their respective successors and assigns, and, except as set forth in subsection 9.6, no other Persons shall have any right, benefit, priority or interest under, or because of the existence of, this Agreement. 9.10 Submission to Jurisdiction; Waivers. (a) Each party to this ----------------------------------- Agreement hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Agreement or any of the other Credit Documents, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States for the Southern District of New York, and appellate courts from any thereof; (ii) consents that any such action or proceeding may be brought in such courts, and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (iii) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such party at its address set forth in 110 subsection 9.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; and (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction. (B) EACH PARTY HERETO UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN PARAGRAPH (A) ABOVE AND ANY COUNTERCLAIM THEREIN. 9.11 Releases. The Administrative Agent and Lenders agree to -------- cooperate with the Company and its Subsidiaries with respect to any sale or other disposition permitted by subsection 7.5 and promptly take such action and execute and deliver such instruments and documents necessary to release the liens and security interests created by the Security Documents relating to any of the assets or property affected by any such sale permitted by subsection 7.5, including, without limitation, any Uniform Commercial Code amendment, release or termination or partial release or termination statements. The Administrative Agent is hereby irrevocably authorized by each of the Lenders to release any Lien covering any property or assets of the Company or any of its Subsidiaries that is the subject of a disposition which is permitted by this Agreement or which has been consented to in accordance with subsection 9.1. 9.12 Interest. Each provision in this Agreement and each other Credit -------- Document is expressly limited so that in no event whatsoever shall the amount paid, or otherwise agreed to be paid, by any Borrower for the use, forbearance or detention of the money to be loaned under this Agreement or any other Credit Document or otherwise (including any sums paid as required by any covenant or obligation contained herein or in any other Credit Document which is for the use, forbearance or detention of such money), exceed that amount of money which would cause the effective rate of interest to exceed the highest lawful rate permitted by applicable law (the "Highest Lawful Rate"), and all amounts owed ------------------- under this Agreement and each other Credit Document shall be held to be subject to reduction to the effect that such amounts so paid or agreed to be paid which are for the use, forbearance or detention of money under this Agreement or such other Credit Document shall in no event exceed that amount of money which would cause the effective rate of interest to exceed the Highest Lawful Rate. Notwithstanding any provision in this Agreement or any other Credit Document to the contrary, if the maturity of the Loans or the obligations in respect of the other Credit Documents are accelerated for any reason, or in the event of any prepayment of all or any portion of the Loans or the obligations in respect of the other Credit Documents by any Borrower or in any other event, earned interest on the Loans and such other obligations of any Borrower may never exceed the Highest Lawful Rate, and any unearned interest otherwise payable on the Loans or the obligations in respect of the other Credit Documents that is in excess of the Highest Lawful Rate shall be cancelled automatically as of the date of such acceleration or prepayment or other such event and (if theretofore paid) shall, at the option of the holder of the Loans or such other obligations, be either refunded to such Borrower or credited on the principal of the Loans. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the 111 Highest Lawful Rate, the Borrowers and the Lenders shall, to the maximum extent permitted by applicable law, amortize, prorate, allocate and spread, in equal parts during the period of the actual term of this Agreement, all interest at any time contracted for, charged, received or reserved in connection with this Agreement. 9.13 Special Indemnification. Notwithstanding any provision in this ----------------------- Agreement to the contrary, (a) each Lender, or Transferee of any Lender pursuant to subsection 9.6(g) of this Agreement, shall indemnify each Borrower and the Administrative Agent, and hold each of them harmless against any and all payments, expenses or taxes which such Borrower or the Administrative Agent may become subject to or obligated to pay if and to the extent that, (i) on the Closing Date or the effective date of transfer, as the case may be, such Lender, or such Transferee of a Lender pursuant to subsection 9.6(g) of this Agreement, (A) makes the representation and covenants set forth in subsection 3.11(d)(2) of this Agreement, or, in the case of a Transferee, pursuant to subsection 9.6(g)(2) of this Agreement and the Assignment and Acceptance, and (B) is not in fact also qualified to make the representation and covenants set forth in subsection 3.11(d)(1) of this Agreement or, in the case of a Transferee, pursuant to subsection 9.6(g)(2) of this Agreement and the Assignment and Acceptance, and (ii) as a result of any Change in Law or compliance by such Lender, or Transferee, with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority the Company or the Administrative Agent is required to make any additional payments on account of U.S. withholding taxes and amounts related thereto with respect to any payments under this Agreement, any Note, or a Eurodollar Loan, made prior to such Change in Law or request or directive, none of which payments would have been required if such Lender, or Transferee, was qualified on the Closing Date or the date of the transfer, as the case may be, to make the representation and covenants set forth in subsection 3.11(d)(1) of this Agreement or pursuant to subsection 9.6(g)(1) of this Agreement and the Assignment and Acceptance, as the case may be, and (b) each Lender, or Transferee, agrees that to the extent any amount payable by such Lender or Transferee pursuant to this subsection 9.13 remains unpaid on any Interest Payment Date or the date on which any prepayment is made, each Borrower shall have the right to set-off against any payment due to such Lender or Transferee on such date any amounts owing to such Borrower pursuant to this subsection 9.13. 