-----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, AtvVBfqu61m+ib+i5wunvp5bmpZmDWHDR41HHeY+DhjwW0NOcFx1eiXLoSukm76Q 6XW/A/E84pWaQayU4zchAw== 0000950162-00-000524.txt : 20000404 0000950162-00-000524.hdr.sgml : 20000404 ACCESSION NUMBER: 0000950162-00-000524 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20000102 FILED AS OF DATE: 20000403 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENTIVA HEALTH SERVICES INC CENTRAL INDEX KEY: 0001096142 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 364335801 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-15669 FILM NUMBER: 592499 BUSINESS ADDRESS: STREET 1: 175 BROAD HOLLOW ROAD CITY: MELVILLE STATE: NY ZIP: 11747-8905 BUSINESS PHONE: 516847800 MAIL ADDRESS: STREET 1: 175 BROAD HOLLOW ROAD CITY: MELVILLE STATE: NY ZIP: 11747-8905 FORMER COMPANY: FORMER CONFORMED NAME: OLSTEN HEALTH SERVICES HOLDING CORP DATE OF NAME CHANGE: 19991001 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 2, 2000 Commission File No. 1-15669 Gentiva Health Services, Inc. (Exact name of Registrant as specified in its charter) DELAWARE 36-433-5801 -------- ----------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 175 Broad Hollow Road, Melville, New York 11747-8905 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (631) 844-7800 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Common Stock, par value $.10 per share NASDAQ Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- The aggregate market value of the registrant's common equity held by non-affiliates of the registrant as of March 16, 2000 was $102,663,816 based on the closing price of the Common Stock on The Nasdaq National Market on such date. The number of shares outstanding of the registrant's Common Stock, as of March 15, 2000 was 20,345,029. Information contained in this Report, other than historical information, should be considered forward-looking and is subject to various risk factors and uncertainties. For instance, the Company's strategies and operations involve risks of competition, establishing itself as an independent company, changing market conditions, changes in laws and regulations affecting it and its industries and numerous other factors discussed in this Report and in the Company's filings with the Securities and Exchange Commission. Accordingly, actual results may differ materially from those in any forward-looking statements. PART I Item 1. Business. - ------- --------- Introduction Gentiva Health Services, Inc. ("Gentiva" or the "Company") became an independent publicly owned company on March 15, 2000, as a result of the issuance of all of the common stock of the Company to the stockholders of Olsten Corporation, a Delaware corporation ("Olsten"), and the former parent corporation to the Company (the "split-off"). Prior to the split-off, all of the assets and liabilities of the health services business of Olsten (formerly known as Olsten Health Services) were transferred to the Company pursuant to a separation agreement and other agreements between the Company, Olsten and Adecco SA ("Adecco"). The Company was incorporated in the state of Delaware on August 6, 1999. The Company operates its health services business in the United States and Canada and provides specialty pharmaceutical services (including infusion therapy), home care nursing services and staffing services. Specialty Pharmaceutical Services The Company's specialty pharmaceutical services business is coordinated through its network of 38 pharmacies across the United States and generally includes: o the distribution of drugs and other biological and pharmaceutical products and professional support services for individuals with chronic diseases, such as hemophilia, primary pulmonary hypertension, autoimmune deficiencies and growth disorders; o the administration of antibiotics, chemotherapy, nutrients and other medications for patients with acute or episodic disease states; o marketing and distribution services for pharmaceutical, biotechnology and medical service firms; and 1 o delivery, management and administration of its products in the home setting and evaluation of equipment needs of the patient. The specialty pharmaceutical services business provides a wide range of home infusion therapies. Home infusion therapy involves the administration of medications intravenously (into veins), subcutaneously (under the skin), intramuscularly (into muscle), intraecally or epidurally (via spinal routes) or through feeding tubes into the digestive tract. Infusion therapy often begins during hospitalization of a patient and continues in the home environment. The Company's specialty pharmaceutical services business also addresses therapeutic, socioeconomic, psychosocial and professional support needs for individuals with some of the following rare, chronic diseases: o Hemophilia, which is a hereditary bleeding disorder in which a plasma protein, known as factor, necessary for normal blood clotting, is either missing or dysfunctional. Hemophilia is treated by intravenously infusing anti-hemophilic factor, consisting of factor concentrates and sterile water, to replace deficient clotting factor. This disease is diagnosed at birth and has no known cure, but hemophiliacs can lead relatively long and healthy lives with proper treatment. o Primary pulmonary hypertension, which is a chronic pulmonary disease for which there is no known cure. This disease is treated by the infusion of Flolan, which is an epoprostenol sodium product, for a patient's lifetime or until the patient receives a lung transplant. o Immunodeficiency/autoimmune disorders, which are a classification of chronic disorders arising when the body's immune system fails to produce sufficient antibodies to protect against infection. These disorders include multiple sclerosis, myasthenia gravis and lupus. These disorders are generally incurable but the symptoms can be treated with a therapy consisting of intravenous immune globulin prepared from human plasma (IVIG). o Growth disorders, which result from damage to or malformation of either the hypothalamus or the pituitary gland. This disorder is treated by injecting growth hormone therapy into the patient. Some of the Company's other significant specialty pharmaceutical services also include: 2 o Antibiotic therapies, which are the infusion of antibiotic medications into a patient's bloodstream. These medications are typically used to treat a variety of serious infections and diseases. o Total Parenteral Nutrition (TPN), which is the long-term provision of nutrients for patients with chronic gastrointestinal conditions. These nutrients are infused through surgically implanted central vein catheters or through peripherally inserted central catheters. Enteral nutrition is the infusion of nutrients through a feeding tube inserted directly into a patient's digestive tract. This long-term therapy is prescribed for patients who are unable to eat and drink normally. o Chemotherapy, which is the infusion of drugs in a patient's bloodstream to treat various forms of cancer. o Pain management, which involves the infusion of certain drugs into the bloodstream of patients suffering from acute or chronic pain. As part of specialty pharmaceutical services, the Company also offers a distribution network to manufacturers after Federal government approval of their products is secured. Distribution programs currently include: o the first new drug for rheumatoid arthritis in 20 years; o a new hand-held device for monitoring blood clotting time; and o pharmaceuticals for chemotherapy and white blood cell stimulation, the treatment of primary pulmonary hypertension, and management of amyotrophic lateral sclerosis (ALS or Lou Gehrig's disease), multiple sclerosis and severe muscle wasting. Home Care Nursing Services The Company's home care nursing services business is conducted through more than 300 locations and offers a broad range of services including: o General skilled nursing care that is provided by registered nurses and licensed practical nurses who assess the appropriateness of home health care including the family and home environment for patients, and perform clinical procedures and instruct the patient and family regarding necessary treatments. Patients receiving this care typically include stabilized post-operative patients in recovery at home, patients who are acutely ill but who do not require hospitalization and patients who are chronically or terminally ill. 3 o Pediatric services consisting of nursing services specializing in care for children. These services include early NICU discharge to the home, prenatal, maternal/infant care and phototherapy. o Rehabilitation services consisting of programs and services that address a wide range of neurologic and orthopedic diagnoses, including head or traumatic brain injuries, spinal cord injuries and other complex rehabilitation cases. o Other therapy services that consist of physical, occupational, speech and respiratory therapy to patients recovering from strokes, traumas or certain surgeries, services for high risk pregnancies, post-partum care, mental health care, AIDS therapy and various medical social services. o Disease management programs that are administered by nurses who provide specialty care regimens to patients in their home. These nurses instruct patients and their families in the self-administration of some therapies and procedures, such as wound care and infection control, emergency procedures and the proper handling and usage of medication, medical supplies and equipment as well as teach disease state management programs at home to patients with asthma, diabetes and other illnesses. o Home health aide care that involves basic patient care from taking temperatures and blood pressure to assisting with daily living activities. The Company's home health aides must pass certain competency tests and are supervised by registered nurses. o Personal care services consisting of unskilled homemaker services which are provided to the elderly or the disabled. These services may include housekeeping, shopping and assistance with personal hygiene, dressing and meals. Through four regional centers in the United States, the Company provides care management and coordination for managed care customers desiring referrals, centralized intake and billing claims adjustment, utilization review, quality assurance and data reporting and analysis. Staffing Services The Company's staffing services business provides services to institutions, occupational and alternate site healthcare organizations by providing health care professionals to meet supplemental staffing needs. Often, these organizations use temporary healthcare professionals to maximize scheduling flexibility and to monitor and control costs and to cover peak periods, illness and vacation time of their permanent staff. The Company's healthcare professionals include: 4 o registered nurses; o licensed practical nurses; o physical, speech and occupational therapists; o certified nursing assistants; o medical assistants; and o medical technologists. These professionals typically work in hospitals, industrial settings, long-term care facilities, clinics, schools, physicians' offices, laboratories, home care agencies and insurance companies. The Company arranges for their assignments from more than 40 locations throughout the United States. Through the Company's Flying Nurses(R) division in Dallas, Texas, the Company also makes special arrangements for healthcare professionals to travel to virtually any location for special assignments. This provides health care organizations in Florida, for example, with an economical way to manage peak demand during the winter season. Further, the Company assists drug companies with clinical trials of new drug therapies awaiting U.S. Food and Drug Administration approval and in distributing new products and meeting special distribution requirements. The Company performs logistical and handling functions such as pharmacy mail order services, and provides clinical support, reimbursement management and data management. Payors In fiscal 1999, approximately 64 percent of the Company's revenues were attributable to commercial pay sources, 20 percent of revenues were attributable to Medicaid reimbursement, state reimbursed programs and other state/county funding programs and 16 percent of revenues were attributable to Medicare reimbursement. In fiscal 1999, Cigna Healthcare accounted for approximately 11 percent of revenues. The Company's three year contract with Cigna Healthcare had an expiration date of December 31, 1998, but was amended to continue until terminated by either party with 60 days, advance notice. Except for these payors, no other payor accounts for as much as 10 percent of revenues. The revenues from commercial payors are primarily generated under fee for service contracts which are traditionally one year in term and renewable automatically on an annual basis, unless terminated by either party. 5 Source and Availability of Personnel To maximize the cost effectiveness and productivity of caregivers, the Company utilizes customized systems and procedures that have been developed and refined over the years. These processes include the recruitment and selection of applicants who fit the patients' individual parameters for skills, experience and other criteria. Personalized matching is achieved through initial applicant profiles, personal interviews, skill evaluations and background and reference checks. The Company generally employs caregivers on an as-needed basis to meet client demand. Specialized recruitment and retention programs are offered to caregivers as incentives for them to remain in the Company's employ. Caregivers are recruited through a variety of sources, including advertising in local and national media, job fairs, solicitations on web sites, direct mail and telephone solicitations, as well as referrals obtained directly from clients and other caregivers. Caregivers are generally paid on an hourly basis for time actually worked, subject to a four-hour daily minimum on the days worked. The wages paid may vary in different geographic areas to reflect the prevailing wages paid for the particular skills in the community where the services are performed. In the northeastern and western regions of the United States the Company is currently experiencing a shortage of licensed professionals. A prolonged shortage of professionals could have a material adverse effect on the Company's business. Trademarks The Company has various trademarks registered with the U.S. Patent and Trademark Office, including Rehab Without Walls(R) and Chronicare(R) or in the process of being registered with the U.S. Patent and Trademark Office, including Care You Can Count On(SM) and Gentiva(SM). In addition, the Company has a royalty-free license from Olsten which permits the Company to use, until March 15, 2001, some trademarks, service marks and names that were not transferred to the Company in the split-off, including Olsten(R). Before the expiration of this license, the Company intends to develop its Gentiva name and further develop its health services business trademarks. Business Environment Factors that the Company believes have contributed and will contribute to the development of home health care in particular include recognition that home health care can be a cost-effective alternative to lengthy, more expensive institutional care; an aging population; increasing consumer awareness and interest in home health care; the psychological benefits of recuperating from an illness or accident in one's own home and advanced technology that allows more health care procedures to be provided at home. The Company is actively pursuing relationships with managed care organizations. The Company believes that its nationwide office network, financial resources and the quality, 6 range and cost-effectiveness of its services are important factors as it seeks opportunities in its managed care relationships in a consolidating home health care industry. The Company offers the direct and managed provision of care as a single gatekeeper, thereby optimizing utilization. Marketing and Sales In general, the Company obtains clients through personal and corporate sales presentations, telephone marketing calls, direct mail solicitation, referrals from other clients and advertising in a variety of local and national media, including the Yellow Pages, newspapers, magazines, trade publications and television. Marketing efforts also involve personal contact with case managers for managed health care programs, such as those involving health maintenance organizations and preferred provider organizations, insurance company representatives and employers with self-funded employee health benefit programs. The Company does not seek reimbursement from government payors for unallowable marketing and sales expenses. Managed care and other non-governmental payors, which are an increasingly significant source of referrals for home health care services, accounted for 64 percent of net revenues in fiscal 1999. The Joint Commission on Accreditation of Healthcare Organizations (JCAHO) accredits about 98% of the locations. The Company believes JCAHO accreditation enhances its ability to obtain contracts with certain managed care organizations. The Company is also targeting referrals from managed care organizations by offering disease management programs for the treatment of asthma, diabetes and other chronic illnesses, as well as outcome and utilization reports. The Company expects managed care contracts will generate an increasing number of referrals as the penetration of managed care accelerates in its markets. The Company believes that it has the local relationships, the knowledge of the regional markets in which it operates, and the cost-effective, comprehensive services and products required to compete effectively for managed care contracts and other referrals. The Company believes that its success in furnishing caregivers is based, among other factors, on its reputation for quality and local market expertise combined with the resources of extensive office network. The Company also empowers its branch directors with a high level of responsibility, providing strong incentives to manage the business effectively at the local level, one of the central ingredients in a business where relationships are vital to success. Competitive Position The segments of the health care industry in which the Company operates are highly competitive and fragmented. There are approximately 15,000 home care agencies operating in the United States, in which the three largest providers represented less than 15 percent of the national industry in revenues for 1999. The industry is comprised of a few national companies, hundreds of regional companies and thousands of locally based independent home health care organizations. These companies range from facility-based (hospital, nursing 7 home, rehabilitation facility, government agency) agencies to independent companies to visiting nurse associations and nurse registries. They can be not-for-profit organizations or for-profit organizations. In addition, there are relatively few barriers to entry in some segments of the health care market in which the Company operates. The Company could experience increased competition in the future from existing competitors or new entrants that may limit the Company's ability to maintain or increase its market share. The Company's primary national competitors are Caremark Therapeutic Services and Coram Healthcare Corp., and its primary regionally based competitors are hospital-based home health agencies and visiting nurse associations. The Company competes with other home health care providers on the basis of availability of personnel, quality and expertise of services and the value and price of services. The Company believes that it has a favorable competitive position, attributable mainly to its widespread office network and the consistently high quality and targeted services it has provided over the years to its patients, as well as to its screening and evaluation procedures and training programs for caregivers. The Company may have existing competitors, as well as a number of potential new competitors, who have greater name recognition, and significantly greater financial, technical and marketing resources than the Company. This may allow them to devote greater resources to the development and promotion of their services. These competitors may also engage in more extensive research and development, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies and make more attractive offers to existing and potential employees and clients. The Company expects that industry forces will impact it and its competitors. The Company's competitors will likely strive to improve their service offerings and price competitiveness. The Company also expects its competitors to develop new strategic relationships with providers, referral sources and payors, which could result in increased competition. The introduction of new and enhanced services, acquisitions and industry consolidation and the development of strategic relationships by the Company's competitors could cause a decline in sales or loss of market acceptance of the Company's services or price competition, or make the Company's services less attractive. Number of Persons Employed At January 2, 2000, the Company had approximately 5,100 full-time administrative staff and 650 full time caregivers. The Company also employs caregivers on a temporary basis, as needed, to provide home healthcare services. In fiscal 1999, the average number of temporary caregivers employed on a weekly basis was approximately 18,000. In British Columbia some of the Company's caregivers are unionized by the British Columbia Government Services' Employee Union under the master collective bargaining 8 agreement which applies to all home health agencies in British Columbia. In addition, the Company is in the process of negotiating its first collective bargaining agreement with all unionized caregivers in the Thunder Bay, Ontario office with the Services' Employees International Union, Local 268. In the Windsor, Ontario location, the Canadian Union of Public Workers filed an application with the Ontario Labor Relations Board alleging that it is the bargaining agent for the Company's caregivers. The Company has responded to these allegations and a hearing has been set for November 4, 2000. In addition, the Services' Employees International Union, Local 880 has filed a representation petition with the National Labor Relations Board covering three home health services offices in Chicago, Illinois with about 700 caregivers. An election was held on November 5, 1999 at which the employees voted against the representation. The union filed objections to the vote against the election. These objections were upheld by the National Labor Relations Board Hearing Officer; the Company intends to appeal this decision further. If the Company loses the appeal, another election will be held. The Company believes that its relationships with its employees are generally good. With respect to administrative staff and caregivers, the Company pays the employer's share of Social Security taxes, federal and state unemployment taxes, workers' compensation insurance and other similar costs. Administrative staff and caregivers are covered by professional medical liability insurance. The Company believes that it maintains insurance coverages which are adequate for the purposes of its business. Canadian Operations Through subsidiaries, the Company has provided home health services in Canada for many years. In fiscal 1999, the Company's Canadian operations represented about 3 percent of its revenues. Item 2. Properties. - ------- ----------- Olsten agreed to provide office space to the Company without charge at 175 Broad Hollow Road, Melville, New York 11747-8905 for its corporate headquarters until September 15, 2000. The Company agreed to use its best efforts to relocate its corporate headquarters promptly, but in no event later than September 15, 2000. Other regional administrative offices leased by the Company are located in Overland Park, Kansas and Tampa, Florida. The Company also maintains leases for other offices and locations on various terms expiring on various dates. On March 15, 2000, the Company entered into an agreement with Olsten and a subsidiary of Olsten pursuant to which the Company agreed to assume such subsidiary's obligations under a lease for a property beginning on September 16, 2000. The Company believes that its facilities are adequate for its immediate needs. The Company does not anticipate that it will have great difficulty obtaining additional or replacement space for the headquarters and other locations, as needed in the future. 9 Item 3. Legal Proceedings. - ------- ------------------ Litigation There is presently pending in the U.S. District Court for the Eastern District of New York a class action filed by some Olsten stockholders against Olsten and some of its directors and officers, captioned In re Olsten Corporation Securities Litigation, No. 97-5056. The class action asserts claims for violations of the Securities Act and the Securities Exchange Act, including claims that the directors and officers of Olsten misrepresented information to stockholders relating to the government investigations into Olsten's health services business described in the "Government Investigations" section below. There is also pending in the Delaware Chancery Court a purported derivative lawsuit filed by some Olsten stockholders against some directors and officers of Olsten (and Olsten, as nominal defendant), captioned Rubin v. May, No. 17135-NC. This purported derivative lawsuit alleges that the Olsten directors and officers breached their fiduciary duties to stockholders in connection with the above-described class action and the below-described government investigations. In July 1999, the Indiana Attorney General's Office filed a lawsuit against Olsten in Indiana Superior Court, captioned State of Indiana v. Quantum Health Resources, Inc. and Olsten Health Services, Inc., No. 49D029907CP001011, alleging that Olsten was overpaid by Medicaid, failed to properly disclose information to Medicaid and engaged in improper billing. On January 14, 1999, Kimberly Home Health Care, Inc. ("Kimberly") initiated three arbitration proceedings against hospitals owned by Columbia/HCA Healthcare Corp. ("Columbia/HCA") with which Kimberly had management services agreements to provide services to the hospitals' home health agencies. The basis for each of the arbitrations is that Columbia/HCA sold the home health agencies without assigning the management services agreements and, as a result, Columbia/HCA has breached the management services agreements. In response to the arbitrations, Columbia/HCA has asserted that the arbitration be consolidated and stayed, in part based upon its alleged claims against Kimberly for breach of contract, and requested indemnity and possibly return of management fees. Columbia/HCA has not yet formally presented these claims in the arbitrations or other legal proceedings, and has not yet quantified the claims. The parties agreed to suspend the proceedings until June 2000. Because the above lawsuits and arbitration proceedings are in relatively preliminary stages and seek unspecified damages, penalties and/or reimbursement for costs and expenses, the Company is unable at this time to assess the probable outcome or potential liability arising from such litigation. 