9.14 Permitted Payments and Transactions. Notwithstanding any ----------------------------------- provision to the contrary contained in this Agreement, the Company and its Subsidiaries shall be permitted to pay fees and expenses pursuant to or in respect of, the following agreements, and, in the case of clauses (a) and (d) below, to engage in the following transactions: (a)(i) the Agreement for Management and Advisory Services, between Investcorp International, Inc. ("III") --- and AcquisitionCo dated as of August 11, 1998, (ii) the Loan Financing Advisory Agreement between III and AcquisitionCo dated as of August 11, 1998, (iii) the Equity Placement Fee Letter between Investcorp and AcquisitionCo dated August 11, 1998, (iv) the Standby Commitment Agreement between AcquisitionCo and Invifin S.A. dated as of August 11, 1998 and (v) the Merger Agreement; (b) agreements with any Person or Persons providing for the payment of customary fees in connection with serving as a director of the Company or any Subsidiary of the Company; (c) agreements providing for the payment of commercially reasonable fees in connection with any permitted financing, refinancing, sale, 112 transfer, sale and leaseback or other permitted disposition of any assets of the Company or its Subsidiaries; (d) the borrowing of any Indebtedness to the extent, and upon the terms and conditions, the same is expressly permitted under subsection 7.1; and (e) agreements providing for commercially reasonable fees in connection with any permitted purchase or acquisition of stock or assets by the Company or any of its Subsidiaries. 9.15 Harborside of Rhode Island. Notwithstanding any provision to the -------------------------- contrary contained in this Agreement or any other Credit Document, to the extent required by Department of Health of the State of Rhode Island or any successor thereto, the obligations under the Credit Documents of Harborside Rhode Island Limited Partnership, a Massachusetts limited partnership ("HRI"), and any other --- Subsidiary substantially all the assets of which are located in the State of Rhode Island shall not exceed, for each such Subsidiary, at any time an amount equal to the product of 80% times the aggregate Acquisition Consideration paid by the Company, HRI or any other Subsidiary for Health Care Facilities owned or operated by such Subsidiary and located in the State of Rhode Island. 113 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the day and year first above written. HARBORSIDE HEALTHCARE CORPORATION By: /s/ Stephen L. Guillard ----------------------------------- Title: Stephen L. Guillard President and Chief Executive Officer 114 BAY TREE NURSING CENTER CORP. BELMONT NURSING CENTER CORP. COUNTRYSIDE CARE CENTER CORP. HARBORSIDE HEALTH I CORPORATION HARBORSIDE TOLEDO CORP. KHI CORP. MARYLAND HARBORSIDE CORP. NEW JERSEY HARBORSIDE CORP. OAKHURST MANOR NURSING CENTER CORP. ORCHARD RIDGE NURSING CENTER CORP. SAILORS, INC. SUNSET POINT NURSING CENTER CORP. WEST BAY NURSING CENTER CORP. By: /s/ Stephen L. Guillard ----------------------------------- Title: Stephen L. Guillard President and Chief Executive Officer 115 HARBORSIDE ACQUISITION LIMITED PARTNERSHIP IV HARBORSIDE ACQUISITION LIMITED PARTNERSHIP V HARBORSIDE ACQUISITION LIMITED PARTNERSHIP VI HARBORSIDE ACQUISITION LIMITED PARTNERSHIP VII HARBORSIDE ACQUISITION LIMITED PARTNERSHIP VIII HARBORSIDE ACQUISITION LIMITED PARTNERSHIP IX HARBORSIDE ACQUISITION LIMITED PARTNERSHIP X HARBORSIDE ATLANTRIX LIMITED PARTNERSHIP HARBORSIDE CONNECTICUT LIMITED PARTNERSHIP HARBORSIDE HEALTHCARE BALTIMORE LIMITED PARTNERSHIP HARBORSIDE HEALTHCARE NETWORK LIMITED PARTNERSHIP HARBORSIDE MASSACHUSETTS LIMITED PARTNERSHIP HARBORSIDE NORTH TOLEDO LIMITED PARTNERSHIP HARBORSIDE OF CLEVELAND LIMITED PARTNERSHIP HARBORSIDE OF DAYTON LIMITED PARTNERSHIP HARBORSIDE OF FLORIDA LIMITED PARTNERSHIP HARBORSIDE OF OHIO LIMITED PARTNERSHIP HARBORSIDE REHABILITATION LIMITED PARTNERSHIP HARBORSIDE RHODE ISLAND LIMITED PARTNERSHIP RIVERSIDE RETIREMENT LIMITED PARTNERSHIP By: HARBORSIDE HEALTH I CORPORATION, as General Partner By: /s/ Stephen L. Guillard ----------------------------------- Title: Stephen L. Guillard President and Chief Executive Officer 116 HARBORSIDE FUNDING LIMITED PARTNERSHIP By: HARBORSIDE HEALTHCARE LIMITED PARTNERSHIP, as General Partner By: KHI CORP., as General Partner By: /s/ Stephen L. Guillard ----------------------------------- Title: Stephen L. Guillard President and Chief Executive Officer 117 BRIDGEWATER ASSISTED LIVING LIMITED PARTNERSHIP By: NEW JERSEY HARBORSIDE CORP., as General Partner By: /s/ Stephen L. Guillard ----------------------------------- Title: Stephen L. Guillard President and Chief Executive Officer 118 HARBORSIDE NEW HAMPSHIRE LIMITED PARTNERSHIP HARBORSIDE TOLEDO LIMITED PARTNERSHIP HHCI LIMITED PARTNERSHIP By: HARBORSIDE TOLEDO CORP., as General Partner By: /s/ Stephen L. Guillard ----------------------------------- Title: Stephen L. Guillard President and Chief Executive Officer 119 HARBORSIDE HEALTHCARE ADVISORS LIMITED PARTNERSHIP HARBORSIDE HEALTHCARE LIMITED PARTNERSHIP HARBORSIDE HOMECARE LIMITED PARTNERSHIP By: KHI CORP., as General Partner By: /s/ Stephen L. Guillard ----------------------------------- Title: Stephen L. Guillard President and Chief Executive Officer 120 HARBORSIDE PROPERTIES TRUST I, a Massachusetts business trust By: /s/ William H. Stephan ----------------------------------- Name: William H. Stephan, in his capacity as trustee and not individually THE CHASE MANHATTAN BANK, as Administrative Agent, a Corporate Lender, the Issuing Lender and a Synthetic Lender By: /s/ Robert Anastasio ------------------------------------------ Title: CHASE SECURITIES INC., as the Arranger By: /s/ Robert Anastasio ------------------------------------------ Title: MORGAN STANLEY SENIOR FUNDING, INC., as a Co-Arranger, the Syndication Agent, and a Lender By: /s/ Michael Hart ---------------------------------- Title: Michael Hart PRINCIPAL BT ALEX. BROWN INCORPORATED, as a Co-Arranger By: /s/ Lorenz E. Zimmerman, Jr. ------------------------------- Title: BANKERS TRUST COMPANY, as the Documentation Agent and a Lender By: /s/ Mary Kay Coyle -------------------------------------- Title: MANAGING DIRECTOR ARAB BANKING CORPORATION (B.S.C.) By: /s/ Louise Bilbro ------------------------------------------ Title: LOUISE BILBRO VICE PRESIDENT BANKBOSTON, N.A. By: /s/ Gregory R.D. Clark ------------------------------------------ Title: Gregory R.D. Clark Managing Director BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: /s/ Douglas J. Weir ------------------------------------------ Title: DOUGLAS J. WEIR Vice President CITICORP U.S.A., INC. By: /s/ R. Bruce Hall ------------------------------------------ Title: Vice President CREDITANSTALT CORPORATE FINANCE, INC. By: /s/ David E. Yewer ------------------------------------------ Title: DAVID E. YEWER Vice President By: /s/ Catherine K. MacDonald ------------------------------------------ Title: Catherine K. MacDonald Vice President DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH By: /s/ Andrew P. Nesi ------------------------------------------ Title: ANDREW P. NESI VICE PRESIDENT By: /s/ Felix K. Camacho ------------------------------------------ Title: FELIX K. CAMACHO ASSISTANT TREASURER THE FIRST NATIONAL BANK OF MARYLAND By: /s/ Michael B. Stueck ------------------------------------------ Title: Vice President FIRST UNION NATIONAL BANK By: /s/ Joseph H. Towell ------------------------------------------ Title: Joseph H. Towell Senior Vice President FLEET NATIONAL BANK By: /s/ Maryann S. Smith ------------------------------------------ Title: MARYANN S. SMITH VICE PRESIDENT IMPERIAL BANK By: /s/ Ray Vadalma ------------------------------------------ Title: RAY VADALMA SENIOR VICE PRESIDENT NATIONSBANK, N.A. By: /s/ Kevin Wagley ------------------------------------------ Title: KEVIN WAGLEY VICE PRESIDENT PROVIDENT BANK OF MARYLAND By: /s/ Jennifer D. Patton ------------------------------------------ Title: Assistant Vice President STAR BANK, NATIONAL ASSOCIATION By: /s/ William J. Goodwin ------------------------------------------ Title: William J. Goodwin Senior Vice President SCHEDULE I BORROWERS Bay Tree Nursing Center Corp., a Massachusetts corporation Belmont Nursing Center Corp., a Massachusetts corporation Bridgewater Assisted Living Limited Partnership, a New Jersey limited partnership Countryside Care Center Corp., a Massachusetts corporation Harborside Acquisition Limited Partnership IV, a Massachusetts limited partnership Harborside Acquisition Limited Partnership V, a Massachusetts limited partnership Harborside Acquisition Limited Partnership VI, a Massachusetts limited partnership Harborside Acquisition Limited Partnership VII, a Massachusetts limited partnership Harborside Acquisition Limited Partnership VIII, a Massachusetts limited partnership Harborside Acquisition Limited Partnership IX, a Massachusetts limited partnership Harborside Acquisition Limited Partnership X, a Massachusetts limited partnership Harborside Atlantrix Limited Partnership, a Massachusetts limited partnership Harborside Connecticut Limited Partnership, a Massachusetts limited partnership Harborside Funding Limited Partnership, a Massachusetts limited partnership Harborside Health I Corporation, a Delaware corporation Harborside Healthcare Advisors Limited Partnership, a Massachusetts limited partnership Harborside Healthcare Baltimore Limited Partnership, a Massachusetts limited partnership Harborside Healthcare Limited Partnership, a Massachusetts limited partnership Harborside Healthcare Network Limited Partnership, a Florida limited partnership Harborside Homecare Limited Partnership, a Massachusetts limited partnership Harborside Massachusetts Limited Partnership, a Massachusetts limited partnership Harborside New Hampshire Limited Partnership, a Massachusetts limited partnership Harborside North Toledo Limited Partnership, a Massachusetts limited partnership Harborside of Cleveland Limited Partnership, a Massachusetts limited partnership Harborside of Dayton Limited Partnership, a Massachusetts limited partnership Harborside of Florida Limited Partnership, a Florida limited partnership Harborside of Ohio Limited Partnership, a Massachusetts limited partnership Harborside Properties Trust I, a Massachusetts business trust Harborside Rehabilitation Limited Partnership, a Massachusetts limited partnership Harborside Rhode Island Limited Partnership, a Massachusetts limited partnership Harborside Toledo Corp., a Massachusetts corporation Harborside Toledo Limited Partnership, a Massachusetts limited partnership HHCI Limited Partnership, a Massachusetts limited partnership KHI Corp., a Delaware corporation Maryland Harborside Corp., a Massachusetts corporation New Jersey Harborside Corp., a Massachusetts corporation Oakhurst Manor Nursing Center Corp., a Massachusetts corporation Orchard Ridge Nursing Center Corp., a Massachusetts corporation Riverside Retirement Limited Partnership, a Massachusetts limited partnership Sailors, Inc., a Delaware corporation Sunset Point Nursing Center Corp., a Massachusetts corporation West Bay Nursing Center Corp., a Massachusetts corporation Schedule II to the Credit Agreement ---------------- LENDERS, ADDRESSES AND COMMITMENTS