10 Furthermore, in connection with the split-off, the Company agreed to assume, to the extent permitted by law, and indemnify Olsten for, the above lawsuits and arbitration proceedings, together with any other liabilities arising out of the health services business before or after the split-off, including any such liabilities arising after the split-off in connection with the government investigations described below. Government Investigations The Company's business has been subject to extensive federal and state governmental investigations regarding, among other things: o the preparation of Medicare costs reports, which is referred to as the "Cost Reports Investigation"; o the relationship between Columbia/HCA and the health services business in connection with the purchase by Columbia/HCA of some home health agencies that were owned by the health services business and subsequently managed under contract by a unit of the health services business, which is referred to as the "Columbia/HCA Investigation"; and o some of the health care practices of Quantum Health Resources, Inc. ("Quantum"), including alleged improper billing and fraud against various federally funded medical assistance programs, which largely occurred during the period prior to Olsten's acquisition of Quantum in June 1996, which is referred to as the "Quantum New Mexico Investigation." On July 19, 1999, Olsten entered into written civil and criminal agreements with the U.S. Department of Justice (and, as to the civil agreement, the Office of Inspector General of the U.S. Department of Health and Human Services) finalizing the settlement of the civil and criminal aspects of the Cost Reports Investigation and the Columbia/HCA Investigation. Under the settlement: o Olsten paid on August 11, 1999 the sum of $61 million to the U.S. Department of Justice, including approximately $10.1 million in criminal fines and penalties; o In connection with the Columbia/HCA Investigation, Kimberly, then a subsidiary of Olsten, pled guilty in the United States District Courts for the Northern District of Georgia, the Southern District of Florida and the Middle District of Florida to criminal violations of the federal mail fraud, conspiracy and kickback statutes; 11 o In connection with the Columbia/HCA Investigation, Kimberly has been permanently excluded from participation in Medicare, Medicaid and all other federal health care programs as defined in 42 U.S.C. ss.1320a-7b(f); and o In connection with the Cost Reports Investigation and the Columbia/HCA Investigation, Olsten signed a corporate integrity agreement with the Office of Inspector General of the U.S. Department of Health and Human Services. In October 1998, Olsten entered into a final settlement agreement with several government agencies investigating the past practices of Quantum, which is referred to as the "Quantum Past Practices Investigation." The agreement was entered into with the U.S. Department of Justice, the Office of the Inspector General of the U.S. Department of Health and Human Services, the U.S. Secretary of Defense (for the CHAMPUS/Tricare program), and the Attorneys General for the States of New York and Oklahoma. Under the settlement, Olsten reimbursed the government approximately $4.5 million for disputed claims under the Medicaid and CHAMPUS programs and entered into a corporate integrity agreement. In early December 1999, Olsten received a document subpoena from the Department of Health and Human Services, Office of Inspector General, Office of Investigations. After preliminary discussions with the Office of Inspector General, the Company believes the subpoena relates to an investigation of possible overpayments to it by the Medicare program. In early February 2000, the Company received a document subpoena from the Department of Health and Human Services, Office of Inspector General, and Office of Investigations. The Company believes the subpoena relates to its agencies' cost reporting procedures concerning contracted nursing and home health aide costs. The Company intends to provide the Office of Inspector General with the requested documents and cooperate fully with its investigations. At this time, the Company is unable to assess the probable outcome or potential liability, if any, arising from these subpoenas. The Company has recently commenced discussions with the North Carolina Attorney General's Office concerning questions that the Office has raised as to the eligibility of a certain class of the Company's patients to receive Medicaid-reimbursed home health services and, thus, the Company's entitlement to Medicaid reimbursement in connection with those services. At this preliminary stage, the Company is unable to assess the probable outcome of or potential liability arising from this matter. As noted above, in connection with the government's Cost Reports Investigation and Columbia/HCA Investigation, Olsten executed a corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services. That corporate integrity agreement will be in effect until August 18, 2004. In connection with the Quantum Past Practices Investigation, Olsten executed a corporate integrity agreement in October 1998 with the U.S. Department of Justice, the Office of Inspector General of the U.S. Department of 12 Health and Human Services, the U.S. Secretary of Defense (for the CHAMPUS/Tricare Program) and the Attorneys General for the States of New York and Oklahoma that will be in effect until December 31, 2001. Under each of the corporate integrity agreements, the Company is, for example, is required: o to maintain a corporate compliance officer to develop and implement compliance programs; o to retain an independent review organization to perform annual reviews; and o to maintain a compliance program and reporting systems, as well as provide certain training to employees. The corporate integrity agreement entered into in connection with the Quantum Past Practices Investigation applies to the Company's specialty pharmaceutical services business and focuses on the training and billing of blood factor products for hemophiliacs. The corporate integrity agreement relating to the Cost Reports Investigation and the Columbia/HCA Investigation applies to the Company's businesses that bill the federal government health programs directly for services, such as its home care nursing business (but excluding the specialty pharmaceutical services business). That corporate integrity agreement focuses on issues and training related to cost report preparation, contracting, medical necessity and billing of claims. The Company's compliance program will be implemented for all newly established or acquired business units if their type of business is covered by the corporate integrity agreements. Reports under each integrity agreement are to be filed annually with the Department of Health and Human Services, Office of Inspector General. After each corporate integrity agreement expires, the Company is to file a final annual report with the government. If the Company fails to comply with the terms of either of its corporate integrity agreements, the Company will be subject to penalties ranging from $1,500 to $2,500 for each day of the breach. In March 2000, Gentiva was notified by the U.S. Department of Justice that, in light of the Adecco/Olsten merger and the split-off of Gentiva as an independent public company, the Company has been substituted for Olsten in connection with the civil settlement and corporate integrity agreements referenced in this "Government Investigations" section. Regulations The Company's business is subject to extensive federal and state regulations which govern, among other things: o Medicare, Medicaid, CHAMPUS and other government-funded reimbursement programs; 13 o reporting requirements, certification and licensing standards for certain home health agencies; and o in some cases, certificate-of-need and pharmacy-licensing requirements. The Company's compliance with these regulations may affect its participation in Medicare, Medicaid, CHAMPUS and other federal health care programs. The Company is also subject to a variety of federal and state regulations which prohibit fraud and abuse in the delivery of health care services. These regulations include, among other things: o prohibitions against the offering or making of direct or indirect payments for the referral of patients; o rules against physicians making referrals under Medicare for clinical services to a home health agency with which the physician has certain types of financial relationship; and o laws against the filing of false claims. As part of the extensive federal and state regulation of the home health care business, and under the Company's corporate integrity agreements, the Company is subject to periodic audits, examinations and investigations conducted by, or at the direction of, governmental investigatory and oversight agencies. Violation of the applicable federal and state health care regulations can result in excluding a health care provider from participating in the Medicare, Medicaid and/or CHAMPUS programs and can subject the provider to substantial civil and/or criminal penalties. As noted in the "Government Investigations" section above, one of the Company's subsidiaries, Kimberly, has been permanently excluded from participation in Medicare, Medicaid and all other federal health care programs pursuant to a plea agreement. Periodic and random audits conducted by intermediaries may result in a delay in receipt, or an adjustment to the amounts of reimbursement due or received under Medicare, Medicaid, CHAMPUS and other federal health care programs. In September 1999, the Company received a Notice of Amount of Program Reimbursement for the 1997 Medicare cost reports from the Medicare fiscal intermediary advising that it disagreed with the Company's methodology of allocating a portion of its overhead. The Health Care Financing Administration has indicated that it agrees with the fiscal intermediary. The notice indicates a disallowance of approximately $7 million of costs in 1997 which the Company would be required to pay if the fiscal intermediary is correct. Since the Company used a similar methodology for allocating overhead costs in 1998 and 1999, an additional disallowance aggregating approximately $5 million could result for these years. The Company believes its cost reports are accurate and consistent with past practice accepted by the fiscal intermediary, and has appealed the notice to the Provider Reimbursement Review Board. The Company is unable to predict 14 the outcome of this appeal and the final determination of revenue to be ultimately recognized by the Medicare program; however the Company has made adequate provision for such disallowance in its financial statements. In connection with the split-off, the Company agreed to assume all liabilities arising out of and associated with the health services business. Item 4. Submission of Matters to a Vote of Security Holders. - ------- ---------------------------------------------------- In the last fiscal quarter of the 1999 fiscal year, the following matters were submitted for vote and approval of Olsten, as the sole shareholder of the Company: o the name of the Company; o the Company's directors; o the Company's amended and restated certificate of incorporation; o the Company's amended and restated by-laws; o the Company's form of severance agreements; o the Company's form of change of control agreements; o the Company's executive officers bonus plan; o the Company's 1999 stock incentive plan; o the Company's stock and deferred compensation plan for non-employee directors; and o the Company's employee stock purchase plan. 15 PART II Item 5. Market Price for Registrant's Common Equity and Related Stockholder - ------- Matters. ------------------------------------------------------------------- Market Information During the period covered by this report, there was no established public trading market for shares of the Company's common stock. As of March 16, 2000, the Company's common stock was quoted on The Nasdaq National Market under the symbol "GTIV". Holders Because the Company was a wholly-owned subsidiary of Olsten at January 2, 2000, Olsten was the only holder of the Company's common stock at that date. As of March 16, 2000, the approximate number of holders of the Company's common stock was 2,303. Recent Sales of Unregistered Securities The Company did not sell any equity securities during the period covered by the report, other than the issuance of its common stock prior to the split-off, to Olsten, its former parent corporation for consideration of par value per share. Dividends The Company does not expect to pay any dividends on its common stock for the foreseeable future. Any future payments of dividends and the amount of the dividends will be determined by the board of directors from time to time based on: o results of operations; o financial condition; o cash requirements; o future prospects; and o other factors deemed relevant by the Company's board of directors. In addition, some of the Company's debt instruments and other agreements also contain restrictions of the Company's ability to declare and pay dividends. See Item 7, Part II. 16 Item 6. Selected Financial Data. - ------- ------------------------ The following table provides selected historical consolidated financial data of the Company as of and for each of the fiscal years in the five-year period ended January 2, 2000. The data as of and for each of the fiscal years in the four-year period ended January 2, 2000 have been derived from the Company's audited consolidated financial statements. The consolidated financial data as of and for the fiscal year ended December 31, 1995 have been derived from the Company's unaudited financial statements and include, in the Company's opinion, all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for that year. The historical consolidated financial information presents the Company's results of operations and financial position as if the Company was a separate entity from Olsten for all years presented. The historical financial information may not be indicative of the Company's future performance and may not necessarily reflect what the financial position and results of operations of the Company would have been if the Company was a separate stand-alone entity during the years covered.
Fiscal Year Ended 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- (53 weeks) (In thousands except for share amount) Statement of Operations Data Net revenues.................. $1,369,382 $1,374,353 $1,433,854 $1,330,303 $1,489,822 Gross profit.................. 525,262 511,940 520,586 421,407 505,426 Selling, general and Administrative expenses....... 436,674 421,222 460,254 552,528 509,658 Net income (loss)............. 45,163 (2,877)(1) 26,847 (101,465)(2) (15,086)(3) Net income (loss) per share... 2.22 (.14) 1.32 (4.99) (.74) Average shares out- standing (4).................. 20,345 20,345 20,345 20,345 20,345 Balance Sheet Data (at end of year): Working capital............... $326,681 $334,512 $346,135 $367,915 $438,536 Total assets.................. 739,438 785,341 783,478 945,738 1,063,105 Long-term debt................ 86,250 86,250 86,250 86,250 -- Shareholders' equity.......... 516,716 541,737 530,270 561,859 705,291
(1) Net loss in fiscal 1996 reflects merger, integration and other non-recurring pre-tax charges totaling approximately $75 million. These charges resulted from acquisition of Quantum for $39 million; $30 million of allowances for a change in the methodology used by Medicare for computing reimbursements in prior years related to our home health care business; and Quantum's charge of $5.5 million related to the settlement of shareholder litigation. 17 (2) Net loss in fiscal 1998 reflects non-recurring pre-tax charges and other adjustments totaling approximately $122 million. These charges resulted from $66 million related to the restructuring of the Company's businesses and a special charge of $56 million for the settlement of two federal investigations. These provisions include a reduction in revenues of $14 million, a charge to cost of sales of $15 million and $93 million in selling, general and administrative expenses. See Note 4 to the Company's Consolidated Financial Statements. (3) Net loss for fiscal 1999 reflects a special pre-tax charge of $15.2 million for the realignment of business units as part of a new restructuring plan. This charge is included in selling, general and administrative expenses. See Note 4 to the Company's Consolidated Financial Statements. (4) Historical earnings per share data has been computed based upon a 20,345,029 shares of common stock. Such amount is based on the number of shares of the Company's common stock issued March 15, 2000, the date of the split-off. Pursuant to the terms of the split-off, shareholders of Olsten received .25 shares of Gentiva Health Services common stock for each share of Olsten common stock or Class B common stock that they owned. Item 7. Management's Discussion and Analysis of Financial Condition and - ------- Results of Operations. --------------------------------------------------------------- The historical consolidated financial information presents the results of operations and financial position as if the Company was an independent company for all years presented. The historical financial information may not be indicative of future performance and may not necessarily reflect what the Company's financial position and results of operations would have been if it were a separate stand-alone entity during the years covered. As an independent company, the Company expects to incur additional legal, risk management, tax, treasury, human resources and administrative and other expenses that it did not experience as a wholly-owned subsidiary of Olsten. The Company provides home health care through its caregivers, including licensed health care personnel, such as registered nurses. The Company offers a broad range of services, including: o treatments for patients with chronic diseases; o intravenous and oral administration of drugs, nutrients and other solutions; o skilled nursing care; o pediatric/maternal care programs; 18 o rehabilitation and other therapies; o disease management programs; o home health aide and personal services care; and o institutional, occupational and alternate site staffing. The home health care industry in which the Company operates has undergone significant changes due to government regulation. As part of the Balanced Budget Act of 1997, the government enacted the Interim Payment System ("IPS") for reimbursement of home care services provided under Medicare, which represents approximately 16 percent of our business. Prior to enactment of the IPS, home care services were reimbursed based on cost subject to a per-visit limit determined by the Health Care Financing Administration. The IPS reimburses home care services based on costs, subject to both a per-beneficiary limit and a per-visit limit. Further, the IPS reduced the per-visit limit to 1994 levels. In order to operate at the lowered reimbursement rates, home health care companies reduced the services provided to patients by providing fewer patient visits. In addition, the regulatory climate that ensued in home health care caused a lower level of physician referrals. As a result of these cuts, the amount the Company gets paid has been reduced. Specifically, Medicare revenue, excluding acquisitions, was reduced as compared to the preceding year by $127 million or 40% in fiscal 1998 and $36 million or 19% in fiscal 1999. These reductions have had a negative impact on operations and liquidity. Results of Operations In the quarter ended April 4, 1999, the Company recorded a special charge totaling $16.7 million for the realignment of business units as part of a new restructuring plan, including: o compensation and severance costs of $5 million to be paid to operational support staff, branch administrative personnel and management; o asset write-offs of $6.5 million, related primarily to fixed assets being disposed of in offices being closed and facilities being consolidated as well as fixed assets and goodwill attributable to the Company's exit from certain businesses; and o integration costs of $5.2 million, primarily related to obligations under lease agreements for offices and other facilities being closed. 19 As of the end of fiscal 1999, substantially all of the closures and consolidation of facilities and expected terminations had occurred. These activities have resulted in lower costs than originally estimated and, as a result, the Company recognized a benefit of $1.5 million in the fourth quarter of 1999 to reflect the change in estimate. The realignment of the business units achieved a reduction of expenses of about $3 million in 1999, due to reduced employee, lease and depreciation expenses. On March 30, 1999, the Company announced plans to take a special charge totaling $56 million, which was recorded in the fourth quarter of fiscal 1998. The charge was for the settlement of two federal investigations focusing on Medicare home office cost reports and certain transactions with Columbia/HCA. The agreements in connection with the settlement were finalized and signed on July 19, 1999. On August 11, 1999 Olsten paid $61 million pursuant to the settlement, about $5 million of which was previously accrued as part of the 1996 merger, integration and other non-recurring charges. In 1998, the Company also recorded non-recurring charges and other adjustments of $66 million, of which approximately $64 million was recorded in the second quarter and $2 million was recorded in the third quarter both related to the restructuring of business. These charges, which were primarily for 60 office closings and consolidations in the United States, were taken to help position the Company to operate more efficiently under the new IPS. In addition, significant technological investments were made in order to improve operational efficiencies and employee retention levels. The benefit of the restructuring began to be realized in the second quarter of 1998. Included in this provision was $24 million charged to selling, general and administrative expenses, which included lease payments of $3 million, employee severance of $4 million, fixed asset and software write-offs of $5 million to reflect the loss incurred upon the Company's decision to dispose of the assets in some closed offices, and an increase in the allowance for doubtful accounts of $12 million. All closures and consolidations of facilities and employee terminations, related to this charge, have been completed. The allowance for doubtful accounts was increased because receipt of payment is highly dependent on the Company's ability to provide some evidence of service and authorization documentation to a variety of third-party payors. The office closings, consolidation of certain business service centers and the termination of employees are all events that, in the Company's experience, impair its ability to provide the documentation required to collect on receivables. The Company also recorded other adjustments to selling, general and administrative expenses of $13 million which included professional fees and related costs resulting from the settlement with several government agencies regarding certain past business practices of Quantum, the level of effort required to respond to the significant inquiries conducted by the government, and costs incurred to redesign the credit and collection process of the Company's business. In addition, upon final announcement of the per-beneficiary limits by the government, the Company recorded a reduction in revenues in the second quarter of fiscal 1998 of $14 million in anticipation of lower Medicare reimbursements resulting from the new per-visit and per-beneficiary limits that were imposed by Medicare under the IPS. 20 The Company recorded a charge to cost of sales of $15 million to reflect the estimated increase in costs that have been incurred, but not yet reported, based upon a change in the actuarial estimates utilized to determine the level of service to patients covered under the Company's capitated contracts. At January 2, 2000, about $2.8 million, consisting primarily of severance and integration costs, remained unpaid and were included in accrued expenses. Revenues Revenues increased 12 percent, or $160 million, during fiscal 1999 compared to fiscal 1998 driven by growth in specialty pharmaceutical services of 22 percent, or $128 million, staffing services of 28 percent, or $28 million, and home care nursing services of 1 percent, or $4 million. Included in home care nursing services revenues is an increase in revenue attributable to the acquisition of Columbia/HCA's home health care operations in the state of Florida, which was partially offset by declines in Medicare-related home care visits and reimbursement due to the implementation of the IPS. Revenues in fiscal 1998 had decreased 7 percent, or $104 million, compared to fiscal 1997, primarily as a result of a 23 percent, or $197 million, decrease in home care nursing services revenues resulting from the reduction in Medicare related home care visits due to the implementation of IPS, partially offset by a 13 percent, or $68 million, increase in specialty pharmaceutical services revenues and a 35 percent, or $25 million, increase in the staffing services business. Gross Profit Gross profit margins increased in fiscal 1999 to 34 percent from 32 percent for fiscal 1998 primarily as a result of productivity enhancements, rate increases and a change of payor mix driven by the acquisition in the state of Florida in the home care nursing services business, partially offset by greater growth in the lower margin staffing services business. Gross profit margins had decreased in fiscal 1998 to 32 percent from 36 percent in fiscal 1997 primarily as a result of a change in the business mix reflecting growth in lower margin staffing services business and revenue decline in the Medicare portion of the home care nursing business. The negative influences on gross profit margins were partially offset by growth in the specialty pharmaceutical services. Selling, general and administrative expenses Selling, general and administrative expenses decreased to $510 million, or 34 percent of revenues, for fiscal 1999 from $553 million, or 42 percent of revenues, as compared to fiscal 1998. Excluding the effects of special charges, non-recurring charges and other adjustments recorded in both years, selling, general and administrative expenses were 33 percent of 21 revenues during the fiscal 1999 as compared to 35 percent of revenues in fiscal 1998, primarily as a result of the impact of efficiency improvement efforts in home care nursing services and corporate administrative support departments partially offset by increased information systems costs. Selling, general and administrative expenses for fiscal 1998 were $553 million, or 42 percent of revenues, as compared to $460 million, or 32 percent of revenues, in fiscal 1997. Excluding the effects of the non-recurring charges and other adjustments, selling, general and administrative expenses were $460 million, or 35 percent of revenues, for fiscal 1998. The increase in selling, general and administrative expenses as a percent of revenues was primarily attributable to investments in infrastructure, including new information systems and increased expenses incurred to grow the specialty pharmaceutical services and staffing services businesses. These increases were partially offset by the cost reduction initiatives, including closing and consolidating offices in the home care services business. Interest expense Interest expense of $17.0 million during fiscal 1999 was slightly lower than interest expense of approximately $17.4 million for fiscal 1998 due to the retirement of $7.7 million of Quantum's 4 3/4% convertible subordinated debentures in January 1999. Interest expense for all years represented interest on the debentures outstanding and intercompany borrowings with Olsten. Income taxes The effective income tax rates on income (loss) were 28.9 percent, 31.7 percent, 37.9 percent for fiscal 1999, fiscal 1998 and fiscal 1997 respectively. The rates differ from statutory rates primarily because of non-deductible goodwill amortization and other non-deductible items. Year 2000 The technical infrastructure of the Company, encompassing all business applications, is Year 2000 compliant. Systems not directly related to the financial operations of the business, primarily voice communications, have also been upgraded. Systems critical to the Company's business, which were identified as non-year 2000 compliant, have been replaced to increase efficiencies and improve the Company's ability to provide services to customers. The new infrastructure, which is Year 2000 compliant, was completely implemented in field offices before January 1, 2000. Other systems, which required remediation, were completed before January 1, 2000. The total cost of the Company's remediation plan was about $2.5 million. 