Revolving Credit Commitment ---------------- THE CHASE MANHATTAN BANK $ 20,000,000.00 85 Wells Avenue, Suite 200 Newton, MA 02159 Attn: Roger Stone Telecopy: 617-928-3057 MORGAN STANLEY SENIOR FUNDING, INC. $ 20,000,000.00 1585 Broadway New York, NY 10036 Attn: Michael A. Hart Telecopy: 212-761-0587 BANKERS TRUST COMPANY $ 20,000,000.00 One Bankers Trust Plaza 130 Liberty Street New York, NY 10006 Attn: Mary Kay Coyle Telecopy: 212-250-1343 BANK OF TOKYO-MITSUBISHI TRUST COMPANY $ 15,750,000.00 1251 Avenue of the Americas, 12th Floor New York, NY 10020 Attn: Doug Weir Telecopy: 212-782-4935 CITICORP U.S.A., INC. $ 15,750,000.00 399 Park Avenue, 5th Floor New York, NY 10043 Attn: Bruce Hall Telecopy: 212-559-0292 FIRST UNION NATIONAL BANK $ 15,750,000.00 301 South College Street Charlotte, NC 28288 Attn: J. Matt MacIver Telecopy: 704-383-9144
Revolving Credit Commitment ---------------- NATIONSBANK, N.A. $ 15,750,000.00 One Nationsbank Plaza - 7th Floor Nashville, TN 37239-2697 Attn: Kevin Wagley Telecopy: 615-749-4640 ARAB BANKING CORPORATION (B.S.C.) $ 13,000,000.00 277 Park Avenue, 32nd Floor New York, NY 10172-3299 Attn: Sandy Tilney Telecopy: 212-583-0921 THE CIT GROUP/BUSINESS CREDIT, INC. $ 13,000,000.00 1211 Avenue of the Americas New York, NY 10036 Attn: Victor Russo Telecopy: 212-536-1297 BANKBOSTON, N.A. $ 13,000,000.00 100 Federal Street, 8th Floor Boston, MA 02110 Attn: Gregory Clark Telecopy: 617-434-4929 CREDITANSTALT CORPORATE FINANCE, INC. $ 13,000,000.00 2 Greenwich Plaza Greenwich, CT 06830 Attn: David Yewer Telecopy: 203-861-1475 DRESDNER BANK AG, NEW YORK BRANCH AND GRAND $ 13,000,000.00 CAYMAN BRANCH 75 Wall Street, 24th Floor New York, NY 10005 Attn: Felix Camacho Telecopy: 212-429-2129 THE FIRST NATIONAL BANK OF MARYLAND $ 13,000,000.00 25 South Charles Street Baltimore, MD 21201 Attn: Bob Hauver Telecopy: 410-244-4388
Revolving Credit Commitment ---------------- FLEET NATIONAL BANK $ 13,000,000.00 1 Federal Street, MAOF 0324 Boston, MA 02110 Attn: Paul R. Trefry Telecopy: 617-346-4885 PROVIDENT BANK OF MARYLAND $ 13,000,000.00 114 East Lexington Street, 5th Floor Baltimore, MD 21202 Attn: Tom Myers Telecopy: 410-277-2793 STAR BANK, NATIONAL ASSOCIATION $ 13,000,000.00 425 Walnut Street, 8th Floor, Corporate Banking Cincinnati, OH 45201-1038 Attn: Mark Whitson Telecopy: 513-632-2068 IMPERIAL BANK $ 10,000,000.00 9920 South La Clenega Blvd., 14th Floor Inglewood, CA 90301 Attn: Jamie Harney Telecopy: 310-417-5997 TOTAL $250,000,000.00
Schedule III to the Credit Agreement ---------------- PRICING AND COMMITMENT FEE GRID
- ----------------------------------------------------------------------------- Applicable Margin ----------------------- Eurodollar Commitment Leverage Ratio ABR Loans Loans Fee - ----------------------------------------------------------------------------- Greater than or equal to 5.0 1.250% 2.250% 0.500% - ----------------------------------------------------------------------------- Less than 5.0 to 1.0, but greater than 1.000% 2.000% 0.375% or equal to 4.5 to 1.0 - ----------------------------------------------------------------------------- Less than 4.5 to 1.0, but greater than 0.750% 1.750% 0.375% or equal to 4.0 to 1.0 - ----------------------------------------------------------------------------- Less than 4.0 to 1.0, but greater than 0.500% 1.500% 0.300% or equal to 3.5 to 1.0 - ----------------------------------------------------------------------------- Less than 3.5 to 1.0, but greater than 0.250% 1.250% 0.250% or equal to 3.0 to 1.0 - ----------------------------------------------------------------------------- Less than 3.0 to 1.0 0.000% 1.000% 0.250% - -----------------------------------------------------------------------------
SCHEDULE 2.5 EXISTING LETTERS OF CREDIT 1. Letter of Credit number P-390257 in the amount of $425,000 related to Nationwide-financed properties in Massachusetts. SCHEDULE 4.11 TAXES None. SCHEDULE 4.12 SUBSIDIARIES Bay Tree Nursing Center Corp., a Massachusetts corporation Belmont Nursing Center Corp., a Massachusetts corporation Bridgewater Assisted Living Limited Partnership, a New Jersey limited partnership Countryside Care Center Corp., a Massachusetts corporation Harborside Acquisition Limited Partnership IV, a Massachusetts limited partnership Harborside Acquisition Limited Partnership V, a Massachusetts limited partnership Harborside Acquisition Limited Partnership VI, a Massachusetts limited partnership Harborside Acquisition Limited Partnership VII, a Massachusetts limited partnership Harborside Acquisition Limited Partnership VIII, a Massachusetts limited partnership Harborside Acquisition Limited Partnership IX, a Massachusetts limited partnership Harborside Acquisition Limited Partnership X, a Massachusetts limited partnership Harborside Atlantrix Limited Partnership, a Massachusetts limited partnership Harborside Connecticut Limited Partnership, a Massachusetts limited partnership Harborside Funding Limited Partnership, a Massachusetts limited partnership Harborside Health I Corporation, a Delaware corporation Harborside Healthcare Advisors Limited Partnership, a Massachusetts limited partnership Harborside Healthcare Baltimore Limited Partnership, a Massachusetts limited partnership Harborside Healthcare Limited Partnership, a Massachusetts limited partnership Harborside Healthcare Network Limited Partnership, a Florida limited partnership Harborside Homecare Limited Partnership, a Massachusetts limited partnership Harborside Massachusetts Limited Partnership, a Massachusetts limited partnership Harborside New Hampshire Limited Partnership, a Massachusetts limited partnership Harborside North Toledo Limited Partnership, a Massachusetts limited partnership Harborside of Cleveland Limited Partnership, a Massachusetts limited partnership Harborside of Dayton Limited Partnership, a Massachusetts limited partnership Harborside of Florida Limited Partnership, a Florida limited partnership Harborside of Ohio Limited Partnership, a Massachusetts limited partnership Harborside Properties Trust I, a Massachusetts business trust Harborside Rehabilitation Limited Partnership, a Massachusetts limited partnership Harborside Rhode Island Limited Partnership, a Massachusetts limited partnership Harborside Toledo Corp., a Massachusetts corporation Harborside Toledo Limited Partnership, a Massachusetts limited partnership HHCI Limited Partnership, a Massachusetts limited partnership KHI Corp., a Delaware corporation Maryland Harborside Corp., a Massachusetts corporation New Jersey Harborside Corp., a Massachusetts corporation Oakhurst Manor Nursing Center Corp., a Massachusetts corporation Orchard Ridge Nursing Center Corp., a Massachusetts corporation Riverside Retirement Limited Partnership, a Massachusetts limited partnership Sailors, Inc., a Delaware corporation Sunset Point Nursing Center Corp., a Massachusetts corporation West Bay Nursing Center Corp., a Massachusetts corporation SCHEDULE 4.13 FEE AND LEASED PROPERTIES
Fee Properties Owner - -------------- ----- A. Mortgaged Properties 1. Pawtuxet Village Harborside Rhode Island Limited 270 Post Road Partnership Warwick, Rhode Island 0288 2. Greenwood House Harborside Rhode Island Limited 1139 Main Street Partnership Warwick, Rhode Island 02886 3. Sylvania Rehabilitation Harborside North Toledo Limited 5757 Whiteford Road Partnership Sylvania, Ohio 43560 4. Point Place Rehabilitation Harborside North Toledo Limited 6101 North Summit Partnership Toledo, Ohio 43611 5. Harborside Dayton Harborside of Dayton Limited 323 Forest Avenue Partnership Dayton, Ohio 45405 6. Harborside New Lebanon Harborside of Dayton Limited 101 Mills Place Partnership New Lebanon, Ohio 45345 7. Harborside Laurelwood Harborside of Dayton Limited 3797 Summitt Glen Drive Partnership Dayton, Ohio 45449 8. Harborside Healthcare Toledo Belmont Nursing Center Corp. 28546 Starbright Boulevard Perrysburg, Ohio 43551 9. Harborside Healthcare Gulf Coast Orchard Ridge Nursing Center Corp. 4927 Voorhees Road Newport Richey, Florida 34653
SCHEDULE 4.13 (CONT'D) FEE AND LEASED PROPERTIES
Fee Properties Owner - -------------- ----- A. MORTGAGED PROPERTIES (CONT'D) 10. Harborside Healthcare Ocala Oakhurst Manor Nursing Center Corp. 1501 S.E. 24th Road Ocala, Florida 34471 /*/11. Harborside Healthcare Terre Haute Countryside Care Center Corp. 1001 Springhill Drive Terre Haute, Indiana *12. Harborside Healthcare Palm Harbor Bay Tree Nursing Center Corp. 2600 Highlands Boulevard North Palm Harbor, Florida 34684 *13. Harborside Healthcare Tampa Bay West Bay Nursing Center Corp. 3865 Tampa Road Oldsmar, Florida 34677 *14. Harborside Healthcare Clearwater Sunset Point Nursing Center Corp. 1980 Sunset Point Road Clearwater, Florida 34625 B. OTHER FEE PROPERTY 15. Harborside Healthcare Decatur Riverside Retirement Limited 4851 Tincher Road Partnership (Mortgaged in favor of Indianapolis, Indiana 46221 City of Indianapolis, Indiana)
_______________________ /*/ Mortgaged in favor of Meditrust Mortgage Investments, Inc.; therefore, mortgage in favor of the Administrative Agent is a second lien. SCHEDULE 4.13 (CONT'D) FEE AND LEASED PROPERTIES
LEASED PROPERTIES Lessee - ----------------- ------ 1. Harborside Beachwood Harborside of Cleveland Limited Partnership 3800 Park East Beachwood, Ohio 44122 2. Harborside Royalview Harborside of Cleveland Limited Partnership 2801 East Roylton Road Broadview Heights, Ohio 44147 3. Harborside Westlake Harborside of Cleveland Limited Partnership 27601 Westchester Parkway Westlake, Ohio 44145 4. Harborside Westlake II Harborside of Cleveland Limited Partnership 27601 Westchester Parkway Westlake, Ohio 44145 5. Harborside Healthcare Defiance Harborside of Ohio Limited Partnership 395 Harding Avenue Defiance, Ohio 46512 6. Harborside Healthcare Northwestern Harborside of Ohio Limited Partnership 1104 Wesley Avenue Bryan, Ohio 43506 7. Arden House Harborside Connecticut Limited Partnership 850 Mix Avenue Hamden, Connecticut 06614 8. Governor's House Harborside Connecticut Limited Partnership 36 Firetown Road Simsbury, Connecticut 06070 9. Madison House Harborside Connecticut Limited Partnership 34 Wildwood Avenue Madison, Connecticut 06443 10. The Reservoir Harborside Connecticut Limited Partnership 1 Emily Way West Hartford, Connecticut 06443 11. Willows Harborside Connecticut Limited Partnership 225 Amity Road Woodbridge, Connecticut 06625 12. Harford Gardens Harborside Healthcare Baltimore Limited 4700 Harford Road Partnership Baltimore, Maryland 21214
SCHEDULE 4.13 (CONT'D) FEE AND LEASED PROPERTIES
LEASED PROPERTIES LESSE - ----------------- ----- 13. Harborside Brevard Harborside of Florida Limited Partnership 1775 Huntington Lane Rockledge, Florida 32955 14. Harborside Applewood Harborside New Hampshire Limited Partnership 8 Snow Road Winchester, New Hampshire 03455 15. Harborside Crestwood Harborside New Hampshire Limited Partnership 40 Crosby Street Milford, New Hampshire 03055 16. Harborside Milford Harborside New Hampshire Limited Partnership 71 Elm Street Milford, New Hampshire 03055 17. Harborside Pheasantwood Harborside New Hampshire Limited Partnership Pheasant Road Peterborough, New Hampshire 03458 18. Harborside Westwood Harborside New Hampshire Limited Partnership 298 Main Street Keene, New Hampshire 03431 19. Harborside Northwood Harborside New Hampshire Limited Partnership 30 Colby Court Bedford, New Hampshire 03100 20. Harborside Woods Edge HHCI Limited Partnership 875 Route 202/206 North Bridgewater, New Jersey 08807 21. Harborside New Haven HHCI Limited Partnership 1201 Daly Drive New Haven, Indiana 46774 22. Harborside Pinebrook HHCI Limited Partnership 1240 Pinebrook Road Venice, Florida 34292 23. Harborside Sarasota HHCI Limited Partnership 4602 Northgate Court Sarasota, Florida 34624 24. Harborside Indianapolis HHCI Limited Partnership 8201 West Washington Street Indianapolis, Indiana 46231
SCHEDULE 4.13 (CONT'D) FEE AND LEASED PROPERTIES