22 The Company has not experienced any transactional or operational problems due to Year 2000 issues during the month of January 2000 or in any subsequent months. Liquidity and Capital Resources Historically, the Company has relied on cash flow from operations and advances from Olsten to meet its operating and investing activities. In the past, when liquidity needs exceeded cash flow, Olsten provided the necessary funds. In connection with the split-off and in accordance with the separation agreement governing the split-off, the Company received approximately $32 million in cash (referred to as the true-up amount) prior to the split-off date. Following the split-off, the Company paid Olsten approximately $13 million to settle the intercompany account balance which related primarily to management fees, additional advances and interest expense on intercompany balances. The Company is no longer able to use Olsten's resources to meet its needs and has acquired third party financing, as described below, for such purposes. The Company received $20 million of proceeds from the issuance by Gentiva Trust, a Delaware statutory trust (the "Trust"), of 10% convertible trust preferred securities on March 15, 2000. The Company owns all the common equity in the Trust. The Trust's only asset is the 10% convertible subordinated debentures of the Company. The Company entered into a credit facility, which provides for up to $150 million in borrowings, including up to $30 million which is available for letters of credit. The Company may borrow up to 80 percent of eligible accounts receivable, as defined. The credit facility, which expires in 2004, includes covenants requiring the Company to maintain a minimum tangible net worth and minimum earnings before interest, taxes, depreciation and amortization. Other covenants in the credit facility include: limitations on mergers, consolidations, acquisitions, indebtedness, liens, capital expenditures and disposition of assets and other limitations with respect to the Company's operations. The interest rate on borrowings under the credit facility is based on the London Interbank Offered Rate (LIBOR) plus 2.5 percent or the lender's prime rate plus 0.25 percent. As of March 16, 2000, there were no borrowings under the credit facility and approximately $19 million of standby letters of credit outstanding. As of such date, the Company had borrowing capacity of approximately $131 million under the credit facility. By October 2000, the Company will be required to repay $78.6 million of its 4-3/4% convertible subordinated debentures which mature on October 1, 2000. The Company is evaluating various options, including use of the new credit facility, to repay these debentures. Working capital at January 2, 2000 was $439 million, an increase of 19 percent versus $368 million at January 3, 1999. Net receivables increased to $575 million, or 27 percent, predominantly due to growth in the specialty pharmaceutical services, which historically has a longer collection period than the Company's other businesses. The Company has recently made and will continue to make investments in billing and accounts receivable systems and has realigned its billing and collection units in an effort to improve cash flow from operations. 23 Management believes cash flows from operations, borrowings available under the new credit facility and any remaining proceeds received from the issuance of the 10% convertible trust preferred securities will be adequate to support the ongoing operations and to meet debt service and principal repayment requirements for the foreseeable future. The Company intends to make investments and other expenditures to, among other things, upgrade its computer technology and system infrastructure and relocate its headquarters. If cash flows from operations or availability under the new credit facility fall below expectations, the Company may be forced to delay planned capital expenditures, reduce operating expenses, seek additional financing or consider alternatives designed to enhance liquidity. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. - -------- ----------------------------------------------------------- The Company's exposure to the market risk for changes in interest rates relates to the fair value of its fixed rate Quantum debentures. Generally, the fair market value of fixed rate debt will increase as interest rates fall and decrease as interest rates rise. Based on the overall interest rate exposure on the fixed rate debentures at January 2, 2000, a 10 percent change in market interest rates would not have a material effect on the fair value of long-term debt. Fluctuations in currency exchange rates may impact shareholder's equity. Assets and liabilities of the Company's Canadian subsidiary are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Revenues and expenses are translated into U.S. dollars at the weighted average exchange rate for the period. The resulting translation adjustments are recorded in shareholder's equity as accumulated other comprehensive income (loss). Although currency fluctuations impact reported results of operations, such fluctuations generally do not affect cash flow or result in actual economic gains or losses. Each of the Company's subsidiaries derives revenues and incurs expenses within a single country and does not incur currency risks in connection with the conduct of normal business operations. Other than intercompany transactions between the United States and the Company's Canadian subsidiary, the Company generally does not have significant transactions that are denominated in a currency other than the functional currency applicable to each entity. The Company does not engage in hedging activities and did not hold any derivative instruments at January 2, 2000. Item 8. Financial Statements and Supplementary Data. - ------- -------------------------------------------- The following financial statements and financial schedule of the Company are included in this report:
Page(s) in this Report ----------------------------------------------------------------- ---------------------------- Report of Independent Accountants F- 2 ----------------------------------------------------------------- ---------------------------- Consolidated Balance Sheets as of January 2, 2000 and January 3, 1999 F- 3 ----------------------------------------------------------------- ---------------------------- 24 Consolidated Statements of Income for the three years ended January 2, 2000 F- 4 ----------------------------------------------------------------- ---------------------------- Consolidated Statements of Changes in Shareholders' Equity for the three years ended January 2, 2000 F- 5 ----------------------------------------------------------------- ---------------------------- Consolidated Statements of Cash Flows for the three years ended January 2, 2000 F- 6 ----------------------------------------------------------------- ---------------------------- Notes to Consolidated Financial Statements F- 7 ----------------------------------------------------------------- ---------------------------- Schedule II - Valuation and Qualifying Accounts for the three years ended January 2, 2000 F-32 ----------------------------------------------------------------- ----------------------------
Item 9. Changes in and Disagreements with Accountants on Accounting and - ------- Financial Disclosure. --------------------------------------------------------------- There have been no such changes or disagreements. 25 PART III Item 10. Directors and Executive Officers of the Registrant. - -------- --------------------------------------------------- The following table sets forth certain information regarding each of the Company's directors and executive officers as of March 16, 2000:
Director/Executive Officer Position and Offices Name Since Age with the Company - ---- ----------------------- --- ---------------- Victor F. Ganzi Nov. 1999 52 Director Steven E. Grabowski Nov. 1999 45 Director Stuart R. Levine Nov. 1999 52 Director Stuart Olsten Nov. 1999 47 Director Raymond S. Troubh Nov. 1999 73 Director Josh S. Weston Nov. 1999 71 Director Gail Wilensky Mar. 2000 56 Director Edward A. Blechschmidt Nov. 1999 47 President, Chief Executive Officer and Chairman of the Board of Directors John J. Collura Nov. 1999 53 Executive Vice President, Chief Financial Officer and Treasurer Ronald A. Malone Mar. 2000 46 Executive Vice President Robert J. Nixon Nov. 1999 43 Executive Vice President Richard C. Christmas Nov. 1999 45 Senior Vice President E. Rodney Hornbake Mar. 2000 49 Senior Vice President and Chief Medical Officer 26 Director/Executive Officer Position and Offices Name Since Age with the Company - ---- ----------------------- --- ---------------- Patricia C. Ma Nov. 1999 38 Senior Vice President, General Counsel and Secretary Terry Mitchell Mar. 2000 49 Senior Vice President Vernon A. Perry Nov. 1999 48 Senior Vice President David C. Silver Mar. 2000 57 Senior Vice President
The term of office for officers is until resignation or a succesor is appointed, other than with respect to the term of office described below under "Employment Agreement". The term of office for directors is as set forth under the heading "Classified board of directors" below. Victor F. Ganzi Mr. Ganzi has served as a director of the Company since November 1999. He served as a director of Olsten from 1998 until March 2000. He has been executive vice president of The Hearst Corporation, a diversified communications company with interests in magazine, newspaper and business publishing and television and radio stations, since March 1997 and its chief operating officer since March 1998. From 1992 to 1997, at various times Mr. Ganzi served as Hearst's senior vice president, chief financial officer and chief legal officer. From March 1995 until October 1999 he was group head of Hearst's Books/Business Publishing Group. He is a director of Hearst-Argyle Television, Inc. Steven E. Grabowski Mr. Grabowski has served as a director of the Company since November 1999. He is currently a Vice President in the Private Client Group of PaineWebber, Inc., a member of the New York Stock Exchange, where he has worked since 1991. Mr. Grabowski currently serves on the board of a not-for-profit entity named VITA Education Services. Mr. Grabowski is the brother-in-law of Mr. Olsten, a director of the Company. Stuart R. Levine Mr. Levine has served as a director of the Company since November 1999. He served as a director of Olsten from 1995 until March 2000. Since June 1996 he has served as the chairman and chief executive officer of Stuart Levine & Associates LLC, 27 an international training company. From September 1992 to June 1996 he was Chief Executive Officer of Dale Carnegie & Associates, Inc., a global provider of corporate training in leadership and personal development. Mr. Levine currently serves as a Trustee of Long Island Jewish Health Care, and for 15 years, until 1995, he served as a Vice Chairman of North Shore Hospital. Mr. Levine is a member of the board of directors of European American Bank. Stuart Olsten Mr. Olsten has served as a director of the Company since November 1999. He served as a director of Olsten from 1986 to March 2000. From February 1999 until March 2000 he was the chairman of the board of directors of Olsten. He was vice chairman of Olsten from August 1994 to February 1999 and was president of Olsten from April 1990 to February 1999. Mr. Olsten was appointed to the board of directors of Adecco at the time of the merger of Olsten into a subsidiary of Adecco. Mr. Olsten is the brother-in-law of Mr. Grabowski, a director of the Company. Raymond S. Troubh Mr. Troubh has served as a director of the Company since November 1999. He served as a director of Olsten from 1993 to March 2000. He has been a financial consultant for more than five years. He is a director of ARIAD Pharmaceuticals, Inc., Diamond Offshore Drilling, Inc., Foundation Health Systems, Inc., General American Investors Company, Starwood Hotels and Resorts, Triarc Companies and WHX Corporation. Josh S. Weston Mr. Weston has served as a director of the Company since November 1999. He served as a director of Olsten from 1995 to March 2000. Since May 1998 he has been honorary chairman of Automatic Data Processing, Inc., a provider of computerized transaction processing, data communication and information services. He was chairman of Automatic Data Processing, Inc. from 1982 to April 1998 and was chief executive officer of Automatic Data Processing, Inc. from 1982 to August 1996. He is a director of Automatic Data Processing, Inc., J. Crew Inc., Russ Berri Corp. and Shared Medical Systems, Inc. and a trustee of Atlantic Health Systems, Inc. Dr. Gail Wilensky Dr. Wilensky has served as a director of the Company since March 2000. She has been the John M. Olin Senior Fellow at Project HOPE, an international health foundation, since January of 1993, and Chair of the Medicare Payment Advisory Commission. She served as deputy assistant to President Bush for policy development from March of 1992 to January of 1993 and as administrator of the Health Care Fi- 28 nancing Administration from January of 1990 to March of 1992. Dr. Wilensky has also served as vice president of health affairs at Project HOPE from 1983 to 1989, and has taught economics and public policy at the University of Michigan and George Washington University. She is an elected member of the Institute of Medicine and serves as a trustee of the Combined Benefits Fund of the United Mineworkers of America and the Research Triangle Institute. She is an advisor to the Robert Wood Johnson Foundation and The Commonwealth Fund. She is a director of Advanced Tissue Sciences, ManorCare, Quest Diagnostics, St. Jude Medical, Inc., Shared Medical Systems, Inc., Syncor International, and United HealthCare. Edward A. Blechschmidt Mr. Blechschmidt has served as chief executive officer and as a director of the Company since November 1999. He served as the chief executive officer and a director of Olsten from February 1999 until March 2000. He has also been the president of Olsten since October 1998 and served as the chief operating officer of Olsten from October 1998 to February 1999. From August 1996 to October 1998 he was president and chief executive officer of Siemens Nixdorf Americas, an information technology company. From January 1996 to July 1996 he was senior vice president and chief financial officer of Unisys Corporation, a provider of information technology and consulting services. From January 1995 to December 1995 he was senior vice president and president of the United States and Canada division of Unisys Corporation. From 1990 to December 1994 he was senior vice president and president of the Pacific Asia Americas Division of Unisys Corporation. John J. Collura Mr. Collura has served as the executive vice president, chief financial officer and treasurer of the Company since November 1999. He served as senior vice president and chief financial officer of Olsten Health Services from 1998 to March 2000. From 1996 to 1998, Mr. Collura was corporate director of financial and business development operations of Partners Healthcare, an integrated healthcare delivery system that manages 42 entities. From 1995 to 1996, Mr. Collura was the chief operating officer of the Port Authority of New York and New Jersey. He also held several senior level finance positions at the Port Authority and was assistant chief executive officer. Mr. Collura is a member of the Institute of Management Accountants, where he has served as president and national board member and a member of the Healthcare Financial Management Association; he is also a board member of the Arthritis Foundation. Ronald A. Malone Mr. Malone has served as executive vice president of the Company since March 2000. Prior to joining the Company, he served in various positions with Olsten, including executive vice president of Olsten and president, Olsten 29 Staffing Services, United States and Canada, from January 1999 to March 2000; from March 1998 to December 1998, he served as executive vice president, Operations; from March 1997 to February 1998 he served as senior vice president, Operations and from July 1994 to February 1997 he served as senior vice president, Southeast Division. Robert J. Nixon Mr. Nixon has served as a senior vice president of the Company since November 1999. He had been a member of Olsten Health Services' senior management team since joining Olsten in 1994. From 1994 to 1999, he has served in various capacities, including as a senior vice president. Prior to joining Olsten, Mr. Nixon held positions with PediatriCare America, Critical Care America and Sherwood Medical. Richard C. Christmas Mr. Christmas has served as senior vice president of the Company since November 1999. He joined Olsten in 1992 and has served as regional director, area vice president and project manager-vice president for a business and technology reengineering project for Olsten. Prior to joining Olsten, Mr. Christmas was a regional director of Manpower Inc. and vice president of Helpmates Temporary Services. E. Rodney Hornbake, M.D. Dr. Hornbake has served as senior vice president and chief medical officer since March 2000. Before joining the Company, Dr. Hornbake served as vice president and medical director of the North Shore-Long Island Jewish Health System. Prior to that, Dr. Hornbake was chief medical officer for Aetna Professional Management Corporation and chief of medicine for the Park Ridge Health System. Patricia C. Ma Ms. Ma has served as the Company's senior vice president, general counsel and secretary since November 1999. She joined Olsten in June 1994. Since 1998 she served as general counsel and vice president. From 1994 to 1998, Ms. Ma served in various legal positions with the Company, including vice president, assistant general counsel, assistant vice president and senior counsel. Prior to joining Olsten, Ms. Ma served as assistant general counsel of National Medical Care, Inc. from 1990 to 1994. Terry Mitchell Mr. Mitchell has served as senior vice president of the Company since March 2000. Mr. Mitchell served in numerous capacities for Olsten Health Services from 1993 to March 2000. Prior to joining the Company, Mr. Mitchell had an eighteen year 30 tenure at Marriott Corporation, including serving as senior vice president in the management and facilities management divisions. Vernon A. Perry, Jr. Mr. Perry has served as senior vice president of the company since November 1999. He joined Olsten in 1994. From 1996 to 1999, he served as senior vice president of network management. From 1994 to 1996, he served as vice president of business development, primarily responsible for the health services business development. Before joining Olsten, Mr. Perry spent twenty years in various health care management positions, including senior positions at Georgetown University Community Health Plan, Sierra Health Services and Principal Health Care. David C. Silver Mr. Silver has served as senior vice president of the Company since March 2000. He joined Olsten in 1998 as director, Human Resources Planning and Development. In April 1999 he was promoted to Vice President, Human Resources for Olsten's staffing services business. Prior to joining Olsten he held senior Human Resources positions with the Bank of Tokyo, Supermarkets General Corporation, Chase Manhattan Bank and Amerada Hess. From 1989 to 1998 he served as president of a human resources consulting firm delivering organizational change, leadership development and general human resources consulting services. Classified board of directors The board of directors is divided into three classes. Victor F. Ganzi, Dr. Gail Wilensky and Josh S. Weston, are the class 1 directors with an initial term expiring at the first annual stockholders' meeting for election of directors. Edward A. Blechschmidt, Steven E. Grabowski and Raymond S. Troubh, are the class 2 directors with an initial term expiring at the second annual stockholders' meeting for election of directors. Stuart R. Levine and Stuart Olsten, are the class 3 directors with an initial term expiring at the third annual stockholders meeting for the election of directors. After their initial terms, directors will generally serve for three years. Committees of the board of directors The board of directors has an audit committee, a human resources and compensation committee and an executive committee. The audit committee recommends the appointment of auditors and oversees accounting and audit functions and other key financial matters of the Company. In addition, the audit committee oversees compliance matters as well as the implementation of the corporate integrity agreements described under the heading "Legal Proceedings". Messrs. Ganzi and Troubh and Dr. Wilensky will serve as the audit committee's members. The human resources and compensation 31 committee oversees compensation and benefit programs. Messrs. Levine, Troubh and Weston will serve as members of the human resources and compensation committee. The executive committee acts for the entire board of directors between board meetings. Messrs. Blechschmidt, Ganzi, Olsten and Weston serve as members of the executive committee. Director compensation Each non-employee member of the board of directors will receive an annual retainer of $25,000 up to half of which such director may elect to receive in cash, paid quarterly, the remainder of which will be paid in shares of the Company's common stock. In addition, any non-employee directors who act as chair of a committee of the board will receive $2,000 annually for acting as a chairperson. Non-employee directors will also receive $1,000 for each board or committee meeting they attend ($500 if attendance is by telephone). All directors, regardless of whether or not they are employees, will receive reimbursement for out-of-pocket expenses incurred in connection with attending meetings. Upon initial election to the board, each non-employee director will receive stock options exercisable for up to 5,000 shares of the Company's common stock with future grants to be determined by the board of directors. Item 11. Executive Compensation. - -------- ----------------------- Set forth below is information regarding the compensation during Olsten's 1999 fiscal year for the people who served as chief executive officer of or in a similar capacity for the Company and the four other most highly compensated officers of the Company (collectively referred to as the "named officers"). During this period, the named officers, other than Mr. Blechschmidt who was employed by Olsten and paid by Olsten, were the Company's employees and all compensation was paid by the Company. After March 15, 2000, all of the named officers who continued with the Company, became employees of the Company and the compensation of the named officers and all of the other officers was determined by the human resources and compensation committee of the Company. 32
Long Term Compensation Awards ----------------------- Annual Compensation Securities ------------------- Restricted Underlying All Other Other Annual Stock Options/ Compensation Name and Principal Position Year (1) Salary($) Bonus($) Compensation($)(2) Award(s)($) SARS(#) ($)(3) - --------------------------- -------- --------- -------- ------------------ ----------- ------- ------ Edward A. Blechschmidt 1999 721,538 400,000 19,194 0 311,604 101,547 President, Chief Executive Officer and Chairman of the Board Robert A. Fusco (4) 1999 600,000 100,000 2,312 0 103,868 50,040 Former President Robert J. Nixon 1999 357,885 80,000 0 0 41,547 28,250 Executive Vice President John J. Collura 1999 311,346 90,000 154,374 0 41,547 23,727 Executive Vice President, Chief Financial Officer and Treasurer Terry Mitchell 1999 288,648 0 0 0 20,774 22,018 Senior Vice President Richard Christmas 1999 186,004 60,000 0 0 6,232 18,180 Senior Vice President
(1) Since the Company was not a reporting company during the three immediately preceding fiscal years, information with respect to the 1999 fiscal year is reflected in the table. (2) Gross-up of taxable portion of fringe benefit. (3) Represents profit sharing and matching contributions by Olsten for the named officers pursuant to Olsten's Non-Qualified Retirement & Savings Plan for selected management employees. (4) Mr. Fusco resigned from his position as President of the health services business of Olsten in late 1999. As of March 15, 2000, Mr. Fusco was no longer employed by the Company. Option Grants - ------------- The table below sets forth further information concerning the grant of stock options to the named officers by Olsten during Olsten's 1999 fiscal year. 33
Olsten Stock Option Grants in Fiscal 1999 Individual Grants POTENTIAL REALIZABLE VALUE AT ----------------- ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR OPTION TERM(3) ------------------------------ Number of % of Total Securities Options Underlying Granted to Exercise Options Employees in Price Expiration Name Granted(#)(1) Fiscal Year(2) ($/Sh) Date 5%($) 10%($) - ---- ------------- -------------- ------ ---- ----- ------ Edward A. Blechschmidt 311,604 30.1 $3.49 2/10/09 $683,923 $1,733,192 Robert A. Fusco 103,868 10.0 $3.61 3/15/01 $42,492 $87,484 Robert J. Nixon 41,547 4.0 $3.61 1/5/09 $94,335 $239,063 John J. Collura 41,547 4.0 $3.61 1/5/09 $94,335 $239,063 Terry Mitchell 20,774 2.0 $3.61 1/5/09 $41,289 $104,636 Richard Christmas 6,232 .6 $3.61 1/5/09 $14,150 $35,859
(1) The options were originally granted as options to buy Olsten's common stock at an exercise price equal to the fair market value of the Olsten common stock on the date of the grant. At the time of the split-off, all options to buy Olsten common stock held by the Company's employees were converted to options to buy the Company's common stock. The numbers of securities reflected in the table give effect to the conversion of Olsten options to the Company's options on the date of the split-off. (2) The percentages shown are based upon the total options granted to all of the Company's employees in 1999, excluding grants awarded to Olsten employees. (3) The dollar amounts under the indicated columns are the result of calculations at the 5% and 10% rates set forth by the Securities and Exchange Commission and are not intended to forecast possible future appreciation of the Company's stock price. 34 Aggregated option exercises in Gentiva's 1999 fiscal year and 1999 fiscal year end option values. The table below sets forth information with respect to the named officers concerning the exercise of stock options during the Company's 1999 fiscal year and unexercised options held as of the end of that year.
Number of Securities Value of Unexercised Underlying In-the-Money Unexercised Options at 1999 Options at Fiscal Year End (#) 1999 Fiscal Year End ($) ------------------- ------------------------ Shares Acquired on Value Name Exercise(#) realized Exercisable Unexercisable(1) Exercisable Unexercisable(1) ---- ----------- -------- ----------- ------------- ----------- ------------- Edward A. Blechschmidt 0 0 83,094 643,981 215,000 1,469,375 Robert A. Fusco 0 0 358,343 420,665 19,141 248,047 Robert J. Nixon 0 0 86,209 159,957 13,672 117,266 John J. Collura 0 0 12,983 80,497 13,672 117,266 Terry Mitchell 0 0 49,337 37,912 0 38,125 Richard Christmas 0 0 8,050 19,475 3,849 25,661
(1) All such options were accelerated on March 15, 2000 in connection with the split-off and in accordance with the 1994 Olsten Stock Option Plan. Employment Agreement On March 14, 2000, the Company entered into an employment agreement with Mr. Blechschmidt, the current president, chief executive officer and chairman of the board of directors. The agreement became effective on March 15, 2000 and will be in effect for a period of three years. During the term of the agreement, Mr. Blechschmidt will receive: (1) a base salary of $600,000 per year, and (2) an annual bonus, based on the achievement of target levels of performance, with target bonus equal to 80 percent of his base salary and the maximum bonus equal to 120 percent of his salary. However, Mr. Blechschmidt's bonus will not be less than 50 percent of his base salary for 2000. Mr. Blechschmidt will also receive customary benefits, perquisites and reimbursement for expenses. The agreement provides that Mr. Blechschmidt's employment will terminate: o upon the death or disability of Mr. Blechschmidt, o upon termination of his employment for cause, o for termination of his employment without cause, or o termination of his employment for good reason by Mr. Blechschmidt. In the event his employment is terminated as a result of his death or disability, he or his estate will be entitled to receive his earned salary, vested benefits and accelerated vesting of his accrued pension benefits. He will not be entitled to severance benefits. In the event the 35 agreement is terminated for cause by the Company he will be entitled to receive earned salary and vested benefits and will not be entitled to severance benefits. In the event the agreement is terminated for good reason by Mr. Blechschmidt or without cause by the Company he will be entitled to earned salary, vested benefits, severance benefits and accelerated vesting of his accrued pension benefits and continued medical benefits for up to two years. Severance benefits as referred to in this section, are equal to two times Mr. Blechschmidt's base salary, so long as Mr. Blechschmidt does not receive any amounts under his change in control agreement. The agreement also restricts Mr. Blechschmidt's ability to engage in any of the Company's business lines in the United States and Canada for the term of the agreement and during the nine months after termination of his employment, other than termination without cause and termination for good reason. It also contains confidentiality provisions and provisions for non-solicitation of the Company's employees. Mr. Blechschmidt has entered into a change in control agreement with the Company, similar to the terms described below. Change in Control Agreements The following officers of the Company are parties to change in control agreements in connection with their employment with the Company: Edward A. Blechschmidt, John J. Collura, Ronald A. Malone, Robert J. Nixon, Richard C. Christmas, Patricia C. Ma, Terry Mitchell, Vernon A. Perry and David Silver. These agreements have a term of three years, commencing on March 15, 2000. They generally provide benefits in the event: (1) the employee's employment is terminated by the Company and the termination is not for cause or is by the employee for good reason (as specified in the agreement) and (2) the termination is within three years after a change in control of the Company. In addition, these executive officers will receive the benefit of their agreements if they were terminated by the Company without cause up to a year before a change in control, if their termination arose in connection with the change in control. The benefits conferred under these agreements generally will include the following: o a cash payment equal to either one or two times the employee's base salary and target bonus; o continued benefits for the lesser of two years following the termination or until the employee obtains comparable benefits from another employer; o immediate vesting of any stock options held by the employee (those options would remain exercisable for one year following the termination, but not beyond the original full term); and 36 o full vesting of retirement and deferred compensation benefits. Under certain circumstances the benefits could be reduced in order to avoid the incurrence of excise taxes by the employees. Under the agreements, a change in control is defined to include the following events: o a person or group (with certain exceptions for the Olsten family) beneficially owns at least 25 percent or more of the voting stock; o either the directors (and their approved successors) cease to constitute a majority of the board of directors or a majority of the persons nominated by the board of directors for election fails to be elected; o a merger of the Company if the stockholders do not own a majority of the stock of the surviving company or if the members of the board of directors do not constitute a majority of the directors of the surviving company's board; o if the company is liquidated; or o if all or substantially all of the assets are sold. In addition, the change in control agreements provide that if an employee substantially prevails in a dispute with the Company relating to their agreement, the Company will pay that employee's attorney's fees which result from their suit. The employees who have these agreements are not required to seek other employment or otherwise mitigate any damages they are caused as a result of a change in control, but they are required to keep the Company's confidential information private. Severance Agreements The executive officers of the Company are parties to severance agreements in connection with their employment with the Company. These severance agreements generally provide that, in the event the executive officer is terminated other than for cause or has his/her base salary reduced in a situation that is not part of a general salary reduction, the executive officers have the right to receive payments for periods ranging from one to two years in an amount based on that executive's base salary at the time of termination. Additionally, the severance agreements provide that the Company will provide these executive officers with health benefits based on their benefit levels at the time of termination for the same period or until they obtain similar health benefits elsewhere. 37 Executive Officers Bonus Plan The board of directors of the Company adopted an executive officers bonus plan under which the executive officers may be entitled to receive a bonus contingent upon the achievement of performance goals. The purpose of the plan is to provide the executives with an opportunity to earn a bonus as an incentive and reward for their leadership, ability and exceptional service. The plan will be administered by the human resources and compensation committee of the board of directors. The committee will be able to: o establish performance goals for the granting of bonuses for each year; o determine the executives who are eligible to take part in the plan; o determine whether the performance goals for any year have been achieved; o authorize payment of bonuses under the plan; o adopt, alter and repeal the administrative rules, guidelines and practices governing the plan; and o interpret the terms and provisions of the plan. Currently, all executives officers are eligible to participate in the executive officers bonus plan. The amount of any bonus granted to any of the executives for any year can not be more than the lesser of 200 percent of the executive's annual base salary or $2.5 million. Performance goals may vary from executive to executive and will be based upon some of the following performance criteria, as the committee may deem appropriate: o appreciation in stock value, total stockholder return, earnings per share; o operating income, net income, pro forma net income; o return on equity, return on designated assets, return on capital; o economic value added, earnings, revenues, expenses; o operating profit margin, operating cash flow, gross profit margin, net profit margin; o employee turnover, employee headcount, labor costs; and o customer service and accounts receivable. 38 A copy of the Executive Officers Bonus Plan is incorporated herein by reference to Amendment No. 2 to the Registration Statement on Form S-4, dated January 20, 2000. 1999 Stock Incentive Plan The board of directors of the Company adopted a 1999 stock incentive plan. The plan was adopted in order to enhance the Company's ability to attract and retain highly qualified officers, employees, consultants and directors, and to better enable those persons to participate in long-term success and growth. The plan will provide for discretionary grants of stock options which may be either incentive stock options or nonqualified options. The plan will be administered by the human resources and compensation committee of the board of directors. The committee has the power to select the eligible employees, consultants and directors to whom stock options are to be granted under the plan and to determine the terms and conditions of each stock option granted under the plan. The committee will be able to determine the number of shares of common stock to be covered by each award. The maximum total number of shares of common stock for which grants may be made to any employee, consultant or director in any calendar year, however, is 300,000. The chief executive officer may award options to purchase up to 10,000 shares of common stock to employees who are not officers or directors. A total of 5,000,000 shares of common stock are reserved for issuance upon exercise of stock options granted under the plan. A copy of the 1999 Stock Incentive Plan is attached as an exhibit hereto. Stock & Deferred Compensation Plan The board of directors of the Company adopted a stock & deferred compensation plan for non-employee directors which provides for payment of annual retainer fees of $25,000 for non-employee directors in a combination of cash and shares of common stock. Non-employee directors may elect to receive up to 50 percent of the total compensation in cash payable in quarterly installments. The plan was adopted in order to enhance the Company's ability to attract and retain highly qualified non-employee directors. About eight persons are eligible to participate in this plan. A total of 150,000 shares of common stock are reserved for issuance under the plan. Each of the non-employee director's annual retainer fee will be paid in shares of common stock in an amount (rounded to the nearest 100 shares) determined by dividing the amount of compensation received in stock by the average closing price of shares of common stock on The Nasdaq National Market for the ten trading days immediately prior to the annual stockholders meeting at which directors are elected or reelected. Non-employee directors can elect to defer the retainer fee shares. Amounts deferred are credited in the form of share units to a share unit account. If any dividends are payable on shares of our common stock during the deferral period, non-employee directors shall have dividend equivalents of an equal amount paid to them in cash. 39 A copy of the 1999 Stock and Deferred Compensation Plan is attached as an exhibit hereto. Employee Stock Purchase Plan The board of directors of the Company adopted an employee stock purchase plan under which employees may be entitled to purchase common stock. The plan was adopted in order to provide eligible employees the opportunity to purchase common stock, enhance the Company's ability to attract and retain highly-qualified personnel, and to better enable such persons to participate in long-term success and growth. The plan will be administered by the human resources and compensation committees; All of the Company's employees and the employees of its subsidiaries who have been employed for at least eight months (or another period determined by the committee not in excess of two years) will be eligible to purchase stock under this plan, except that employees whose customary employment is twenty hours or less per week will be excluded. The committee has the power to determine the terms and conditions of each offering of common stock to employees under the plan. The committee may also determine the number of shares of common stock to be covered by each offering. The maximum number of shares of common stock which may be sold to any employee in any offering, however, will generally be 10 percent of that employee's compensation during the period of the offering. A total of 1,200,000 shares of common stock are reserved for issuance under the employee stock purchase plan. A copy of the 1999 Employee Stock Purchase Plan is incorporated by reference to Amendment No. 2 to the Registration Statement on Form S-4, dated January 20, 2000. Item 12. Securities Ownership of Certain Beneficial Owners and Management. - -------- ----------------------------------------------------------------- The following table sets forth as of March 16, 2000, the amount of common stock beneficially owned by: o each director of the Company; o the named officers of the Company; o all officers and directors of the Company as a group; and o all persons who beneficially own more than five percent of common stock. 40
Percent Name of Beneficial Owner Number of Owned ------------------------ Shares Owned (if more than 1%) ------------ ----------------- Edward A. Blechschmidt(1)(2)..................................................... 755,075 3.58 Richard C. Christmas(2)(3)....................................................... 27,525 John J. Collura(2)(3)............................................................ 93,481 E. Rodney Hornbake(2)........................................................... 0 Patricia C. Ma(2)(3)............................................................. 34,068 Ronald A. Malone................................................................. 0 Terry Mitchell(2)(4)............................................................. 88,124 Robert J. Nixon(2)(5)............................................................ 248,666 1.21 Vernon A. Perry(2)(3)............................................................ 85,274 David C. Silver(2)(3)............................................................ 4,155 Victor F. Ganzi(2)............................................................... 750 Steven Grabowski(2)(6)........................................................... 1,311,277 6.45 Stuart Levine(2)................................................................. 2,063 Stuart Olsten(2)(7).............................................................. 1,559,998 7.67 Raymond S. Troubh(2)............................................................. 36,149 Josh S. Weston(2)................................................................ 2,487 Gail Wilensky.................................................................... 0 Cheryl Olsten(2)(8).............................................................. 1,311,277 6.45 Miriam Olsten(2)(9).............................................................. 1,020,578 5.02 Greenhaven Associates............................................................ 1,938,850 9.53 Three Manhattanville (12) Purchase, NY 10577 Pacific Financial Research(13) .................................................. 1,533,350 7.5 9601 Wilshire Boulevard Beverly Hills, CA First Manhattan Co.(14) ......................................................... 879,347 5.1 437 Madison Avenue New York, NY All executive officers and directors as a group (17 persons)(11)................. 3,563,732(11) 16.46
(1) Mr. Blechschmidt's holding includes 23,000 shares owned directly and 5,000 shares owned by his wife, as to which shares he disclaims beneficial ownership, and 727,075 shares that may be acquired within 60 days through the exercise of options. (2) Excludes shares of convertible trust preferred securities that such person has purchased. The convertible trust preferred securities are convertible into our common stock based on a conversion price of 17.5 percent over the average closing stock price of our common stock during the 10 trading days following the first earnings announcement after the date of the split-off. See "Certain Relationships and Related Transactions". (3) Includes shares that may be acquired within 60 days through the exercise of options. (4) Includes 87,249 shares that may be acquired within 60 days through the exercise of options. (5) Includes 246,166 shares that may be acquired within 60 days through the exercise of options. 41 (6) Mr. Grabowski's holdings include 425 shares owned directly and 1,310,852 shares beneficially owned by his wife, Cheryl Olsten, as to which shares he disclaims beneficial ownership. See footnote (8). (7) Mr. Stuart Olsten's holdings include 874,008 shares owned of record and 300 shares owned of record by his wife, as to which shares he disclaims beneficial ownership. Mr. Olsten has shared voting and investment power as a trustee with respect to 630,709 shares owned by a trust for his and his sister's benefit. He has shared voting and investment power as a trustee with respect to 11,250 shares owned by a trust for the benefit of his son, 22,500 shares owned by two trusts for the benefit of his niece and nephew and 20,901 shares owned by a trust for the benefit of his descendants, as to which shares he disclaims beneficial ownership. His holdings further include 330 shares held in a custodial account for his daughter, as to which shares he disclaims beneficial ownership. (8) Ms. Cheryl Olsten owns of record 625,492 shares and has shared voting and investment power as a trustee with respect to 630,709 shares owned by a trust for her and her brother's benefit. Ms. Olsten has shared voting and investment power as a trustee with respect to 22,500 shares owned by two trusts for the benefit of her two children, 11,250 shares held by a trust for the benefit of her nephew, 20,901 shares owned by a trust for the benefit of her descendants, as to which shares she disclaims beneficial ownership. Ms. Olsten's holdings also include 425 shares beneficially owned by her husband, Mr. Grabowski, as to which shares she disclaims beneficial ownership. (9) Mrs. Miriam Olsten owns 785,276 shares. She has sole voting and investment power with respect to 234,202 shares held under a trust for the benefit of one of her children, of which she is trustee, and as to which shares she disclaims beneficial ownership. (10) Includes shares that may be acquired by executive officers within 60 days through the exercise of options. (11) In order to avoid counting shares attributable to two person twice, in calculating the amounts and percentage, 685,360 shares were deducted to give effect to beneficial ownership reflected for both Mr. Grabowski and Mr. Olsten. (12) Based on a Schedule 13G/A dated March 16, 2000 and filed with the Securities and Exchange Commission, Greenhaven Associates has sole voting and dispositive power as to 732,900 shares and shared dispositive power as to 1,205,850 shares. (13) Based on a Schedule 13G dated February 11, 1999 and filed with the Securites and Exchange Commission, Pacific Financial Research held sole voting power and sole dispositive power as to all of such shares. (14) Based on a Schedule 13G for Olsten dated February 9, 2000 and filed with the Securites and Exchange Commission, First Manhattan Co. held sole voting power and sole dispositive power as to 47,500 of such shares, shared voting power as to 769,572 of such shares and shared dispositive power as to 831,847 of such shares. Item 13. Certain Relationships and Related Transactions. - -------- ----------------------------------------------- In connection with the split-off, the Company entered into various agreements with Olsten and Adecco governing the terms of the split-off, including the separation agreement. Additionally, on March 15, 2000 the Company entered into an agreement with Olsten and a subsidiary of Olsten, pursuant to which the Company agreed to assume the obligations of a lease for a property of such subsidiary on September 16, 2000. The rental payments under that lease are as follows: from September 16, 2000 to December 31, 2000, $242,000; for fiscal year 2001, $877,000; for fiscal year 2002, $906,000; for fiscal year 2003, $934,000; for fiscal year 2004, $964,000; and thereafter $2,732,000. 42 On March 15, 2000 some of the Company's directors and officers, members of the Olsten family and some other investors, purchased approximately $20 million of 10% convertible trust preferred securities issued by the Trust. The investments are in the following aggregate amounts: Miriam Olsten, $7.35 million; Mr. Blechschmidt, $1.25 million; Stuart Olsten and Cheryl Olsten, $1 million each; Mr. Troubh $650,000; Messrs. Ganzi and Weston, $600,000 each; Mr. Levine $250,000; Mr. Fusco, $200,000; Messrs. Mitchell, Malone and Nixon, $100,000 each; Mr. Collura and Dr. Hornbake, $50,000 each; Messrs. Christmas, Perry and Silver and Ms. Ma, $25,000 each, other personnel an aggregate of $50,000 and other investors, an aggregate of $6.55 million. The convertible trust preferred securities were offered in a private placement exempt from the registration requirements of the Securities Act. The Company made a $618,600 investment in the Trust to acquire its common securities. The Company issued $20,618,600 of convertible subordinate debentures to the Trust on the same terms as the 10% convertible preferred securities in exchange for $20,618,600. The convertible trust preferred securities are mandatorily redeemable five years after issuance and the trust may redeem the securities at any time after issuance at a declining premium over face amount. Upon a change of control, the holders of convertible trust preferred securities may require the trust to purchase these securities at 100% of their face amount. Dividends are payable quarterly in cash at the rate of 10 percent per annum, but the trust may defer dividend payments for up to a total of twenty quarters, in which case dividends will accrue. During any such deferral period, the Company's ability to, among other things, pay dividends and redeem certain capital stock, may be restricted under the terms of the convertible trust preferred securities. The convertible trust preferred securities are convertible into the Company's common stock at a conversion price on the basis of 17.5 percent over the average closing stock price of the Company's common stock during the 10 trading days following the first earnings announcement after the first quarter of 2000. Mr. Stuart Olsten has agreed not to compete with the Company for a period of four years from March 16, 2000. In return for this agreement, the Company will pay him a lump sum of $250,000 in April 2000. Ms. Maureen McGurl, a former executive officer of Olsten, has been retained as a consultant of the Company for a payment of $200,000, payable during the term of her 6 month consulting period. In addition, Mr. Robert A. Fusco, the past president of Olsten's health services business, did not continue with the Company after March 15, 2000. 43 The Company paid him $2.0 million on March 15, 2000 pursuant to his change in control agreement. Messrs. Blechschmidt and Olsten will be compensated by the Company, on an after tax basis, for excise taxes (no more than $1.0 million in excise taxes in the case of Mr. Olsten) imposed by reason of the receipt of amounts payable under their separation, consulting and non-competition agreements with Olsten and its parent company, Adecco. The base tax amount for Mr. Blechschmidt is estimated to be approximately $815,000 and will be accrued in the first quarter of 2000. 44 PART IV Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K. - -------- ------------------------------------------------------------------ (a) (1) Financial Statements - Report of Independent Accountants - Consolidated Balance Sheets as of January 2, 2000 and January 3, 1999 - Consolidated Statements of Income for the three years ended January 2, 2000 - Consolidated Statements of Changes in Shareholders' Equity for the three years ended January 2, 2000 - Consolidated Statements of Cash Flows for the three years ended January 2, 2000 - Notes to Consolidated Financial Statements (a) (2) Financial Statement Schedules - Schedule II - Valuation and Qualifying Accounts (a) (3) Exhibits Exhibit Number Description - -------------- ----------- 3.1 Restated Certificate of Incorporation of Company(1) 3.2 Restated By-Laws of Company(1) 4.1 Specimen of common stock(3) 4.2 Indenture dated October 8, 1993, between Quantum Health Resources Inc. and First Trust National Association, as Trustee(1) 4.3 Supplemental Indenture dated June 28, 1996, between Quantum Health Resources Inc. and First Trust National Association, as Trustee(1) 4.4 Form of Certificate of Designation of Series A Junior Participating Preferred Stock(1) 4.5 Form of Certificate of Designation of Series A Cumulative Non-Voting Redeemable Preferred Stock(2) 4.6 Second Supplemental Indenture dated March 15, 2000, between Quantum Health Resources, Inc. and U.S. Bank Trust National Association (formerly known as First Trust National Association) as Trustee 4.7 Trust Agreement among the Company, Wilmington Trust Company, the Administrative Trustees named therein and the holders from time to time of the convertible trust preferred securites dated March 9, 2000. 4.8 Indenture between the Company and Wilmington Trust Company dated March 15, 2000 10.1 Separation Agreement dated August 17, 1999, among Olsten Corporation, Aaronco Corp. and Adecco SA(1) 10.2 Omnibus Amendment No. 1 dated October 7, 1999, by and among Olsten Corporation, Aaronco Corp., Adecco SA and Olsten Health Services Holding Corp.(1) 10.3 Form of Rights Agreement dated March 2, 2000 between the Registrant and EquiServe Limited Partnership, as rights agent(1) 45 10.4 Company's Executive Officers Bonus Plan(1) 10.5 Company's 1999 Stock Incentive Plan 10.6 Company's Stock & Deferred Compensation Plan for Non-Employee Directors 10.7 Company's Employee Stock Purchase Plan(1) 10.8 Omnibus Amendment No. 2 dated January 18, 2000, by and among Olsten Corporation, Adecco SA, Olsten Health Services Holding Corp., the Company and Staffing Acquisition Corporation(1) 10.9 Loan and Security Agreement by and between Fleet Capital Corp., on behalf of the lenders named therein, the Company, Olsten Health Services Holding Corp. and the subsidiaries named therein, dated March 13, 2000 10.10 Form of Employment Agreement with Edward A. Blechschmidt(2) 10.11 Form of Change in Control Agreement with Executive Officers of Company 10.12 Form of Change in Control Agreement with Edward A. Blechschmidt 10.13 Form of Severance Agreement with Executive Officers of Company(2) 21.1 List of Subsidiaries of Company(2) 23.1 Consent of PricewaterhouseCoopers LLP, independent accountants 27 Financial Data Schedule (1) Incorporated by reference to Amendment No. 2 to the Registration Statement on Form S-4, dated January 20, 2000 (File No. 333-88663). (2) Incorporated by reference to Amendment No. 3 to the Registration Statement on Form S-4, dated February 4, 2000 (File No. 333-88663). (3) Incorporated by reference to Amendment No. 4 to the Registration Statement on Form S-4, dated February 9, 2000 (File No. 333-88663). (4) Incorporated by reference to the Post-Effective Amendment No. 1 on Form S-8 to Form S-4 dated March 27, 2000 (File No. 333-88663) B. Report on Form 8-K ------------------ No reports on Form 8-K have been filed during the last quarter for the period covered by this report. 46 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GENTIVA HEALTH SERVICES, INC. Date: April 3, 2000 By: /s/ EDWARD A. BLECHSCHMIDT --------------------------------- Edward A. Blechschmidt President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: April 3, 2000 By: /s/ EDWARD A. BLECHSCHMIDT ------------------------------ Edward A. Blechschmidt President and Chief Executive Officer Date: April 3, 2000 By: /s/ JOHN J. COLLURA ------------------------------ John J. Collura Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) Date: April 3, 2000 By: /s/ VICTOR F. GANZI ------------------------------ Victor F. Ganzi Director Date: April 3, 2000 By: /s/ STEVEN E. GRABOWSKI ------------------------------ Steven E. Grabowski Director 47 Date: April 3, 2000 By: /s/ STUART R. LEVINE ------------------------------ Stuart R. Levine Director Date: April , 2000 By: ------------------------------ Stuart Olsten Director Date: April 3, 2000 By: /s/ JOSH S. WESTON ------------------------------ Josh S. Weston Director Date: April 3, 2000 By: /s/ RAYMOND S. TROUBH ------------------------------ Raymond S. Troubh Director Date: April , 2000 By: ------------------------------ Gail Wilensky Director 48 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. Report of Independent Accountants......................................... F-2 Consolidated Balance Sheets as of January 2, 2000 and January 3, 1999..... F-3 Consolidated Statements of Income for the three years ended January 2, 2000................................................... F-4 Consolidated Statements of Changes in Shareholders' Equity for the three years ended January 2, 2000 ....................... F-5 Consolidated Statements of Cash Flows for the three years ended January 2, 2000................................................... F-6 Notes to Consolidated Financial Statements................................ F-7 Schedule II - Valuation and Qualifying Accounts for the three years ended January 2, 2000....................................... F-32 F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Gentiva Health Services, Inc. and Subsidiaries: In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Gentiva Health Services, Inc. and Subsidiaries at January 2, 2000 and January 3, 1999, and the results of their operations and their cash flows for each of the three years in the period ended January 2, 2000, in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. New York, New York March 15, 2000 F-2
GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) January 2, 2000 January 3, 1999 ASSETS Current assets Cash and cash equivalents $ 2,942 $ 799 Receivables, less allowance for doubtful accounts of $36,759 and $25,596, respectively 575,460 452,318 Inventories 93,218 90,276 Prepaid expenses and other current assets 87,611 83,746 ---------- --------- Total current assets 759,231 627,139 Fixed assets, net 51,809 60,877 Intangibles, principally goodwill, net of accumulated amortization of $95,898 and $85,305, respectively 250,297 256,116 Other assets 1,678 1,606 ---------- --------- $1,063,015 $945,738 ========== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current portion of long-term debt $ 78,562 $ -- Accounts payable 114,197 93,210 Accrued expenses 76,746 118,627 Payroll and related taxes 20,020 24,109 Insurance costs 31,170 23,278 ---------- --------- Total current liabilities 320,695 259,224 Long-term debt -- 86,250 Other liabilities 37,029 38,405 Shareholders' equity Common stock, $.10 par value; authorized 100,000,000 shares; issued and outstanding 20,345,029 shares 2,035 2,035 Additional paid-in capital 725,998 567,525 Accumulated deficit (20,370) (5,284) Accumulated other comprehensive loss (2,372) (2,417) ---------- --------- Total shareholders' equity 705,291 561,859 ---------- --------- $1,063,015 $945,738 ========== ======== See notes to consolidated financial statements.