LEASED PROPERTIES LESSE - ----------------- ----- 25. Harborside Troy HHCI Limited Partnership 512 Crescent Drive Troy, Ohio 45373 26. Harborside Naples HHCI Limited Partnership 2900 Twelfth Street North Naples, Florida 33940 27. Harborside Swanton Harborside Toledo Limited Partnership 401 West Airport Highway Swanton, Ohio 43558 28. Cedar Glen Harborside Massachusetts Limited Partnership 44 Summer Street Danvers, Massachusetts 01923 29. Twin Oaks Harborside Massachusetts Limited Partnership 63 Locust Street Danvers, Massachusetts 01923 30. Northshore Harborside Massachusetts Limited Partnership 266 Lincoln Avenue Saugus, Massachusetts 01906 31. Amesbury Harborside Massachusetts Limited Partnership 6 Morris Place Amesbury, Massachusetts 01913 32. Harborside Office Harborside Healthcare Corporation 470 Atlantic Avenue Boston, Massachusetts 02210 33. Financial Services Group Harborside Healthcare Limited Partnership 1330 Medical Park Drive Fort Wayne, Indiana 46828 34. Midwest Regional Office Harborside Healthcare Limited Partnership Suite 107 5987 East 71st Street Indianapolis, IN 46220 35. Southeast Regional Office Harborside Healthcare Limited Partnership Suite 200 2536 Countryside Boulevard, Clearwater, Florida 33763
SCHEDULE 4.13 (CONT'D) FEE AND LEASED PROPERTIES
LEASED PROPERTIES LESSE - ----------------- ----- 36. Great Lakes Regional Office Harborside Healthcare Limited Partnership 3800 Park East, Suite 250 Beachwood, Ohio 44122 37. New England Regional Office Harborside Healthcare Limited Partnership 175 Spring Hill Road Sharon, New Hampshire 03458 38. Massachusetts Office Harborside Healthcare Limited Partnership 27 Main Street Topsfield, Massachusetts 01983 39. Northeast Regional Office Harborside Connecticut Limited Partnership 2 Emily Way West Hartford, Connecticut 06107 40. Theracor Rehabilitation Center Harborside Rehabilitation Limited Partnership Suite 100 34931 U.S.Route 19 North Palm Harbor, Florida 34684 41. Theracor Rehabilitation-New England Harborside Rehabilitation Limited Partnership 501 Water Street Framingham, Massachusetts 01701
SCHEDULE 4.15(A) LIST OF UCC FILING OFFICES Bay Tree Nursing Center Massachusetts - Secretary of State, Town Clerk of Boston Florida - Department of State BELMONT NURSING CENTER CORP. Massachusetts - Secretary of State, Town Clerk of Boston Ohio - Secretary of State, Wood County Recorder BRIDGEWATER ASSISTED LIVING LIMITED PARTNERSHIP Massachusetts - Secretary of State, Town Clerk of Boston COUNTRYSIDE CARE CENTER CORP. Massachusetts - Secretary of State, Town Clerk of Boston Indiana - Secretary of State HARBORSIDE ACQUISITION LIMITED PARTNERSHIP IV Massachusetts - Secretary of State, Town Clerk of Boston HARBORSIDE ACQUISITION LIMITED PARTNERSHIP V Massachusetts - Secretary of State, Town Clerk of Boston HARBORSIDE ACQUISITION LIMITED PARTNERSHIP VI Massachusetts - Secretary of State, Town Clerk of Boston HARBORSIDE ACQUISITION LIMITED PARTNERSHIP VII Massachusetts - Secretary of State, Town Clerk of Boston HARBORSIDE ACQUISITION LIMITED PARTNERSHIP VIII Massachusetts - Secretary of State, Town Clerk of Boston HARBORSIDE ACQUISITION LIMITED PARTNERSHIP IX Massachusetts - Secretary of State, Town Clerk of Boston HARBORSIDE ACQUISITION LIMITED PARTNERSHIP X Massachusetts - Secretary of State, Town Clerk of Boston HARBORSIDE ATLANTRIX LIMITED PARTNERSHIP Massachusetts - Secretary of State, Town Clerk of Boston SCHEDULE 4.15(A) (CONT'D) LIST OF UCC FILING OFFICES HARBORSIDE CONNECTICUT LIMITED PARTNERSHIP Connecticut - Secretary of State Massachusetts - Secretary of State, Town Clerk of Boston HARBORSIDE FUNDING LIMITED PARTNERSHIP Massachusetts - Secretary of State, Town Clerk of Boston HARBORSIDE HEALTH I CORPORATION Connecticut - Secretary of State Delaware - Secretary of State Florida - Department of State Illinois - Secretary of State Indiana - Secretary of State Maryland - State Department of Assessments and Taxation Massachusetts - Secretary of State, Town Clerk of Boston, Town Clerk of Danvers, Town Clerk of Saugus, Town Clerk of Amesbury, Town Clerk of Framingham New Jersey - Secretary of State Ohio - Secretary of State, Montgomery County Recorder, Cuyahoga County Recorder, Defiance County Recorder, Williams County Recorder, Lucas County Recorder Rhode Island - Secretary of State HARBORSIDE HEALTHCARE ADVISORS LIMITED PARTNERSHIP Florida - Department of State Illinois - Secretary of State Indiana - Secretary of State Maryland - State Department of Assessments and Taxation Massachusetts - Secretary of State, Town Clerk of Boston, Town Clerk of Topsfield New Hampshire - Secretary of State, Town Clerk of Sharon New Jersey - Secretary of State Ohio - Secretary of State, Miami County Recorder, Cuyahoga County Recorder HARBORSIDE HEALTHCARE BALTIMORE LIMITED PARTNERSHIP Massachusetts - Secretary of State, Town Clerk of Boston Maryland - State Department of Assessments and Taxation HARBORSIDE HEALTHCARE CORPORATION Connecticut - Secretary of State Delaware - Secretary of State Florida - Department of State Illinois - Secretary of State Indiana - Secretary of State Maryland - State Department of Assessments and Taxation Massachusetts - Secretary of State, Town Clerk of Boston, Town Clerk of Danvers, Town Clerk of Saugus, Town Clerk of Amesbury, Town Clerk of Topsfield, Town Clerk of Framingham SCHEDULE 4.15(A) (CONT'D) LIST OF UCC FILING OFFICES HARBORSIDE HEALTHCARE CORPORATION (cont'd) New Hampshire - Secretary of State, Town Clerk of Sharon, Town Clerk of Winchester, Town Clerk of Milford, Town Clerk of Peterborough, Town Clerk of Bedford, Town Clerk of Keene New Jersey - Secretary of State Ohio - Secretary of State, Wood County Recorder, Fulton County Recorder, Miami County Recorder, Montgomery County Recorder, Cuyahoga County Recorder, Defiance County Recorder, Williams County Recorder, Lucas County Recorder Rhode Island - Secretary of State HARBORSIDE HEALTHCARE LIMITED PARTNERSHIP Connecticut - Secretary of State Florida - Department of State Indiana - Secretary of State Maryland - State Department of Assessments and Taxation Massachusetts - Secretary of State, Town Clerk of Boston, Town Clerk of Danvers, Town Clerk of Saugus, Town Clerk of Amesbury, Town Clerk of Framingham, Town Clerk of Topsfield New Hampshire - Secretary of State, Town Clerk of Sharon, Town Clerk of Winchester, Town Clerk of Milford, Town Clerk of Peterborough, Town Clerk of Bedford, Town Clerk of Keene New Jersey - Secretary of State Ohio - Secretary of State, Montgomery County Recorder, Cuyahoga County Recorder, Defiance County Recorder, Williams County Recorder, Lucas County Recorder, Fulton County Recorder Rhode Island - Secretary of State HARBORSIDE HEALTHCARE NETWORK LIMITED PARTNERSHIP Florida - Department of State Massachusetts - Secretary of State, Town Clerk of Boston HARBORSIDE HOMECARE LIMITED PARTNERSHIP Massachusetts - Secretary of State, Town Clerk of Boston Harborside Massachusetts Limited Partnership Massachusetts - Secretary of State, Town Clerk of Boston, Town Clerk of Danvers, Town Clerk of Saugus, Town Clerk of Amesbury HARBORSIDE NEW HAMPSHIRE LIMITED PARTNERSHIP Massachusetts - Secretary of State, Town Clerk of Boston New Hampshire - Secretary of State, Town Clerk of Winchester, Town Clerk of Milford, Town Clerk of Peterborough, Town Clerk of Bedford, Town Clerk of Keene SCHEDULE 4.15(A) (CONT'D) LIST OF UCC FILING OFFICES HARBORSIDE NORTH TOLEDO LIMITED PARTNERSHIP Massachusetts - Secretary of State, Town Clerk of Boston Ohio - Secretary of State, Lucas County Recorder HARBORSIDE OF CLEVELAND LIMITED PARTNERSHIP Massachusetts - Secretary of State, Town Clerk of Boston Ohio - Secretary of State, Cuyahoga County Recorder HARBORSIDE OF DAYTON LIMITED PARTNERSHIP Massachusetts - Secretary of State, Town Clerk of Boston Ohio - Secretary of State, Montgomery County Recorder HARBORSIDE OF OHIO LIMITED PARTNERSHIP Massachusetts - Secretary of State, Town Clerk of Boston Ohio - Secretary of State, Defiance County Recorder, Williams County Recorder HARBORSIDE PROPERTIES TRUST I Massachusetts - Secretary of State, Town Clerk of Boston HARBORSIDE REHABILITATION LIMITED PARTNERSHIP Florida - Department of State Massachusetts - Secretary of State, Town Clerk of Boston, Town Clerk of Framingham HARBORSIDE OF RHODE ISLAND LIMITED PARTNERSHIP Massachusetts - Secretary of State, Town Clerk of Boston Rhode Island - Secretary of State Harborside Toledo Corp. Indiana - Secretary of State Massachusetts - Secretary of State New Hampshire - Secretary of State, Town Clerk of Winchester, Town Clerk of Milford, Town Clerk of Peterborough, Town Clerk of Bedford, Town Clerk of Keene New Jersey - Secretary of State Ohio - Secretary of State, Fulton County Recorder, Miami County Recorder HARBORSIDE TOLEDO LIMITED PARTNERSHIP Massachusetts - Secretary of State, Town Clerk of Boston Ohio - Secretary of State, Fulton County Recorder HHCI LIMITED PARTNERSHIP Florida - Department of State Indiana - Secretary of State Massachusetts - Secretary of State, Town Clerk of Boston New Jersey - Secretary of State Ohio - Secretary of State, Miami County Recorder SCHEDULE 4.15(A) (CONT'D) LIST OF UCC FILING OFFICES KHI CORP. Delaware - Secretary of State Florida - Department of State Indiana - Secretary of State Massachusetts - Secretary of State, Town Clerk of Boston, Town Clerk of Topsfield New Hampshire - Secretary of State, Town Clerk of Sharon New Jersey - Secretary of State Ohio - Secretary of State, Cuyahoga County Recorder MARYLAND HARBORSIDE CORP. Maryland - State Department of Assessments and Taxation Massachusetts - Secretary of State, Town Clerk of Boston NEW JERSEY HARBORSIDE CORP. Massachusetts - Secretary of State, Town Clerk of Boston OAKHURST MANOR NURSING CENTER CORP. Florida - Department of State Massachusetts - Secretary of State, Town Clerk of Boston ORCHARD RIDGE NURSING CENTER CORP. Florida - Department of State Massachusetts - Secretary of State, Town Clerk of Boston SAILORS, INC. Delaware - Secretary of State Massachusetts - Secretary of State, Town Clerk of Boston SUNSET POINT NURSING CENTER CORP. Florida - Department of State Massachusetts - Secretary of State, Town Clerk of Boston WEST BAY NURSING CENTER CORP. Florida - Department of State Massachusetts - Secretary of State, Town Clerk of Boston SCHEDULE 4.16 TRADEMARKS AND COPYRIGHTS
Trademark Application Number JURISDICTION OWNER - -------- ------------------ ------------ ----- Harborside Healthcare 75-402823 United States Harborside Healthcare Limited Partnership Theracor Rehabilitation 75-402819 United States Harborside Rehabilitation Services/1/ Limited Partnership Theracor Rehabilitation Pending United States Harborside Rehabilitation Services/2/ Limited Partnership Theratour 75-402820 United States Harborside Rehabilitation Limited Partnership
____________________ /1/ Nursing and rehabilitative services /2/ Management consulting in connection with medical rehabilitation therapy services SCHEDULE 7.1(A) EXISTING INDEBTEDNESS 1. Indebtedness in the aggregate principal amount of approximately $16.4 million pursuant to the Loan Agreement, dated October 13, 1994 and related documents as amended to date, by and among Bay Tree Nursing Center Corp., Countryside Care Center Corp., Sunset Point Nursing Center Corp., and West Bay Nursing Center Corp., Harborside Healthcare Limited Partnership, and Meditrust Mortgage Investments, Inc. 2. Indebtedness in the aggregate principal amount of approximately $1.6 million pursuant to the Indenture of Trust, dated as of April 1, 1984, between the City of Indianapolis, Indiana (the "Issuer") and American Fletcher National Bank and Trust Company, providing for the issuance of 14% City of Indianapolis Economic Development Revenue Bonds-Series 1984 (C&C Investments, Ltd. Project) Due 2010, subsequently assumed and modified pursuant to a Loan Assumption and Modification Agreement, dated as of March 1, 1988, by and among C&C Investments, Ltd. ("C&C"), Riverside Retirement Limited Partnership (the "Borrower"), and Roy L. Prock, Theodore E. Bruzas and George A. Smith (the "Original Bondholders"), pursuant to which the Borrower purchased the Decatur Facility from C&C and assumed C&C's obligations under all documents delivered to the Original Bondholders in connection with the issuance of the Bonds including a First Mortgage Note, from C&C to the Issuer and a Collateral Assignment of Rents of C&C to the Issuer. 