F-3
GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT SHARE AMOUNTS) For the Fiscal Years Ended 1999 1998 1997 ---- ---- ---- (53 Weeks) Net revenues $1,489,822 $1,330,303 $1,433,854 Cost of services sold 984,396 908,896 913,268 ---------- ---------- ---------- Gross profit 505,426 421,407 520,586 Selling, general and administrative expenses 509,658 552,528 460,254 Interest expense, net 3,975 4,414 4,351 Interest expense on intercompany debt 13,000 13,000 13,000 ---------- ---------- ---------- Income (loss) before income taxes and minority interest (21,207) (148,535) 42,981 Income tax expense (benefit) (6,121) (47,070) 16,298 ---------- ---------- ---------- Income (loss) before minority interest (15,086) (101,465) 26,683 Minority interest -- -- 164 ---------- ---------- ---------- Net income (loss) $ (15,086) $(101,465) $ 26,847 ========== ========== ========== SHARE INFORMATION: Basic and diluted earnings (loss) per share Net income (loss) $(.74) $(4.99) $ 1.32 ========== ========== ========== Average shares outstanding 20,345,029 20,345,029 20,345,029 ========== ========== ========== See notes to consolidated financial statements.
F-4
GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AMOUNTS) Retained Accumulated Additional earnings other Common Stock paid-in (accumulated comprehensive Shares Amount capital deficit) loss Total ------ ------ ------- -------- ---- ----- Balance at December 29, 1996 20,345,029 $2,035 $472,426 $ 69,334 $(2,058) $541,737 Comprehensive income (loss): Net income and cumulative -- -- -- 26,847 (171) 26,676 translation adjustment Net transactions with Olsten -- -- (38,143) -- -- (38,143) ----------- -------- --------- --------- ------- -------- Balance at December 28, 1997 20,345,029 2,035 434,283 96,181 (2,229) 530,270 Comprehensive income (loss): Net loss and cumulative translation adjustment -- -- -- (101,465) (188) (101,653) Net transactions with Olsten -- -- 133,242 -- -- 133,242 ----------- -------- --------- -------- ------- -------- Balance at January 3, 1999 20,345,029 2,035 567,525 (5,284) (2,417) 561,859 Comprehensive income (loss): Net loss and cumulative translation adjustment -- -- -- (15,086) 45 (15,041) Net transactions with Olsten -- -- 158,473 -- -- 158,473 ----------- -------- --------- -------- ------- -------- Balance at January 2, 2000 20,345,029 $2,035 $725,998 $(20,370) $(2,372) $705,291 =========== ======== ========= ======== ======= ======== See notes to consolidated financial statements.
F-5
GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) For the Fiscal Years Ended 1999 1998 1997 (53 Weeks) OPERATING ACTIVITIES: Net income (loss) $(15,086) $(101,465) $26,847 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 33,625 31,401 29,493 Provision for doubtful accounts 38,687 24,046 25,884 Loss on disposal of fixed assets 1,909 4,202 2,944 Deferred income taxes 13,047 (17,556) 2,679 Minority interest in results of operations of consolidated subsidiaries -- -- 164 Changes in assets and liabilities, net of effects from acquisitions and dispositions: Accounts receivable (161,829) (53,454) (89,089) Inventories (2,942) (33,383) (4,453) Prepaid expenses and other current assets (18,219) 9,073 8,749 Current liabilities (29,755) 70,425 15,274 Other, net (902) 2,836 1,708 ---------- --------- -------- Net cash provided by (used in) operating activities (141,465) (63,875) 20,200 ---------- --------- -------- INVESTING ACTIVITIES: Acquisitions of businesses, net of cash acquired (1,724) (33,989) (4,256) Purchases of fixed assets, net (19,001) (34,579) (23,072) Proceeds from sale of investment securities -- -- 9,415 ---------- --------- -------- Net cash used in investing activities (20,725) (68,568) (17,913) ---------- --------- -------- FINANCING ACTIVITIES: Net transactions with Olsten 158,473 133,242 (38,143) Book overdrafts 12,664 -- -- Retirement of long-term debt (6,804) -- -- ---------- --------- -------- Net cash provided by (used in) financing activities 164,333 133,242 (38,143) ---------- --------- -------- Net increase (decrease) in cash and cash equivalents 2,143 799 (35,856) Cash and cash equivalents at beginning of year 799 -- 35,856 ---------- --------- -------- Cash and cash equivalents at end of year $ 2,942 $ 799 $ -- ========== ========= ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash payments for interest $ 3,975 $ 4,096 $ 4,096 See notes to consolidated financial statements.
F-6 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Background and Basis of Presentation Background On August 18, 1999, Olsten Corporation ("Olsten") announced its intention to create a separate publicly traded company (the "Split-off") of Olsten's health services business and to merge its staffing and information technology businesses with those of Adecco SA ("Adecco") pursuant to the Merger Agreement, (the "Merger" and, together with the Split-off, the "Transactions"). Prior to the Split-off, Gentiva Health Services, Inc. (the "Company") operated Olsten's health services business. Upon the consummation of the Merger on March 15, 2000, in exchange for each share of Olsten stock, Olsten issued all of the shares of common stock of the Company to its shareholders and Adecco delivered to the Olsten shareholders $8.75 in cash or .12472 Adecco American Depository Shares (ADS - each ADS representing one-eighth of an Adecco common share), or a combination thereof determined in accordance with the formula described in the Merger Agreement, in exchange for the remaining portion of each Olsten share held. In connection with the Merger and Split-off, the Company entered into a $150 million credit facility as discussed in Note 6, issued mandatorily redeemable securities as discussed in Note 7, settled certain transactions with Olsten as discussed in Note 8, and agreed to assume certain obligations and commitments including those described in Note 10 and the shareholders of Olsten approved various stock plans for the Company as described in Note 12. Basis of Presentation The accompanying consolidated financial statements reflect the results of operations, financial position, changes in shareholders' equity and cash flows of the Company as if it were a separate entity for all periods presented. The consolidated financial statements have been prepared using the historical basis in the assets and liabilities and historical results of operations related to the Company. Additionally, the Company's selling, general and administrative expenses include a management fee, which represents an allocation of certain general corporate overhead expenses of $5 million in each year related to Olsten's corporate headquarters. Management believes the allocations related to general corporate overhead expenses are reasonable, however, the costs of these items deemed to be charged to the Company are not necessarily indicative of the costs that would have been incurred if the Company had been a stand-alone entity. Subsequent to the Split-off, the Company will perform these functions using its own resources or purchased services and will be responsible for the costs and expenses associated with the management of a public corporation. Management estimates that had the Company been a separate entity for each year presented, selling, general and administrative expenses would have been approximately $5 million greater than the amounts presented in these historical financial statements. F-7 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Interest expense shown in the Consolidated Statements of Income reflects the interest associated with the Convertible Subordinated Debentures discussed in Note 6 and $13 million in all years presented relating to the intercompany balances with Olsten. Such intercompany balances have been reflected as a contribution to capital at the end of each year presented in these consolidated financial statements. Additionally, income taxes are calculated on a separate company basis. The Company's financial statements include the costs experienced by the Olsten benefit plans for employees for whom the Company will assume responsibility. As part of the Transactions, the Company, Olsten and Adecco have entered into a Separation Agreement, Tax Sharing Agreement and an Employee Benefits Allocation Agreement, which address the allocation of assets and liabilities and govern future relationships between them. The financial information in these financial statements is not necessarily indicative of results that would have occurred if the Company had been a separate stand-alone entity during the years presented or of future results of the Company. Note 2. Summary of Significant Accounting Policies Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. The Company's fiscal year ends on the Sunday nearest to December 31st, which was January 2, 2000 for 1999, January 3, 1999 for 1998 and December 28, 1997 for 1997. Revenue Recognition Revenues and related costs, including labor, payroll taxes, fringe benefits and products and supplies, are recognized in the period in which the services and products are provided. Revenues are recorded based on fee-for-service or contractual arrangements, including capitated agreements, with customers and third party payors, estimates of expected reimbursement under arrangements with Medicare and state reimbursed programs, and management fees generated from services provided to hospital based home health agencies and are adjusted in future periods as final settlements are determined. Net revenues from state reimbursed programs amounted to 20 percent, 23 percent and 20 percent of total consolidated net revenues in 1999, 1998 and 1997, respectively. Medicare reimbursement is based primarily on reasonable, allowable costs incurred in providing services to eligible beneficiaries. These costs are reported in annual cost reports which are filed with the Medicare fiscal intermediary and are subject to audit. Net revenues attributable to the Medicare program, including estimated reimbursement of allowable costs, amounted to 16 F-8 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS percent, 14 percent and 22 percent of total consolidated net revenues in 1999, 1998 and 1997, respectively. Under capitated agreements with managed care customers, the Company recognizes revenue based on a predetermined contractual rate for each member of the managed care plan. Costs are determined based on estimates of expected service and product requirements. These estimates are developed by applying actuarial assumptions and historical patterns of utilization to authorized levels of service. Net revenues from capitated agreements with managed care payors as a percentage of total consolidated net revenues represented 6 percent for 1999 and 5 percent in 1998 and 1997. One customer accounted for approximately 11 percent of total consolidated net revenues in 1999. Revenue adjustments result from differences between estimated and actual reimbursement amounts, an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk. Revenue adjustments are deducted directly from gross accounts receivable. Accounts receivable included approximately $9 million as of January 2, 2000 and $1 million as of January 3, 1999 related to net contractual adjustments and third party settlements. Management prepares various analyses to evaluate its receivable valuation accounts. Such analyses include accounts receivable aging trends, historical collection and write-off data and other statistical information. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents deposited with banks and financial institutions include highly liquid investments with original maturities of three months or less. Inventories Inventories consist primarily of biological and pharmaceutical products and supplies held for sale or distribution to patients through prescription. The Company records inventories at the lower of cost or market. Cost represents the weighted average cost of purchased products and supplies. Fixed Assets Fixed assets, including costs of Company developed software, are stated at cost and depreciated over the estimated useful lives of the assets using the straight-line method. Leasehold F-9 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS improvements are amortized over the shorter of the life of the lease or the life of the improvement. Intangibles Intangibles, principally goodwill, associated with acquired businesses are being amortized on a straight-line basis over periods ranging from 10 to 40 years. When events and circumstances so indicate, all long-term assets, including intangibles, are assessed for recoverability based upon undiscounted operating cash flow forecasts. If an asset is impaired, it is written down to fair value which is based on discounted future cash flows. Foreign Currency Translation Financial statements of the Company's Canadian subsidiary are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and a weighted average exchange rate for each period for revenues, expenses, gains and losses and cash flows. Translation adjustments are recorded within accumulated other comprehensive income/loss. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are not significant. Earnings Per Share Historical earnings per share data has been computed based upon 20,345,029 shares of common stock. Such amount is based on the number of shares of the Company's stock issued on March 15, 2000, the date of the Split-off. Pursuant to the terms of the Split-off, shareholders of Olsten received .25 shares of Gentiva Health Services common stock for each share of Olsten common stock or Class B common stock that they owned. Income Taxes The Company has been included, where applicable, in the consolidated income tax returns of Olsten for the respective periods. The provisions for the income taxes in the Consolidated Statements of Income have been calculated on a separate company basis. The Company provides for taxes based on current taxable income and the future tax consequences of temporary differences between the financial reporting and income tax carrying values of its assets and liabilities. Under Statement of Financial Accounting Standards ("SFAS") No. 109, assets and liabilities acquired in purchase business combinations are assigned their fair values, and deferred taxes are provided for lower or higher tax bases. Fair Value of Financial Instruments The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Significant differences can arise between the fair value and carrying amount of financial instruments that are recognized at historical amounts. F-10 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The carrying amounts of the Company's cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of their short maturity. The estimated fair value of the Company's 4 3/4% Convertible Subordinated Debentures, approximately $78 million and $83 million at January 2, 2000 and January 3, 1999, respectively, was determined based on quoted market prices for similar investments. Note 3. Acquisitions In 1999, the Company acquired several home care operations for an aggregate purchase price of $1.7 million. In 1998, the Company acquired all of Columbia/HCA Healthcare Corporation's home health care operations in the state of Florida and several other companies in asset transactions approximating $35 million in cash. Assets acquired in these transactions related primarily to goodwill. In 1997, the Company acquired several home care operations, providing skilled nursing services for an aggregate purchase price of $4.6 million in cash primarily related to goodwill. Note 4. Special Charges, Non-Recurring Charges and Other Adjustments In the quarter ended April 4, 1999, the Company recorded a special charge aggregating $16.7 million. This charge was for the realignment of business units as part of a new restructuring plan, including compensation and severance costs of $5 million to be paid to operational support staff, branch administrative personnel and management, asset write-offs of $6.5 million related primarily to fixed assets being disposed of in offices being closed and facilities being consolidated, as well as fixed assets and goodwill attributable to the Company's exit from certain business previously acquired but not within the Company's strategic objectives, and integration costs of $5.2 million, primarily related to obligations under lease agreements for offices and other facilities being closed. As of January 2, 2000, substantially all of the closures and consolidations of facilities and expected terminations have occurred. These activities have resulted in lower costs than originally estimated and, as a result, the Company recognized a benefit of $1.5 million in the fourth quarter of fiscal 1999 to reflect this change in estimate. Such benefit is included in selling, general and administrative expenses. On March 30, 1999, the Company announced plans to take a $56 million special charge, which was recorded in the year ended January 3, 1999. This charge was for the settlement of two federal investigations (described in Note 9), focusing on the Company's Medicare home office cost reports and certain transactions with Columbia/HCA Healthcare Corporation ("Columbia/HCA") which was finalized and signed on July 19, 1999. On August 11, 1999, Ol- F-11 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS sten paid $61 million pursuant to the settlement, approximately $5 million of which was accrued as part of the Company's 1996 merger, integration and other non-recurring charges. As part of the Balanced Budget Act of 1997, the government enacted the Interim Payment System ("IPS") for reimbursement of home care services provided under Medicare effective October 1, 1997. Prior to enactment of the IPS, home care services were reimbursed based on cost subject to a cap determined by the Health Care Financing Administration. The IPS reimburses home care services based on costs, subject to both a per-beneficiary limit and a per-visit limit. Further, the IPS reduced the per-visit limit to 1994 levels. As a result of these cuts in reimbursement, provider reimbursements have been reduced. In order to operate at the lowered reimbursement rates, home health care companies reduced the services provided to patients by providing fewer patient visits. In addition, the regulatory climate that ensued in home health care caused a lower level of physician referrals. As a consequence of these circumstances, in 1998, the Company also recorded non-recurring charges and other adjustments of $66 million, of which approximately $64 million and $2 million were recorded in the second and third quarters of 1998, respectively, related to the restructuring of the Company's businesses. These charges, which were primarily for 60 office closings and consolidations in the United States, were taken to help position the Company to operate more efficiently under the new IPS. In addition, the Company has also made significant technological investments in order to improve operational efficiencies and employee retention levels. The benefit of the restructuring began to be realized in the second quarter of 1998. Included in this provision was $24 million charged to selling, general and administrative expenses, which included lease payments of $3 million, employee severance of $4 million, fixed asset and software write-offs of $5 million to reflect the loss incurred upon the Company's decision to dispose of the assets in certain closed offices, and an increase in the allowance for doubtful accounts of $12 million. All closures and consolidations of facilities and employee terminations related to this charge have been completed. The allowance for doubtful accounts was increased because the collection of receivables is highly dependent on the service provider's ability to provide certain evidence of service and authorization documentation to a variety of third-party payors. The office closings, consolidation of certain business service centers and the termination of employees are all events that, in the Company's past experience, impair the ability to provide the aforementioned documentation and to collect receivables. The Company also recorded other adjustments to selling, general and administrative expenses of $13 million which included professional fees and related costs resulting from the settlement with several government agencies regarding certain past business practices of Quantum Health Resources, Inc. ("Quantum", a subsidiary of the Company acquired in 1996), the level of effort required to respond to the significant inquiries conducted by the government, and costs incurred to redesign the credit and collection process of the home health services business. F-12 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In addition, upon final announcement of the per-beneficiary limits by the government, the Company recorded a reduction in revenues of $14 million in the second quarter of 1998 for the six month period ended June 28, 1998 in anticipation of lower Medicare reimbursements resulting from the new per-visit and per-beneficiary limits that have been imposed by Medicare under the IPS. The Company recorded a charge to cost of sales of $15 million in the second quarter of 1998 to reflect the estimated increase in costs that have been incurred, but not yet reported, based upon a change in the actuarial estimates utilized to determine the level of service to patients covered under the Company's capitated contracts. In 1996, the Company recorded merger, integration and other non-recurring charges totalling approximately $75 million. At the beginning of fiscal year 1997, the balance of this charge aggregated $27.8 million. F-13 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The major components, as well as the activity during the years ended 1999, 1998, and 1997 of the charges were as follows (in thousands):
Accounts Receivable and Compensation and Other and Severance Integration Settlements Assets(1) Costs Costs Other Total Charge - 1996 Balance at December 29, 1996 $ 5,200 $ 5,732 $5,989 $ 9,928 $985 $27,834 Cash expenditures -- -- (5,633) (9,021) (985) (15,639) Non-cash write-offs -- (5,670) -- -- -- (5,670) -------- -------- ------- ------- ------- ------- Balance at December 28, 1997 5,200 62 356 907 -- 6,525 Cash expenditures -- -- (356) (813) -- (1,169) Non-cash write-offs -- (62) -- -- -- (62) -------- -------- ------- ------- ------- ------- Balance at January 3, 1999 5,200 -- -- 94 -- 5,294 Cash expenditures (5,200) -- -- (94) -- (5,294) Non-cash write-offs -- -- -- -- -- -- -------- -------- ------- ------- ------- ------- Balance at January 2, 2000 -- -- -- -- -- -- -------- -------- ------- ------- ------- ------- Charge - 1998 56,000 17,309 4,000 34,641 10,050 122,000 Cash expenditures -- -- (3,739) (33,839) (9,574) (47,152) Non-cash write-offs -- (17,211) -- -- -- (17,211) -------- -------- ------- ------- ------- ------- Balance at January 3, 1999 56,000 98 261 802 476 57,637 Cash expenditures (56,000) -- (261) (588) (476) (57,325) Non-cash write-offs -- (98) -- -- -- (98) -------- -------- ------- ------- ------- ------- Balance at January 2, 2000 -- -- -- 214 -- 214 -------- -------- ------- ------- ------- ------- Charge - 1999 -- 6,490 5,020 5,190 -- 16,700 Cash expenditures -- -- (2,787) (3,310) -- (6,097) Non-cash write-offs -- (6,490) -- -- -- (6,490) Adjustments -- -- (803) (697) -- (1,500) -------- -------- ------- ------- ------- ------- Balance at January 2, 2000 -- -- 1,430 1,183 -- 2,613 -------- -------- ------- ------- ------- ------- Balance of all charges combined at January 2, 2000 $ -- $ -- $ 1,430 $ 1,397 $ -- $ 2,827 ======== ======== ======== ======== ======= ========
1 Amounts represent contra assets. F-14 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Fixed Assets, Net (in thousands) January 2, 2000 January 3, 1999 --------------- --------------- Computer equipment and software $ 67,414 $ 67,025 Furniture and fixtures 32,248 38,658 Buildings and improvements 16,816 15,850 Machinery and equipment 15,203 14,597 ------- ------- 131,681 136,130 Less accumulated depreciation (79,872) (75,253) -------- -------- $ 51,809 $ 60,877 ======== ========
Depreciation expense was approximately $22 million in 1999, $21 million in 1998 and $19 million in 1997. Note 6. Long-Term Debt In 1993, the Company's Quantum subsidiary, issued $86.3 million of 4 3/4% Convertible Subordinated Debentures maturing on October 1, 2000. The debentures were convertible into Class B common stock of Olsten at $52.26 per share. As a result of the Transactions, the debentures are exchangeable into shares of the Company and the merger consideration as if the holder of the debenture held the number of shares of Olsten's Class B common stock that the debentures would have been convertible into immediately prior to the Transactions. For each share of Class B common stock that would have been received had the holder converted immediately prior to the Split-off, such holder will receive $8.75 and .25 shares of the Company's common stock upon conversion of the Quantum debentures. In January 1999, $7.7 million of the convertible subordinated debentures were retired at 88.5 percent of the principal amount, resulting in a gain of approximately $900,000. Interest expense is net of interest income of $336,000 in 1999, $120,000 in 1998 and $310,000 in 1997. On March 13, 2000, the Company entered into a credit facility, which provides for up to $150 million in borrowings, including up to $30 million, which is available for letters of credit. The Company may borrow up to a maximum of 80 percent of eligible accounts receivable, as defined. At the Company's option, the interest rate on borrowings under the credit facility is based on the London Interbank Offered Rate (LIBOR) plus 2.5 percent or the lender's prime rate plus 0.25 percent. The credit facility, which expires in 2004, includes certain covenants requiring the Company to maintain a minimum tangible net worth and minimum earnings before interest, taxes, depreciation and amortization and provides limitations on certain other activities. Loans under F-15 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS the credit facility will be collateralized by all of the Company's tangible and intangible personal property, other than equipment. Note 7. Mandatorily Redeemable Securities Cumulative Preferred Stock The Company's authorized capital stock includes 25,000,000 shares of preferred stock, $.01 par value, of which 1,000 shares have been designated Series A Cumulative Non-voting Redeemable Preferred Stock ("cumulative preferred stock"). On March 10, 2000, 100 shares of cumulative preferred stock were issued for proceeds of $100,000. Holders of the cumulative preferred stock will be entitled to receive cumulative cash dividends at an annual rate of LIBOR plus 2% on the stated liquidation preference of $1,000 per share, payable quarterly in arrears out of assets legally available for payment of dividends, when and as declared by the Company's board of directors on March 31, June 30, September 30 and December 31 of each year, commencing June 30, 2000. Dividends will accumulate and be cumulative from the issue date. In the event of any voluntary or involuntary liquidation, dissolution or other winding-up of the Company or, at the option of the Company on or after March 10, 2005 or the holder on or after May 10, 2005, the holders of cumulative preferred stock will be entitled to receive the stated liquidation preference or a redemption price of $1,000 per share. Gentiva Obligated Mandatorily Redeemable Preferred Securities of a Subsidiary Trust On March 15, 2000, certain of the Company's and Olsten's directors, officers and management and other related parties and other investors purchased $20 million of 10% convertible trust preferred securities issued by a trust, of which the Company owns all the common equity. The Company purchased all of the common equity of the trust for a sum of $618,600. The convertible trust preferred securities are mandatorily redeemable five years from issuance and the trust may redeem the securities at any time after issuance at a declining premium over face amount. Upon a change of control, as defined, the holders of convertible trust preferred securities may require the trust to purchase these securities at 100 percent of their face amount. Dividends are payable quarterly in cash at the rate of 10 percent per annum, but the trust may defer dividend payments for up to a total of twenty quarters, in which case dividends will accrue. The convertible trust preferred securities are convertible into the Company's common stock at a conversion price on the basis of 17.5 percent over the average closing stock price of the Company's common stock during the ten trading days following the first earnings announcement after the first quarter of 2000. Simultaneously with, and in connection with the issuance by the trust of the convertible trust preferred securities, the Company issued to the trust $20 million of 10% convertible subordinated debentures. The convertible subordinated debentures have the same terms as the convertible trust preferred securities, including but not limited to maturity, interest, conversion and redemption price. F-16 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The trust which issued the convertible trust preferred securities is a special purpose trust. The trust's operations are limited to issuing the convertible trust preferred securities and holding the Company's convertible subordinated debentures. The trust may pay dividends only to the extent that the Company pays interest on its convertible subordinated debentures. Note 8. Transactions with Olsten Net transactions with Olsten, included in shareholders' equity, include the accumulated excess of cash outlays made on the Company's behalf and management fees charged to the Company by Olsten over cash receipts generated by the Company. In accordance with the terms of the Separation Agreement, intercompany balances at October 31, 1999 of approximately $507 million have been contributed to the Company's capital in its entirety. The Separation Agreement provides that on October 31, 1999 if the sum of (a) indebtedness for borrowed money, (b) the deferred purchase price of property and (c) up to $10 million of transactions fees related to the transactions contemplated by the Separation Agreement and the Merger Agreement, less cash on hand (referred to as net debt) of Olsten and its subsidiaries (excluding the Company and its subsidiaries) was (i) greater than $750 million, then the new intercompany account would reflect a payable by the Company to Olsten equal to the amount of excess, or (ii) less than $750 million, then the new intercompany account would reflect a payable by Olsten to the Company, in an amount equal to the shortfall or (iii) equal to $750 million, then no payment would be made in connection with the new debt calculation. Pursuant to the Separation Agreement, on October 31, 1999, net debt of Olsten and its subsidiaries (excluding the Company and its subsidiaries) was $718 million and accordingly, the Company was to receive approximately $32 million in cash (referred to as the true-up amount) on or prior to the Split-off date. As of January 2, 2000, the Company had received approximately $23 million of the true-up amount; such amount is reflected in additional paid in capital in the Consolidated Balance Sheet. Subsequent to year-end, the Company received the remaining balance of the true-up amount and following the Split-off the Company paid Olsten approximately $13 million to settle the intercompany account balance which primarily related to advances for management fees, additional borrowings and interest expense on intercompany balances. Olsten used a centralized cash management system. As a result, cash and cash equivalents (other than actual cash on hand) were not allocated to the Company prior to October 31, 1999. On October 31, 1999, the Company ceased participation in Olsten's cash management system and established its own cash management system. Included in selling, general and administrative expenses are $1.8 million, $1.4 million and $1.6 million in 1999, 1998 and 1997, respectively, relating to staffing services provided to the Company by Olsten. F-17 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 9. Legal Matters Government Investigations The Company has been subject to several federal and state governmental investigations. Some of those investigations are still pending, although substantially all of them have been settled. In connection with the Split-off, the Company has agreed to assume, to the extent permitted by operation of law and the terms of the liabilities, and indemnify Olsten for all liabilities associated with any pending or future governmental investigation of the health services business and has also agreed to comply with and be subject to all related settlement agreements and corporate integrity agreements or other operational agreements with the government. The Company has cooperated with the Office of Investigations section of the Office of Inspector General (an agency within the U.S. Department of Health and Human Services) and the U.S. Department of Justice in connection with the government's investigation into the Company's preparation of Medicare cost reports (the "Cost Reports Investigation"). The Company has also cooperated with the U.S. Department of Justice and other federal agencies investigating the relationship between Columbia/HCA and the Company in connection with the purchase by Columbia/HCA of some home health agencies which had been owned by the health services business and subsequently managed under contract by a unit of Gentiva Health Services (the "Columbia/HCA Investigation"). The Company continues to cooperate with various state and federal agencies, including the U.S. Department of Justice, the Office of the Attorney General of New Mexico and the New Mexico Health Care Anti-Fraud Task Force in connection with their investigations into certain health care practices of Quantum. Among the matters the federal agencies are or were inquiring are allegations of improper billing and fraud against various federally funded medical assistance programs on the part of Quantum and its post-acquisition successor, the Specialty Pharmaceutical Services business of Gentiva Health Services (the "Quantum New Mexico Investigation"). Most of the time period that the Company understands to be at issue in the Quantum New Mexico Investigation predates Olsten's June 1996 acquisition of Quantum. In December 1999, Olsten received a document subpoena from the Department of Health and Human Services, Office of Inspector General, Office of Investigations. After preliminary discussion with the Office of Inspector General, the Company believes that the December 1999 subpoena relates to possible overpayments to Olsten by the Medicare program. In early February 2000, the Company received a document subpoena from the Department of Health and Human Services, Office of Inspector General, Office of Investigations. The Company believes the February 2000 subpoena relates to its agencies cost reporting procedures concerning contracted nursing and home health aide costs. The Company intends to provide the Office of Inspector General with the requested documents and to cooperate fully with its investigations. At this time, the Company is unable to assess the probable outcome or potential liability, if any, arising from these subpoenas. The Company has recently commenced discussions with the North Carolina Attorney General's Office concerning questions that the Office has raised as to the eligibility of a certain class of the Company's patients to receive Medicaid-reimbursed home health services and, thus, the Company's entitlement to Medicaid reimbursement in connection with those services. At this preliminary stage, the Company is unable to assess the probable outcome of or potential liability arising from this matter. On July 19, 1999, Olsten entered into written civil and criminal agreements with the U.S. Department of Justice (and, as to the civil agreement, the Office of Inspector General of the U.S. F-18 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Department of Health and Human Services) finalizing the understanding that it announced on March 30, 1999 to settle the civil and criminal aspects of the Cost Reports Investigation and the Columbia/HCA Investigation. Pursuant to the settlement, (a) Olsten paid on August 11, 1999 the sum of $61 million to the U.S. Department of Justice, including approximately $10.1 million in criminal fines and penalties; (b) in connection with the Columbia/HCA Investigation, Kimberly Home Health Care, Inc., a subsidiary of Olsten, pled guilty in the United States District Court for the Northern District of Georgia, the Southern District of Florida and the Middle District of Florida, respectively, to a criminal violation of the federal mail fraud, conspiracy and kickback statutes; (c) Kimberly Home Health Care, Inc. has been permanently excluded from participation in Medicare, Medicaid and all other federal health care programs as defined in 42 U.S.C. ss. 1320a-7b(f); and (d) Olsten executed a corporate integrity agreement with the Office of Inspector General of the U.S. Department of Health and Human Services. By letter dated June 30, 1999, the Medicare Fraud Control Unit of the New Mexico Attorney General's Office notified Olsten that in connection with the Quantum New Mexico Investigation, it had declined to criminally prosecute the so-called "J-Code issue" relating to Quantum's past practices in seeking government health care reimbursement. On January 28, 1999, Olsten announced that it had been advised by the United States Attorney's Office for the District of New Mexico ("New Mexico U.S. Attorney's Office") that, in connection with the Quantum New Mexico Investigation, it had dropped its criminal investigation into certain past practices of Quantum. The criminal aspect of the Quantum New Mexico Investigation had focused on allegations of improper billing and fraud against various federally funded medical assistance programs on the part of Quantum during the period between January 1992 and April 1997. By letter dated February 1, 1999, the New Mexico U.S. Attorney's Office advised Olsten that, having ended its criminal inquiry, the Office has referred the Quantum matter to its Affirmative Civil Enforcement Section. The Company continues to cooperate with the civil inquiry into the Quantum matter and to explore with the New Mexico U.S. Attorney's Office the possibility of reaching a negotiated monetary resolution of the matter. Any negotiated amount could include multiple damages, interest and civil penalties. On October 28, 1998, Olsten announced that it entered into a final settlement agreement with several government agencies investigating certain past practices of Quantum. The agreement was entered into with the U.S. Department of Justice, the Office of the Inspector General of the U.S. Department of Health and Human Services, the U.S. Secretary of Defense (for the CHAMPUS/Tricare program), and the Attorneys General for the States of New York and Oklahoma. Pursuant to the settlement, Olsten reimbursed the government approximately $4.5 million for certain disputed claims under the Medicaid and CHAMPUS programs for reimbursement for the provision of anti-hemophilia factor products to patients covered by certain federal health care programs and entered into a corporate integrity agreement. F-19 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Legal Proceedings In connection with the Split-off, the Company has agreed to assume, to the extent permitted by operation of law and the terms of the liabilities, and indemnify Olsten for all liabilities arising out of the health services business before or after the Split-off, including any such liabilities arising after the Split-off in connection with the government investigations described above and the litigations described below. In April 1997, a purported class action captioned Gail Weichman v. Olsten Corporation, et al., No. CV 97-1946, was filed in the United States District Court for the Eastern District of New York against Olsten, Miriam Olsten, Frank Liguori and Anthony Puglisi. In August 1997, two additional proposed class action lawsuits, captioned Esta S. Goldman v. Olsten Corporation, et al., No. CV 97-4501, and Elliott Waldman v. Olsten Corporation, et al., No. CV 97-5056, were filed in the United States District Court for the Eastern District of New York against the same defendants named in the Weichman lawsuit, plus Stuart Olsten. In September 1997, a fourth proposed class action lawsuit, captioned Michael Cannold v. Olsten Corporation, et al., No. CV 97-5408, was filed in the United States District Court for the Eastern District of New York against Olsten, Miriam Olsten, Stuart Olsten, Frank Liguori and Anthony Puglisi. (The Weichman, Goldman, Waldman and Cannold actions are referred to collectively as the "Class Actions"). On or about September 8, 1998, a Consolidated Amended Class Action Complaint (the "Amended Complaint") was filed in the U.S. District Court for the Eastern District of New York, captioned In re Olsten Corporation Securities Litigation, No. 97-5056, by above plaintiffs against Olsten, Miriam Olsten, Stuart Olsten, Frank Liguori and Anthony Puglisi. The Amended Complaint asserts claims under Sections 10(b) (including Rule 10b-5 promulgated thereunder), 14(a) and 20(a) of the Securities Exchange Act of 1934 and Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, alleging that, as a result of certain alleged misstatements and omissions by certain of the defendants, Olsten's common stock was artificially inflated during the proposed class period (which is defined in the Amended Complaint as the period from February 5, 1996 though July 22, 1997). On October 19, 1998, Olsten and the individual defendants served a motion seeking an order dismissing the Amended Complaint. That motion was fully briefed on December 23, 1998. Plaintiffs filed a submission in connection with defendants' motion on October 12, 1999. Defendants filed a response to plaintiffs' submission on October 14, 1999, plaintiffs responded to it on October 21, 1999 and defendants filed a reply on October 21, 1999. The Amended Complaint seeks certification of the proposed class, a judgment declaring the conduct of the defendants to be in violation of the law, unspecified compensatory damages and unspecified costs and expenses, including attorneys' fees and experts' fees. While the Company is unable at this time to assess the probable outcome of the Class Actions or the materiality of the risk of loss in connection with the class action (given the preliminary stage of the Class Actions and the fact that the Amended Complaint does not allege damages with any specificity), the Company believes that Olsten acted responsibly with respect to its shareholders and intends to continue to vigorously defend the Class Action. F-20 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On or about May 11, 1999, a Complaint was filed in the Delaware Chancery Court in a purported derivative lawsuit, captioned Rubin v. May, No. 17135-NC, against certain current and former directors of Olsten (the "Derivative Lawsuit"). The Complaint, which names Olsten as a nominal defendant, alleges a claim for breach of fiduciary duties arising out of the Class Action and the government investigations described above. The plaintiffs seek a judgment (1) requiring the defendants to account to Olsten for unspecified alleged damages resulting from the defendants' alleged conduct; (2) directing the defendants to establish and maintain effective compliance programs; and (3) awarding plaintiffs the costs and expenses of the lawsuit, including reasonable attorneys' fees. On September 10, 1999, the defendants in the Derivative Lawsuit filed a motion to dismiss or, in the alternative, stay the lawsuit. On January 14, 1999, Kimberly Home Health Care, Inc. initiated three arbitration proceedings against hospitals owned by Columbia/HCA with which one of the Company's subsidiaries had management services agreements to provide services to the hospitals' home health agencies. The basis for each of the arbitrations is that Columbia/HCA sold the home health agencies without assigning the management services agreements, while the management services agreements had periods ranging from 18 to 42 months prior to expiration and that as a result Columbia/HCA has breached the management services agreements. In response to the arbitrations, Columbia/HCA has asserted that the arbitration be consolidated and stayed, in part based upon its alleged claims against Kimberly Home Health Care, Inc. for breach of contract and requests indemnity and possibly return of management fees paid under the disallowance provision of the management services agreements. Columbia/HCA has not yet fully presented these claims in the arbitrations or other legal proceedings, and has not yet quantified the claims. The parties agreed to suspend the proceedings until June 2000. In July 1999, Olsten received notification that the Indiana Attorney General's Office filed a civil complaint against Olsten requesting the court to determine if Quantum violated Indiana law with respect to Medicaid claims. The complaint alleges that (1) overpayment was made to Quantum due largely to advances paid by Medicaid that were not properly credited by Quantum; (2) Quantum supplied the Indiana Attorney General's Office with insufficient documentation regarding services provided by one of our pharmacies; and (3) deliveries exceeded the amounts of physicians' orders. The alleged violations predate Olsten's acquisition of Quantum in June 1996. Note 10. Commitments The Company rents certain properties under noncancellable, long-term operating leases, which expire at various dates. Certain of these leases require additional payments for taxes, insurance and maintenance and, in many cases, provide for renewal options. Rent expense under all leases was $22.5 million in 1999, $26.9 million in 1998 and $25.5 million in 1997. F-21 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Future minimum rental commitments for all noncancellable leases having a remaining term in excess of one year at January 2, 2000, including the lease for an Olsten subsidiary which the Company agreed to assume commencing September 16, 2000 under the terms of the Separation Agreement are as follows (in thousands per year):
Olsten Subsidiary Fiscal Year Company Leases Lease Total ----------- -------------- ----- ----- 2000 $20,610 $242 $20,852 2001 14,461 877 15,338 2002 8,675 906 9,581 2003 5,361 934 6,295 2004 3,701 964 4,665 Thereafter 1,548 2,732 4,280
In connection with the Split-off, the Company has entered into an agreement on March 16, 2000 pursuant to which a director of the Company and Olsten has agreed not to compete with the Company for a four year period. In return for this agreement, the Company agreed to pay a lump sum of $250,000. Following the Split-off the Company paid its past president, who will not continue with the Company, $2.0 million pursuant to a change in control agreement. Such amounts will be charged to expense in 2000. Under the terms of the Separation Agreement, a former executive officer of Olsten (and current executive officer of the Company) will be compensated by the Company for excise taxes imposed by reason of the receipt of amounts payable under the executive's separation, consulting and non-competition agreements with Adecco. Such amount is estimated to be approximately $815,000 and will be accrued in the first quarter of 2000. As discussed in Note 14, the Olsten non-qualified supplemental executive retirement program was terminated prior to the Split-off. Prior to the Split-off, the Company established its own non-qualified supplemental executive retirement plan substantially similar to the Olsten plan and assumed all liabilities of the program with respect to certain of its employees and former employees of Olsten. The Company will be obligated for the funding of liabilities of the program to the extent that such liabilities (approximately $12 million on March 15, 2000) are in excess of assets transferred (approximately $8.5 million on March 15, 2000). Note 11. Accrued Expenses As of January 2, 2000 and January 3, 1999, accrued expenses included estimated costs under network service contracts of $48.5 million and $30.4 million, respectively. In addition, accrued expenses at January 3, 1999 included a liability of $56 million for the settlement of federal investigations as discussed in Notes 4 and 9. F-22 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 12. Stock Plans Olsten maintained various stock option incentive plans under which certain employees of the Company were eligible for the grant of stock options. These options were awarded in the form of incentive stock options ("ISOs") or non-qualified stock options ("NQSOs"). The option price of an ISO was not less than 100 percent, and the option price of the NQSO was not less than 85 percent of the fair market value at the date of grant. Options under the Plans generally have a term of ten years and generally became cumulatively exercisable commencing one year after grant in four or five equal annual installments. Effective as of the Split-off date, all options to purchase Olsten stock ("Olsten stock options") held by the Company's employees became options to purchase the Company's common stock ("Gentiva stock options") and the Company's employees became fully vested in the Gentiva stock options. Olsten stock options were converted into Gentiva stock options at the ratio of 1 to 2.077; the exercise price of a Gentiva stock option represents 48.1 percent of the corresponding Olsten stock option exercise price. A summary of Olsten stock options for the three years ended January 2, 2000 for employees assigned to the Company is as follows:
1999 1998 1997 ---------------------- ------------------------- -------------------------- Weighted Weighted Weighted average average average exercise exercise exercise Shares price Shares price Shares price ------ --------- -------- --------- -------- ---------- Olsten options outstanding, beginning of year 1,446,067 $15.72 980,376 $20.50 1,002,194 $20.87 Granted 498,700 7.84 701,500 10.00 230,000 19.63 Exercised (6,467) 1.28 (2,076) 7.89 (107,511) 15.25 Cancelled (240,938) 16.18 (233,733) 18.60 (144,307) 25.65 --------- ----- --------- ----- --------- ----- Olsten options outstanding, end of year 1,697,362 $13.15 1,446,067 $15.72 980,376 $20.50 ========= ===== ========= ===== ======= ===== Olsten options exercisable, end of year 633,597 $18.77 485,485 $22.07 518,450 $21.69 ======= ===== ======= ===== ======= ===== Gentiva options substituted for Olsten options, end of year (outstanding and exercisable) 3,526,026 $6.33 ========= ====
The weighted average fair value of Olsten stock options, calculated using the Black-Scholes option pricing model, granted during 1999, 1998 and 1997, is $3.15, $3.57 and $8.19, respectively. The fair value of each option grant is estimated on the date of grant with the following weighted-average assumptions used for grants in 1999, 1998 and 1997, respectively: risk-free interest rates of 4.7, 5.3 and 6.3 percent; dividend yield of 0 percent for 1999, 2 percent for F-23 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1998 and 1 percent for 1997; expected lives of six years for all; and volatility of 35 percent for 1999 and 36 percent for 1998 and 1997. The following table summarizes information about Gentiva stock options outstanding at January 2, 2000 for employees assigned to the Company had the Split-off occurred on such date.