3. Indebtedness in the aggregate principal amount of approximately $54.5 million pursuant to the Agreement to Lease among Westbay Manor Company, Westbay Manor II Development Company, Royalview Manor Development Company, Beachwood Care Center Limited Partnership and Royalview Manor Company, Harborside Health I Corporation and Harborside Healthcare Limited Partnership, together with the four capitalized leases entered into pursuant to the Agreement to Lease with respect to four properties for which Harborside of Cleveland Limited Partnership is the Tenant. SCHEDULE 7.2 (I) EXISTING LIENS Against HARBORSIDE HEALTHCARE LIMITED PARTNERSHIP, as debtor: Secretary of State of Maryland 1. No. 200B2070068000 filed on April 14, 1993 by Maryland National Bank. Assigned March 24, 1997 pursuant to filing No. 183B2110093301 to First Union National Bank of Maryland. Covers all right, title and interest in Bowie Center Limited Partnership. Against HARBORSIDE OF FLORIDA LIMITED PARTNERSHIP, as debtor: Secretary of State of Florida 2. No. 940000209518 filed on October 14, 1994 by SouthTrust Bank of Alabama, National Associated. Covers all tangible and intangible personal property relating to real property and nursing facility located at 1775 Huntington Lane, Rockledge, Florida. Against MARYLAND HARBORSIDE CORP., as debtor: Secretary of State of Maryland 3. No. 35011733 filed on April 14, 1993 by Maryland National Bank. Covers all right, title and interest in Bowie Center Limited Partnership. Liens in connection with obligations relating to Bowie Center Limited Partnership, in an aggregate principal amount not to exceed $7,000,000 at any time, in connection with Existing Indebtedness as described in Schedule 7.1(a) and in connection with the fourteen Meditrust leased properties (listed as leased properties 14 through 27 in Schedule 4.13 hereto), the four Nationwide leased properties and the one Harborside of Florida Limited Partnership leased property. Liens in favor of The Chase Manhattan Bank, as Administrative Agent, in connection with indebtedness to be repaid at closing. Terminations with respect to these liens will be delivered to the Administrative Agent hereunder at Closing. SCHEDULE 7.3(D) EXISTING CONTINGENT OBLIGATIONS Contingent Obligations in connection with obligations relating to Bowie Center Limited Partnership, in an aggregate principal amount not to exceed $7,000,000 at any time, and in connection with Existing Indebtedness as described in Schedule 7.1(a). Contingent Obligations of Harborside of Florida Limited Partnership and Harborside Healthcare Limited Partnership, pursuant to the Indemnity Agreement, dated as of September 30, 1994 and as amended to date, by and among Rockledge T. Limited Partnership, Harborside of Florida Limited Partnership, Harborside Healthcare Limited Partnership and SouthTrust Bank of Alabama, N.A., to indemnify SouthTrust Bank of Alabama, N.A. (the lender of an original principal amount of $2,000,000 to Rockledge T. Limited Partnership, the owner of the facility leased by Harborside of Florida Limited Partnership) for its environmental liability relating to such facility. EX-99.1 5 PRESS RELEASE DATED AUGUST 11, 1998 EXHIBIT 99.1 HARBORSIDE HEALTHCARE CORPORATION Contact: Todd Fogarty/Jim Fingeroth EKST and Company 212-521-4800 FOR IMMEDIATE RELEASE --------------------- HARBORSIDE HEALTHCARE CORPORATION COMPLETES RECAPITALIZATION WITH INVESTCORP MAKING A MAJORITY EQUITY INVESTMENT Boston, MA, August 11, 1998 - Harborside Healthcare Corporation (NYSE-HBR), a provider of high quality long-term care and specialty medical services, today announced the completion of the previously announced recapitalization of Harborside, including a majority equity investment by Investcorp, an international investment firm, and certain of its investor clients. Founded in 1987, Harborside has been publicly traded since 1996. Under the terms of the agreement, Harborside's senior management team, led by Stephen L. Guillard, Chairman, Chief Executive Officer, and President, will continue their roles following the completion of the transaction. In addition, the Company will retain its present operating structure and maintain its presence in its current locations. Headquartered in Boston, Harborside currently operates a regionally focused network of 49 long-term care facilities with an aggregate capacity of approximately 6,000 licensed beds located in nine states. The Company also provides specialty medical services, including a variety of subacute care programs, as well as distinct programs for the provision of care to Alzheimer's and hospice patients. Over the past few years the Company has experienced significant growth, primarily as a result of its aggressive acquisition program. For the year ended December 31, 1997, the Company reported revenues of approximately $221.8 million and earnings of $0.84 per diluted share. Investcorp and its affiliates act as principals and intermediaries in international investment transactions. To date, Investcorp and its affiliates have completed over 70 transactions with an aggregate value of approximately $10 billion. Investcorp, its affiliates and their clients currently own interests in 16 other corporate investments in North America and Europe, including, among others, Saks Fifth Avenue, Webinvest Ltd., Helly Hansen, CSK Auto, Star Markets, Simmons Company, The William Carter Company, Falcon Building Products, Welcome Break and Werner Holding Co. Previous investments have included Gucci, Tiffany, Prime Equipment, Thorn-Lighting and Circle K. -----END PRIVACY-ENHANCED MESSAGE-----