Options Outstanding Number Weighted Weighted Range of outstanding at average remaining average exercise prices January 2, 2000 contractual life exercise price --------------- --------------- ---------------- -------------- $ 1.04 to $ 1.24 2,084 0.70 $1.23 2.86 to 3.49 727,075 8.93 3.13 3.50 to 3.65 622,480 9.02 3.61 3.66 to 4.98 496,488 8.58 4.39 6.80 to 8.30 665,944 7.36 7.00 8.92 to 11.95 927,203 6.59 10.21 14.01 to 17.84 62,944 4.34 14.74 20.54 to 29.05 21,808 4.05 25.21 ---------------- ----------------- ------------------ $ 1.04 to $29.05 3,526,026 7.85 $6.33 ================ ================= ==================
In 1996, Olsten adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized under the stock option plans. Had compensation cost for Olsten's stock option plans been determined based on the fair value at the grant date for awards consistent with the provisions of SFAS No. 123, the Company's net income (loss) and net income (loss) per share would have been reduced (increased) to the pro forma amounts indicated below (in thousands, except per share amounts):
1999 1998 1997 ---- ---- ---- Net (loss) income - as reported $(15,086) $(101,465) $26,847 Net (loss) income - pro forma (16,864) (102,535) 26,287 Basic (loss) income per share - as reported (.74) (4.99) 1.32 Basic (loss) income per share - pro forma (.83) (5.04) 1.29
The statement provides for pro forma amounts for options granted beginning in 1995; therefore, the pro forma expense will likely increase in future years as the new option grants become subject to the pricing model. Prior to the Split-off, Olsten as sole shareholder of the Company approved the adoption of the Company's 1999 Stock Incentive Plan ("1999 Plan") under which 5 million shares of common stock were F-24 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS reserved for issuance upon exercise of options thereunder. The maximum total number of shares of common stock for which grants may be made to any employee, consultant or director under the 1999 plan in any calendar year is 300,000. These options may be awarded in the form of ISOs or NQSOs. The option price of an ISO cannot be less than 100 percent, and the option price of the NQSO cannot be less than 85 percent of the fair market value at the date of grant. Prior to the Split-off, Olsten as sole shareholder of the Company approved the adoption of the Company's Stock and Deferred Compensation Plan for Non-Employee Directors, which provides for payment of annual retainer fees to non-employee directors, up to 50 percent of which such directors may elect to receive in cash and the remainder of which will be paid in the form of shares of common stock and also allows deferral of such payments until termination of director's service. The total number of shares of common stock reserved for issuance under this plan is 150,000. Prior to the Split-off, Olsten as sole shareholder of the Company approved the adoption of an employee stock purchase plan for the Company. All employees of the Company, who have been employed for at least eight months and whose customary employment exceeds twenty hours per week, will be eligible to purchase stock under this plan. The human resource and compensation committee of the Company's Board of Directors will administer the plan and has the power to determine the terms and conditions of each offering of common stock. The maximum number of shares of common stock, which may be sold to any employee in any offering, however, will generally be 10 percent of that employee's compensation during the period of the offering. A total of 1,200,000 shares of common stock are reserved for issuance under the employee stock purchase plan. Note 13. Income Taxes Comparative analyses of the provision (benefit) for income taxes follows (in thousands):
1999 1998 1997 ---- ---- ---- Current Federal $(19,586) $(29,808) $14,166 State and local 170 294 (547) Foreign 248 -- -- -------- -------- ------- (19,168) (29,514) 13,619 -------- -------- ------- Deferred Federal 13,047 (17,556) 1,982 State and local -- -- 697 -------- -------- -------- 13,047 (17,556) 2,679 -------- -------- -------- $(6,121) $(47,070) $16,298 ======== ======== ========
F-25 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In accordance with the Tax Sharing Agreement, any net operating losses generated up to the Split-off will be transferred to and utilized by Olsten. At January 2, 2000, approximately $49 million relating to these net operating losses was included in prepaid expenses and other current assets in the consolidated balance sheet. A reconciliation of the differences between income taxes computed at the Federal statutory rate and provisions (benefits) for income taxes for each year are as follows (in thousands):
1999 1998 1997 ---- ---- ---- Income taxes computed at Federal statutory tax rate $(7,422) $(51,987) $ 15,043 State income taxes, net of Federal benefit 111 190 98 Nondeductible settlement of government investigations -- 3,500 -- Amortization of intangibles 902 922 1,701 Nondeductible meals & entertainment 265 343 357 Other, net 23 (38) (901) ------- --------- ---------- $(6,121) $(47,070) $ 16,298 ======= ======== =======
Deferred tax assets, which are included in prepaid expenses and other current assets, and deferred tax liabilities, which are included in other liabilities in the consolidated balance sheet, are as follows (in thousands):
January 2, 2000 January 3, 1999 --------------- --------------- Deferred tax assets Reserves and allowances $ 25,074 $ 40,320 Other 1,183 291 ------ ------- 26,257 40,611 ------ ------ Deferred tax liabilities Capitalized software (2,163) (2,281) Intangible assets (22,047) (24,933) Depreciation (2,821) (371) Other -- (753) -------- -------- (27,031) (28,338) ------- -------- Net deferred tax asset (liability) $ (774) $ 12,273 ======== ========
F-26 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 14. Benefit Plans for Permanent Employees Olsten and its subsidiaries maintained qualified and non-qualified defined contribution retirement plans for its salaried employees, which provide for a partial match of employee savings under the plans and for discretionary profit-sharing contributions based on employee compensation. The Company established similar retirement plans and assumed the obligations under the Olsten plans for those employees assigned to the Company at the date of the Split-off. Olsten also maintained a non-qualified supplemental executive retirement program for key employees and officers, which provided supplemental retirement benefits funded in part by profit-sharing contributions. Certain employees of the Company were eligible to participate in the Olsten sponsored plan. Prior to the Split-off the Company established its own non-qualified supplemental executive retirement plan substantially similar to the Olsten plan. As discussed in Note 10, the Olsten plan was terminated prior to the Split-off. Company contributions under the defined contribution plans were approximately $3.6 million in 1999, $3.4 million in 1998, and $3.5 million in 1997. Note 15. Business Segment Information The Company operates in the United States and Canada, servicing patients and customers through the following business segments: Specialty Pharmaceutical Services, Home Care Nursing Services and Staffing Services. These segments are briefly described below. Specialty Pharmaceutical Services includes (i) the distribution of drugs and other biological and pharmaceutical products and professional support services for individuals with chronic diseases, such as hemophilia, primary pulmonary hypertension, autoimmune deficiencies and growth disorders, (ii) the administration of antibiotics, chemotherapy, nutrients and other medications for patients with acute or episodic disease states and (iii) distribution services for pharmaceutical, biotechnology and medical service firms. F-27 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Home Care Nursing Services includes (i) professional and paraprofessional services, including skilled nursing, rehabilitation and other therapies, home health aide and personal care services, to individuals with acute illnesses, long-term chronic health conditions, permanent disabilities, terminal illnesses or post-procedural needs and (ii) care management and coordination for managed care organizations and self-insured employees. Staffing Services includes (i) services to institutional, occupational and alternate site health care organizations by providing health care professionals to meet supplemental staffing needs and (ii) clinical support services for pharmaceutical and biotechnology firms. As a result of the Split-off, the Company has changed the measurement method used to determine reported segment profit or loss. In prior years, the Company evaluated performance and allocated resources based on earnings (loss) before interest, taxes, depreciation and amortization. The Company now evaluates performance and allocates resources based on operating contributions of the reportable segments, which excludes corporate expenses, depreciation, amortization interest expense, but includes revenues and all other costs directly attributable to the specific segment. Identifiable assets of the segments reflect net accounts receivable and inventories associated with segment activities. All other assets are assigned to the corporation for the benefit of all segments. In prior years, clinical support services for pharmaceutical and biotechnology firms were included in the Specialty Pharmaceutical Services segment. The Company now considers these services to be part of its Staffing Services segment. Prior year segment data has been reclassified to conform with the current year presentation. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Information about the Company's operations is as follows (in thousands):
Specialty Home Care Pharmaceutical Nursing Staffing Services Services Services Total Year ended January 2, 2000 Net revenues $699,993 $662,477 $127,352 $1,489,822 ======= ======= ======= ========= Operating contribution before special charges $98,590 $21,943 $10,088 $130,621 Special charges (1,730) (13,090) (380) (15,200) -------- -------- -------- -------- Operating contribution $96,860 $8,853 $9,708 115,421 ======= ======= ====== Corporate expenses (86,028) --------- Earnings before interest expense, taxes, depreciation and amortization 29,393 Depreciation and amortization (33,625) Interest expense, net (16,975) -------- Loss before income taxes $(21,207) ======== F-28 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Segment assets $440,185 $201,978 $26,515 $668,678 ======= ======= ====== ======= Year ended January 3, 1999 Net revenues $571,718 $658,745 $99,840 $1,330,303 ======= ======= ====== ========= Operating contribution before special charges, non-recurring charges and other adjustments $81,250 $14,984 $8,179 $104,413 Special charges, non-recurring charges and other adjustments (24,046) (97,954) -- 122,000 -------- -------- ------ ------- Operating contribution $57,204 $(82,970) $8,179 (17,587) ====== ======== ====== Corporate expenses (82,133) -------- Loss before interest expense, taxes, depreciation and amortization (99,720) Depreciation and amortization (31,401) Interest expense, net (17,414) -------- Loss before income taxes $(148,535) ========== Segment assets $342,862 $180,753 $18,979 $ 542,594 ======= ======= ====== ======== Year ended December 28, 1997 Net revenues $503,762 $856,072 $74,020 $1,433,854 ======= ======= ====== ========= Operating contribution $70,885 $83,689 $6,696 161,270 ======= ======= ====== Corporate expenses (71,445) -------- Earnings before interest expense, taxes, depreciation and amortization 89,825 Depreciation and amortization (29,493) Interest expense, net (17,351) -------- Income before income taxes and minority interest $ 42,981 ========= Segment assets $261,003 $187,261 $15,685 $ 463,949 ======= ======= ====== =======
Financial information, summarized by geographic area, is as follows (in thousands):
Net Long-lived Revenues assets Year ended January 2, 2000 United States $1,446,532 $302,601 F-29 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Canada 43,290 1,183 ---------- ---------- $1,489,822 $303,784 ========= ======= Year ended January 3, 1999 United States $1,290,072 $317,849 Canada 40,231 750 ---------- --------- $1,330,303 $318,599 ========= ======= Year ended December 28, 1997 United States $1,398,998 $286,008 Canada 34,856 628 ----------- --------- $1,433,854 $286,636 ========= =======
Note 16. Quarterly Financial Information (Unaudited)
First Second Third Fourth (in thousands, except share amounts) quarter quarter quarter quarter ------- ------- ------- ------- $ $ $ $ Year ended January 2, 2000 Net revenues 368,160 372,573 377,312 371,777 Gross profit 125,674 127,242 125,078 127,432 Net income (loss) (12,806) 2,435 (2,481) (2,234) SHARE INFORMATION: Basic and diluted income (loss) per share (.63) .12 (.12) (.11) Year ended January 3, 1999 Net revenues 331,967 315,200 321,118 362,018 Gross profit 113,560 77,375 106,085 124,387 Net loss (1,743) (49,053) (7,675) (42,994) SHARE INFORMATION: Basic and diluted income (loss) per share (.09) (2.41) (.38) (2.11)
F-30 GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The fourth quarters ended January 2, 2000 and January 3, 1999 include 13 weeks and 14 weeks, respectively. The first quarter of 1999 includes $16.7 million of special charges and the fourth quarter of 1999 includes a benefit of $1.5 million relating to these special charges as indicated in Note 4. Additionally, during the fourth quarter of 1999, the Company increased its allowance for doubtful accounts by approximately $7 million. F-31 GENTIVE HEALTH SERVICES, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED JANUARY 2, 2000
Col. B Col. C Col. D Col. E ------ ------ ------ ------ Balance at Additions Balance Beginning charged to costs at end of of period and expenses Deductions period Allowance for Doubtful Accounts: For the Year Ended January 2, 2000 $25,596 $38,687 $(27,524) $36,759 For the Year Ended January 3, 1999 $19,200 $24,046 $(17,650) $25,596 For the Year Ended December 28, 1997 $22,171 $25,884 $(28,855) $19,200
F-32 EX-4.6 2 SUPPLEMENTAL INDENTURE QUANTUM HEALTH RESOURCES, INC. AND U.S. BANK TRUST NATIONAL ASSOCIATION, Trustee ------------------- Supplemental Indenture Dated as of March 15, 2000 ------------------- To Indenture, Dated as of October 8, 1993, as supplemented and amended by the Supplemental Indenture, Dated as of June 28, 1996, Between Quantum Health Resources, Inc. and U.S. Bank Trust National Association (formerly known as First Trust National Association), as Trustee, Relating to 4 3/4% Convertible Subordinated Debentures Due October 1, 2000 - -------------------------------------------------------------------------------- SUPPLEMENTAL INDENTURE SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of March 15, 2000, between Quantum Health Resources, Inc., a Delaware corporation (the "Company"), having its principal office at Two Parkwood Crossing, Suite 500, 310 East 96th Street, Suite 500, Indianapolis, Indiana, 46240, and U.S. Bank Trust National Association (formerly known as First Trust National Association), a Minnesota corporation, as Trustee (the "Trustee"). RECITALS OF THE COMPANY WHEREAS, the Company and the Trustee heretofore executed and delivered an Indenture, dated as of October 8, 1993 (the "Indenture") (capitalized terms used but not otherwise defined in this Supplemental Indenture shall have the meanings ascribed to such terms in the Indenture), and a Supplemental Indenture, dated as of June 28, 1996 (the "First Supplemental Indenture"); and WHEREAS, pursuant to the Indenture, the Company issued and the Trustee authenticated and delivered $86,250,000 aggregate principal amount of the Company's 4 3/4% Convertible Subordinated Debentures Due October 1, 2000 (the "Debentures"); and WHEREAS, pursuant to the First Supplemental Indenture, the Debentures were convertible into the Class B Common Stock, par value $.10 per share ("Class B Common Stock") of Olsten Corporation, a Delaware corporation ("Olsten"); and WHEREAS, the Company has delivered, or caused to be delivered, to the Trustee, an Opinion of Counsel and Officers' Certificate, each stating that this Supplemental Indenture complies with the requirements of the Indenture; and WHEREAS, pursuant to the Separation Agreement, dated as of August 17, 1999, by and among Olsten, Gentiva Health Services, Inc., a Delaware corporation (formerly known as Aaronco Corp.) ("Gentiva"), and Adecco SA, a societe anonyme organized under the laws of Switzerland ("Adecco"), as amended (the "Separation Agreement"), and the Agreement and Plan of Merger dated as of August 17, 1999, by and among Olsten, Adecco and Staffing Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Adecco ("Merger Sub"), as amended (the "Merger Agreement"), on the date of the Merger each issued and outstanding share of Olsten's Class B Common Stock, other than shares held by stockholders exercising dissenter's rights under the General Corporation Law of the State of Delaware, will be converted into the right to receive (i) .25 of a share of Gentiva common stock, par value $.10 per share and (ii) either (a) $8.75 in cash, without interest, or (b) 0.12472 -2- of an Adecco American depositary share ("ADS") or (c) a combination of cash and Adecco ADSs; and WHEREAS, pursuant to Sections 9.1 and 13.11 of the Indenture, the parties hereto are entering into this Supplemental Indenture to provide that the Holder of each Debenture outstanding at the time of the merger shall have the right thereafter, during the period such Debenture shall be convertible as specified in Section 13.1 of the Indenture, to convert such Debenture only into the kind and amount of securities and cash receivable upon such merger by a holder of the number of shares of Class B Common Stock into which such Debenture might have been converted immediately prior to such merger as if such holder had made a Non-Election (as defined in the Merger Agreement); and WHEREAS, this Supplemental Indenture has been duly authorized by all necessary corporate action on the part of the Company. NOW, THEREFORE, the Company hereby covenants and agrees with the Trustee for the equal and proportionate benefit of all Holders of the Debentures, as follows: SECTION 1. Amendment of Certain Sections of Indenture. Subject to the other provisions hereof, the Indenture is hereby amended and supplemented in the following respects: (a) Section 13.4 of the Indenture is hereby amended and supplemented by adding the following at the end thereof: "(k) From and after the effective time of the merger pursuant to the Merger Agreement dated as of August 17, 1999, as amended, by and among Olsten Corporation, a Delaware corporation ("Olsten"), Gentiva Health Services, Inc. (formerly Aaronco Corp.), a Delaware corporation ("Gentiva"), Adecco SA, a societe anonyme organized under the laws of Switzerland ("Adecco") and Staffing Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Adecco (the "Merger Agreement"), the Holder of each Debenture then outstanding shall have the right thereafter, during the period such Debenture shall be convertible as specified in Section 13.1, to convert each such Debenture only into (i) the number of shares of Gentiva Health Services Common Stock, par value $.10 per share, and (ii) the amount of (a) Adecco American Depositary Shares ("ADSs") or (b) cash or (c) a combination of cash and Adecco ADSs, in each case into which such Debenture would have been converted if the Debenture was converted into Olsten Class B Stock (as defined in the Merger -3- Agreement) immediately prior to such merger and as if such holder had made a Non-Election (as defined in the Merger Agreement), subject to such further adjustments as may be required by the provisions of this Indenture." SECTION 2. Effect of Supplemental Indenture. Upon the execution and delivery of this Supplemental Indenture by the Company and the Trustee, the Indenture and the First Supplemental 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 Securities heretofore or hereafter authenticated and delivered under the Indenture shall be bound thereby. SECTION 3. Indenture and First Supplemental Indenture Remains in Full Force and Effect. Except as supplemented hereby, all provisions in the Indenture and the First Supplemental Indenture shall remain in full force and effect. SECTION 4. Indenture and Supplemental Indenture Construed Together. This Supplemental Indenture is an indenture supplemental to the Indenture and the First Supplemental Indenture, and forms a part of the Indenture and the First Supplemental Indenture for all purposes. SECTION 5. Conflict with Trust Indenture Act. If any provision of this Supplemental Indenture limits, qualifies or conflicts with any provision of Sections 310 through 317, inclusive, of the Trust Indenture Act, which provision imposes duties on any Person, the applicable provisions of Sections 310 through 317, inclusive, of the Trust Indenture Act shall control. SECTION 6. 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 7. Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. SECTION 8. Benefits of Supplemental Indenture, Etc. Nothing in this Supplemental Indenture, express or implied, shall give to any Person, other than the parties hereto and thereto and their successors hereunder, any benefit or any legal or equitable right, remedy or claim under this Supplemental Indenture. SECTION 9. Successors and Assigns. All covenants and agreements in this Supplemental Indenture by the Company shall bind its successors and assigns, whether so expressed or not. -4- SECTION 10. Trustee Not Responsible for Recitals. The recitals contained herein shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Supplemental Indenture. SECTION 11. Certain Duties and Responsibilities of the 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. SECTION 12. Governing Law. This Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York. SECTION 13. 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. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date and year first above written. QUANTUM HEALTH RESOURCES, INC. By: /s/ John J. Collura -------------------------------------- Title: Senior Vice President Attest: /s/ Patricia C. Ma - ----------------------------- Title: Senior Vice President U.S. BANK TRUST NATIONAL ASSOCIATION, as Trustee By: /s/ Harry H. Hall -------------------------------------- Title: Vice President Attest: /s/ Joe Conte - ---------------------------- Title: Asst. Vice President EX-4.7 3 TRUST AGREEMENT TRUST AGREEMENT AMONG GENTIVA HEALTH SERVICES, INC., AS DEPOSITOR WILMINGTON TRUST COMPANY AS PROPERTY TRUSTEE AND AS DELAWARE TRUSTEE, THE ADMINISTRATIVE TRUSTEES NAMED HEREIN, AND THE SEVERAL HOLDERS (AS DEFINED HEREIN) DATED AS OF MARCH 9, 2000 Certain Sections of this Trust Agreement relating to Sections 310 through 318 of the Trust Indenture Act of 1939: Trust Trust Act Section Agreement Section - -------------------------------------------------- ------------------------- (Section) 310 (a)(1).............................. 8.7 (a)(2)........................... 8.7 (a)(3)........................... 8.9 (a)(4)........................... 2.7(a)(ii) (b).............................. 8.8 (Section) 311 (a)................................. 8.13 (b).............................. 8.13 (Section) 312 (a)................................. 5.7 (b).............................. 5.7 (c).............................. 5.7 (Section) 313 (a)................................. 8.14(a) (a)(4)........................... 8.14(b) (b).............................. 8.14(b) (c).............................. 10.9 (d).............................. 8.14(c) (Section) 314 (a)................................. 8.15 (b).............................. Not Applicable (c)(1)........................... 8.16 (c)(2)........................... 8.16 (c)(3)........................... Not Applicable (d).............................. Not Applicable (e).............................. 1.1, 8.16 (Section) 315 (a)................................. 8.1(a), 8.3(a) (b).............................. 8.2, 10.9 (c).............................. 8.1(a) (d).............................. 8.1, 8.3 (e).............................. Not Applicable (Section) 316 (a)................................. Not Applicable (a)(1)(A)........................ Not Applicable (a)(1)(B)........................ Not Applicable (a)(2)........................... Not Applicable (b).............................. 5.14 (c).............................. 6.7 (Section) 317 (a)(1).............................. Not Applicable (a)(2)........................... Not Applicable (b).............................. 5.9 (Section) 318 (a)................................. 10.11 Note: This reconciliation and tie sheet shall not, for any purpose, be deemed to be a part of the Trust Agreement. TABLE OF CONTENTS Page ARTICLE I DEFINED TERMS SECTION 1.1. DEFINITIONS...................................................1 ARTICLE II CONTINUATION OF TRUST SECTION 2.1. NAME.........................................................11 SECTION 2.2. OFFICE OF DELAWARE TRUSTEE; PRINCIPAL PLACE OF BUSINESS......11 SECTION 2.3. INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL EXPENSES....................................12 SECTION 2.4. ISSUANCE OF PREFERRED SECURITIES.............................12 SECTION 2.5. ISSUANCE OF COMMON SECURITIES................................12 SECTION 2.6. SUBSCRIPTION AND PURCHASE OF DEBENTURES......................12 SECTION 2.7. DECLARATION OF TRUST.........................................13 SECTION 2.8. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS.............13 SECTION 2.9. ASSETS OF TRUST..............................................17 SECTION 2.10. TITLE TO TRUST PROPERTY......................................17 ARTICLE III PAYMENT ACCOUNT SECTION 3.1. PAYMENT ACCOUNT..............................................17 ARTICLE IV DISTRIBUTIONS; REDEMPTION; CONVERSION SECTION 4.1. DISTRIBUTIONS................................................18 SECTION 4.2. REDEMPTION...................................................19 SECTION 4.3. CONVERSION...................................................21 SECTION 4.4. SUBORDINATION OF COMMON SECURITIES...........................25 SECTION 4.5. PAYMENT PROCEDURES...........................................26 SECTION 4.6. TAX RETURNS AND REPORTS......................................26 SECTION 4.7. PAYMENT OF EXPENSES OF TRUST.................................26 - -ii- Page SECTION 4.8. PAYMENTS UNDER INDENTURE OR PURSUANT TO DIRECT ACTIONS.......26 ARTICLE V TRUST SECURITIES CERTIFICATES SECTION 5.1. INITIAL OWNERSHIP............................................27 SECTION 5.2. TRUST SECURITIES CERTIFICATES................................27 SECTION 5.3. EXECUTION AND DELIVERY OF TRUST SECURITIES CERTIFICATES......27 SECTION 5.4. REGISTRATION OF TRANSFER AND EXCHANGE OF PREFERRED SECURITIES.................................................28 SECTION 5.5. TRANSFER OF CERTIFICATES.....................................31 SECTION 5.6. DEEMED HOLDERS...............................................32 SECTION 5.7. ACCESS TO LIST OF HOLDERS' NAMES AND ADDRESSES...............32 SECTION 5.8. MAINTENANCE OF OFFICE OR AGENCY..............................32 SECTION 5.9. APPOINTMENT OF PAYING AGENT..................................33 SECTION 5.10. APPOINTMENT OF CONVERSION AGENT..............................33 SECTION 5.11. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR..................34 SECTION 5.12. MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES CERTIFICATES...............................................35 SECTION 5.13. RIGHTS OF HOLDERS............................................35 ARTICLE VI ACTS OF HOLDERS; MEETINGS; VOTING SECTION 6.1. LIMITATIONS ON VOTING RIGHTS.................................38 SECTION 6.2. NOTICE OF MEETINGS...........................................39 SECTION 6.3. MEETINGS OF HOLDERS..........................................39 SECTION 6.4. VOTING RIGHTS................................................40 SECTION 6.5. PROXIES, ETC.................................................40 SECTION 6.6. HOLDER ACTION BY WRITTEN CONSENT.............................40 SECTION 6.7. RECORD DATE FOR VOTING AND OTHER PURPOSES....................41 SECTION 6.8. ACTS OF HOLDERS..............................................41 SECTION 6.9. INSPECTION OF RECORDS........................................42 -iii- Page ARTICLE VII REPRESENTATIONS AND WARRANTIES SECTION 7.1. REPRESENTATIONS AND WARRANTIES OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE...........................................42 ARTICLE VIII THE TRUSTEES SECTION 8.1. CERTAIN DUTIES AND RESPONSIBILITIES..........................44 SECTION 8.2. CERTAIN NOTICES..............................................45 SECTION 8.3. CERTAIN RIGHTS OF PROPERTY TRUSTEE...........................46 SECTION 8.4. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.......48 SECTION 8.5. MAY HOLD SECURITIES..........................................49 SECTION 8.6. COMPENSATION; INDEMNITY; FEES................................49 SECTION 8.7. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF TRUSTEES...................................................50 SECTION 8.8. CONFLICTING INTERESTS........................................51 SECTION 8.9. CO-TRUSTEES AND SEPARATE TRUSTEE.............................51 SECTION 8.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR............53 SECTION 8.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.......................54 SECTION 8.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS...................................................55 SECTION 8.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR TRUST......................................................55 SECTION 8.14. REPORTS BY PROPERTY TRUSTEE..................................56 SECTION 8.15. REPORTS TO PROPERTY TRUSTEE..................................56 SECTION 8.16. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.............57 SECTION 8.17. NUMBER OF TRUSTEES...........................................57 SECTION 8.18. DELEGATION OF POWER..........................................57 ARTICLE IX DISSOLUTION, LIQUIDATION, TERMINATION AND MERGER SECTION 9.1. TERMINATION UPON EXPIRATION DATE............................58 SECTION 9.2. EARLY TERMINATION...........................................58 -iv- Page SECTION 9.3. TERMINATION.................................................59 SECTION 9.4. LIQUIDATION.................................................59 SECTION 9.5. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF TRUST..................................................61 ARTICLE X RIGHT TO REQUIRE REPURCHASE SECTION 10.1. RIGHT TO REQUIRE REPURCHASE.................................62 SECTION 10.2. NOTICE; METHOD OF EXERCISING REPURCHASE RIGHT...............62 SECTION 10.3. DEPOSIT OF REPURCHASE PRICE.................................63 SECTION 10.4. SECURITIES NOT REPURCHASED ON REPURCHASE DATE...............64 SECTION 10.5. SECURITIES REPURCHASED IN PART..............................64 SECTION 10.6. DEFINITIONS.................................................64 ARTICLE XI MISCELLANEOUS PROVISIONS SECTION 11.1. LIMITATION OF RIGHTS OF HOLDERS.............................65 SECTION 11.2. LIABILITY...................................................65 SECTION 11.3. AMENDMENT...................................................66 SECTION 11.4. SEPARABILITY................................................67 SECTION 11.5. GOVERNING LAW...............................................67 SECTION 11.6. PAYMENTS DUE ON NON-BUSINESS DAY............................67 SECTION 11.7. SUCCESSORS..................................................68 SECTION 11.8. HEADINGS....................................................68 SECTION 11.9. REPORTS, NOTICES AND DEMANDS................................68 SECTION 11.10. AGREEMENT NOT TO PETITION...................................69 SECTION 11.11. TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT......69 SECTION 11.12. ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE AND INDENTURE.................................................70 SECTION 11.13. HOLDERS ARE PARTIES.........................................70 SECTION 11.14. COUNTERPARTS................................................70 -v- TRUST AGREEMENT THIS TRUST AGREEMENT (this "Trust Agreement"), dated as of March 9, 2000 among (i) GENTIVA HEALTH SERVICES, INC., a Delaware corporation (including any successors or assigns, the "Depositor"), (ii) Wilmington Trust Company, as property trustee (in such capacity, the "Property Trustee" and, in its separate corporate capacity and not in its capacity as Property Trustee, the "Bank") and as Delaware trustee (the "Delaware Trustee"), (iii) Edward A. Blechshmidt, an individual, John J. Collura, an individual, and Patricia C. Ma, an individual, each of whose address is c/o Gentiva Health Services, Inc., 175 Broad Hollow Road, Melville, New York 11747 (each an "Administrative Trustee" and collectively the "Administrative Trustees") (the Property Trustee, the Delaware Trustee and the Administrative Trustees are referred to individually as a "Trustee" and collectively as the "Trustees") and (iv) the several Holders (as hereinafter defined). W I T N E S S E T H: WHEREAS, THE DEPOSITOR AND CERTAIN OF THE TRUSTEES HAVE DULY DECLARED AND ESTABLISHED A BUSINESS TRUST PURSUANT TO THE DELAWARE BUSINESS TRUST ACT BY ENTERING INTO THIS TRUST AGREEMENT, DATED AS OF MARCH 9, 2000 AND BY THE EXECUTION AND FILING WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE OF THE CERTIFICATE OF TRUST, FILED ON MARCH 9, 2000, ATTACHED AS EXHIBIT A (THE "CERTIFICATE OF TRUST"). NOW, THEREFORE, IN CONSIDERATION OF THE AGREEMENTS AND OBLIGATIONS SET FORTH HEREIN AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, EACH PARTY, FOR THE BENEFIT OF THE OTHER PARTIES AND FOR THE BENEFIT OF THE HOLDERS (AS HEREINAFTER DEFINED), HEREBY AGREES AS FOLLOWS: ARTICLE I DEFINED TERMS SECTION 1.1. DEFINITIONS. For all purposes of this Trust Agreement, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (b) all other terms used herein that are defined in the Trust Indenture Act (as hereinafter defined), either directly or by reference therein, have the meanings assigned to them therein; (c) unless the context otherwise requires, any reference to an "Article" or a "Section" refers to an Article or a Section, as the case may be, of this Trust Agreement; and (d) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Trust Agreement as a whole and not to any particular Article, Section or other subdivision. "Act" has the meaning specified in Section 6.8(a). "Additional Amount" means, with respect to Trust Securities of a given Liquidation Amount and/or a given period, the amount of Additional Interest (as defined in the Indenture) paid by the Depositor on a Like Amount of Debentures for such period. "Administrative Trustee" means each of the individuals identified as an "Administrative Trustee" in the preamble to this Trust Agreement, solely in such individual's capacity as an Administrative Trustee of the Trust and not in such individual's individual capacity, or such Administrative Trustee's successor in interest in such capacity, and includes any Special Administrative Trustee (as hereinafter defined) appointed as herein provided. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Appointment Event" has the meaning set forth in Section 6.1(d). "Bank" has the meaning specified in the preamble to this Trust Agreement. "BHCA Person" has the meaning set forth in Section 4.3(a). "Bankruptcy Event" means, with respect to any Person: -2- (a) the entry of a decree or order by a court having jurisdiction in the premises judging such Person a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjudication or composition of or in respect of such Person under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of such Person or of any substantial part of its property or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (b) the institution by such Person of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or similar official) of such Person or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due and its willingness to be adjudicated a bankrupt, or the taking of corporate action by such Person in furtherance of any such action. "Bankruptcy Laws" has the meaning specified in Section 11.10. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Depositor to have been duly adopted by the Depositor's Board of Directors, or such committee of the Board of Directors or officers of the Depositor to which authority to act on behalf of the Board of Directors has been delegated, and to be in full force and effect on the date of such certification, and delivered to the Trustees. "Business Day" means a day other than (i) a Saturday or Sunday and (ii) a day on which banking institutions in The City of New York or the State of Delaware are authorized or required by law or executive order to remain closed. "Certificate of Trust" has the meaning specified in the recitals hereof, as amended from time to time. "Certificated Preferred Security" or "Certificated Preferred Securities" means a Preferred Security or Securities in the form set forth in Exhibit C attached hereto. "Closing Date" means March 15, 2000. -3- "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Securities Certificate" means a certificate evidencing ownership of Common Securities, substantially in the form attached as Exhibit B. "Common Security" means an undivided common beneficial interest in the assets of the Trust, having a Liquidation Amount of $50 and having the rights provided therefor in this Trust Agreement, including the right to convert to shares of the Common Stock and the right to receive Distributions and a Liquidation Distribution as provided herein. "Common Stock" means the common stock of the Depositor, par value $.10 per share. "Conversion Agent" has the meaning set forth in Section 4.3(d). "Conversion Date" has the meaning set forth in Section 4.3(c). "Conversion Price" has the meaning set forth in Section 4.3(a). "Conversion Request" has the meaning set forth in Section 4.3(b). "Corporate Trust Office" means (i) when used with respect to the Property Trustee, the principal office of the Property Trustee located in Wilmington, Delaware, and (ii) when used with respect to the Indenture Trustee, the principal office of the Indenture Trustee located in Wilmington, Delaware. "Debenture Purchase Agreement" means the purchase agreement between the Trust and the Depositor relating to the purchase by the Trust of the Depositor's Debentures and dated as of the Closing Date. "Debenture Redemption Date" means, with respect to any Debentures to be redeemed under the Indenture, the date fixed for redemption under the Indenture. "Debenture Stated Maturity" means the date specified pursuant to the terms of the Debentures as the date on which the principal of the Debentures is due and payable. "Debenture Tax Event" means a "Tax Event" as defined in the Indenture. -4- "Debentures" means the $20,618,600 aggregate principal amount of the Depositor's 10% Convertible Subordinated Debentures due 2005 issued pursuant to the Indenture. "Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. 3801, et seq., as it may be amended from time to time. "Delaware Trustee" means the Person identified as the "Delaware Trustee" in the preamble to this Trust Agreement solely in its capacity as Delaware Trustee of the Trust and not in its individual capacity, or its successor in interest in such capacity, or any successor trustee appointed as herein provided. "Depositor" has the meaning specified in the preamble to this Trust Agreement. "Direct Action" has the meaning specified in Section 5.13(f). "Distribution Date" has the meaning specified in Section 4.1(a). "Distributions" has the meaning specified in Section 4.1(a). "Early Termination Event" has the meaning specified in Section 9.2. "Event of Default" means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) the occurrence of a Indenture Event of Default; or (b) default by the Property Trustee in the payment of any Distribution when it becomes due and payable, and continuation of such default for a period of 30 days; provided, however, that a valid extension of the interest payment period by the Depositor pursuant to Section 3.11 of the Indenture shall not constitute a default in the payment of Distributions); or (c) default by the Property Trustee in the payment of any Redemption Price or Repurchase Price of any Trust Security when it becomes due and payable; or (d) default in the performance, or breach, in any material respect, of any covenant or warranty of the Trustees in this Trust Agreement (other than a covenant or warranty a default in the performance or breach of which is dealt with in clause (b) or (c) above) and continuation of such default or breach for a period of 90 days after there -5- has been given, by registered or certified mail, to the defaulting Trustee or Trustees by the Holders of at least 25% in aggregate Liquidation Amount of the Outstanding Preferred Securities, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (e) the occurrence of a Bankruptcy Event with respect to the Property Trustee and the failure by the Depositor to appoint a successor Property Trustee within 90 days thereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Expiration Date" has the meaning specified in Section 9.1. "Guarantee" means the Guarantee Agreement executed and delivered by the Depositor and Wilmington Trust Company, as trustee, on the Closing Date, for the benefit of the Holders of the Preferred Securities, as amended from time to time. "Holder" means a Person in whose name a Trust Security is registered in the Securities Register; any such Person shall be a beneficial owner within the meaning of the Delaware Business Trust Act. "Indenture" means the Indenture, dated as of March 15, 2000 between the Depositor and the Indenture Trustee, as trustee, as amended or supplemented from time to time. "Indenture Event of Default" means an "Event of Default" as defined in the Indenture. "Indenture Trustee" means Wilmington Trust Company, a Delaware corporation, as trustee under the Indenture, and any successor trustee appointed as provided therein. "Investment Company Event" means that the Administrative Trustees shall have received an opinion from independent counsel to the effect that, as a result of the occurrence of a change in law or regulation or a written change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law"), there is more than an insubstantial risk that the Trust is or will be considered an "investment company" which is required to be registered under the Investment Company Act of 1940, as amended, which Change in 1940 Act Law becomes effective on or after the date hereof. "Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of trust, adverse ownership interest, hypothecation, assignment, security interest or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever. -6- "Like Amount" means (a) with respect to a redemption or repurchase of Trust Securities, Trust Securities having a Liquidation Amount equal to the principal amount of Debentures to be contemporaneously redeemed or repurchased in accordance with the Indenture, the proceeds of which will be used to pay the Redemption Price or Repurchase Price of such Trust Securities and (b) with respect to a distribution of Debentures to Holders of Trust Securities in connection with a dissolution or liquidation of the Trust, Debentures having a principal amount equal to the Liquidation Amount of the Trust Securities of the Holder to whom such Debentures are distributed. "Liquidation Amount" means the stated amount of $50 per Trust Security. "Liquidation Date" means the date on which Debentures are to be distributed to Holders of Trust Securities in connection with a termination and liquidation of the Trust pursuant to Section 9.4(a). "Liquidation Distribution" has the meaning specified in Section 9.4(d). "1940 Act" means the Investment Company Act of 1940, as amended. "Officers' Certificate" means a certificate signed by the Chairman, Chief Executive Officer, President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Controller, the Secretary or an Assistant Secretary, of the Depositor, and delivered to the appropriate Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 8.16 shall be the principal executive, financial or accounting officer of the Depositor. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Trust Agreement shall include: (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definitions relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. -7- "Opinion of Counsel" means a written opinion of counsel, who may be internal or external counsel for the Trust, the Property Trustee or the Depositor, and who shall be reasonably acceptable to the Property Trustee. "Outstanding" means, when used with respect to Trust Securities as of the date of determination, all Trust Securities theretofore executed and delivered under this Trust Agreement, except: (a) Trust Securities theretofore canceled by the Securities Registrar or delivered to the Securities Registrar for cancellation; (b) Trust Securities for whose payment or redemption funds in the necessary amount theretofore have been deposited with the Property Trustee or any Paying Agent for the Holders of such Trust Securities; provided that, if such Trust Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Trust Agreement; (c) Trust Securities which have been converted pursuant to Section 4.3; and (d) Trust Securities which have been paid or in exchange for or in lieu of which other Trust Securities have been executed and delivered pursuant to this Trust Agreement, including pursuant to Sections 5.4, 5.5, 5.11 and 5.16. "Owner" means each Person who is the beneficial owner of a Certificated Preferred Security. "Paying Agent" means any paying agent or co-paying agent appointed pursuant to Section 5.9 and initially shall be the Bank. "Payment Account" means a segregated non-interest-bearing corporate trust account maintained by the Property Trustee with the Bank in its corporate trust department for the benefit of the Holders in which all amounts paid in respect of the Debentures will be held and from which the Property Trustee, through the Paying Agent, shall make payments to the Holders in accordance with Sections 4.1 and 4.2 and Article X. "Person" means any individual, corporation, partnership, joint venture, trust, limited liability company or corporation, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Security" means an undivided preferred beneficial interest in the assets of the Trust, having a Liquidation Amount of $50 and having the rights provided therefor -8- in this Trust Agreement, including the right to convert to shares of the Common Stock and the right to receive Distributions and a Liquidation Distribution as provided herein. "Property Trustee" means the Person identified as the "Property Trustee" in the preamble to this Trust Agreement solely in its capacity as Property Trustee of the Trust and not in its individual capacity, or its successor in interest in such capacity, or any successor property trustee appointed as herein provided. "Purchase Agreement" means the Purchase Agreement, dated as of March 13, 2000, among the Trust, the Depositor and the Purchasers named therein. "Purchasers" means the individuals named in the Purchase Agreement. "Redemption Date" means, with respect to any Trust Security to be redeemed, the date fixed for such redemption by or pursuant to this Trust Agreement; provided that each Debenture Redemption Date and the Debenture Stated Maturity shall be a Redemption Date for a Like Amount of Trust Securities. "Redemption Price" means, with respect to any Trust Security, the redemption price paid by the Depositor upon the concurrent redemption of a Like Amount of Debentures, allocated on a pro rata basis (based on Liquidation Amounts) among the Trust Securities. "Regulation S" means Regulation S under the Securities Act. "Relevant Trustee" shall have the meaning specified in Section 8.10(a). "Repurchase Date" shall have the meaning specified in Section 10.1 "Repurchase Price" shall have the meaning specified in Section 10.1 "Resale Restriction Termination Date" means, with respect to any Preferred Security, the later of the date which is two years after (i) the original issue date of such Preferred Security and (ii) the last date on which the Depositor or an Affiliate of the Depositor was the owner of such Preferred Security (or any predecessor Trust Security). "Securities Act" means the Securities Act of 1933, as amended. "Securities Register" shall have the meaning specified in Section 5.5. "Securities Registrar" shall have the meaning specified in Section 5.5. -9- "Special Administrative Trustee" means an Administrative Trustee appointed by the Holders of the Preferred Securities pursuant to the provisions of Section 6.1(d). "Special Event" means an Investment Company Event or a Tax Event. "Split-off" means the date of the issuance of all Common Stock of the Depositor to stockholders of Olsten Corporation ("Olsten") in exchange for their Olsten stock and the separation of the Depositor from its parent company, Olsten, to become a separate publicly-traded company, pursuant to the separation agreement, as amended, dated August 17, 1999 by and among Olsten, Adecco SA and Aaronco Corp. (predecessor to the Depositor). "Subscription Agreement" means the subscription agreement between the Trust and the Depositor relating to the issuance by the Trust of the Common Securities to the Depositor and dated as of the Closing Date. "Tax Event" means the receipt by the Trust of an Opinion of Counsel experienced in such matters to the effect that, as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein or (b) any amendment to, or change in, an interpretation or application of such laws or regulations, there is more than an insubstantial risk that (i) the Trust would be subject to United States federal income tax with respect to income accrued or received on the Convertible Subordinated Debentures, (ii) interest payable to the Trust on the Convertible Subordinated Debentures would not be deductible, in whole or in part, by the Depositor for United States federal income tax purposes or (iii) the Trust would be subject to more than a de minimis amount of other taxes, duties or other governmental charges, which change or amendment becomes effective on or after the date hereof. "Trading Day" means each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day on which securities are generally not traded on the applicable securities exchange or in the relevant market. "Transfer Restricted Securities" means Preferred Securities that bear or are required to bear the legend set forth in Section 5.4(e). "Trust" means the Delaware business trust created and identified on the cover page to this Trust Agreement. "Trust Agreement" means this Trust Agreement, as the same may be modified, amended or supplemented in accordance with the applicable provisions hereof, including (i) all exhibits hereto and (ii) for all purposes of this Trust Agreement and any such modifica- -10- tion, amendment or supplement, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this Trust Agreement and any such modification, amendment or supplement, respectively. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trust Property" means (a) the Debentures, (b) any funds on deposit in, or owing to, the Payment Account and (c) all proceeds and rights in respect of the foregoing. "Trust Securities Certificate" means any one of the Common Securities Certificates or the Certificated Preferred Securities. "Trust Security" means any of the Common Securities and the Preferred Securities. "Trustees" means, collectively, the Property Trustee, the Delaware Trustee and the Administrative Trustees. ARTICLE II CONTINUATION OF TRUST SECTION 2.1. NAME. The Trust hereby shall be known as "Gentiva Trust," as such name may be modified from time to time by the Administrative Trustees following written notice to the Holders and the other Trustees, in which name the Trustees engage in the transactions contemplated hereby, make and execute contracts and other instruments on behalf of the Trust and sue and be sued. SECTION 2.2. OFFICE OF DELAWARE TRUSTEE; PRINCIPAL PLACE OF BUSINESS. The address of the Delaware Trustee in the State of Delaware is Wilmington Trust Company, 1100 North Market Street, Wilmington, Delaware 19801, Attention: Corporate Trust Department, or such other address in the State of Delaware as the Delaware Trustee may designate by written notice to the Holders and the Depositor. The principal executive -11- office of the Trust is c/o Gentiva Health Services, Inc., 175 Broad Hollow Road, Melville, New York 11747. SECTION 2.3. INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL EXPENSES. The Property Trustee acknowledges receipt in trust from the Depositor of the sum of $10, which constitutes the initial Trust Property. The Depositor will pay organizational expenses of the Trust as they arise or, upon request of any Trustee, promptly will reimburse such Trustee for any such expenses paid by such Trustee. The Depositor will make no claim upon the Trust Property for the payment of such expenses. SECTION 2.4. ISSUANCE OF PREFERRED SECURITIES. As of March 13, 2000, the Depositor, the Trust and the Purchasers will execute and deliver the Purchase Agreement. On March 15, 2000, an Administrative Trustee, on behalf of the Trust, will execute in accordance with Section 5.2 and deliver to the Purchasers named in the Purchase Agreement the Certificated Preferred Securities, registered in the name of the Purchasers, in the amount of 400,000 Preferred Securities having an aggregate Liquidation Amount of $50.00, against receipt of an aggregate purchase price of $20,000,000, plus accrued Distributions from March 15, 2000, if any. SECTION 2.5. ISSUANCE OF COMMON SECURITIES. On March 15, 2000, an Administrative Trustee, on behalf of the Trust, will execute in accordance with Section 5.2 and deliver to the Depositor Common Securities Certificates, registered in the name of the Depositor, in accordance with the Subscription Agreement in an aggregate amount of 12,371 Common Securities having an aggregate Liquidation Amount of $50.00 against payment by the Depositor of an aggregate purchase price of $618,600, plus accrued Distributions from March 15, 2000, if any. SECTION 2.6. SUBSCRIPTION AND PURCHASE OF DEBENTURES. Contemporaneously with the issuance of Preferred Securities and Common Securities pursuant to Section 2.4(a) and Section 2.5(a), an Administrative Trustee, on behalf of the Trust, will subscribe to and purchase from the Depositor Debentures registered in the name of the Trust and having an aggregate principal amount equal to $20,618,600 in accordance with the Debenture Purchase Agreement. In satisfaction of the purchase price for such Debentures, the Trust will deliver to the Depositor the sum of $20,618,600. -12- SECTION 2.7. DECLARATION OF TRUST. The exclusive purposes and functions of the Trust are (a) to issue and sell Trust Securities, (b) to use the proceeds from such sale to acquire the Debentures and (c) to engage in those activities necessary or incidental thereto. The Depositor hereby appoints the Trustees as trustees of the Trust, to have all the rights, powers and duties to the extent set forth herein, and the Trustees hereby accept such appointment. The Property Trustee hereby declares that it will hold the Trust Property in trust upon and subject to the conditions set forth herein for the benefit of the Trust and the Holders. The Administrative Trustees shall have all rights, powers and duties set forth herein and in accordance with applicable law with respect to accomplishing the purposes of the Trust. The Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities, of the Property Trustee or the Administrative Trustees set forth herein. The Delaware Trustee shall be one of the Trustees of the Trust for the sole and limited purpose of fulfilling the requirements of Section 3807 of the Delaware Business Trust Act. SECTION 2.8. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS. (a) The Trustees shall conduct the affairs of the Trust in accordance with the terms of this Trust Agreement. Subject to the limitations set forth in Section 2.8(b) and Article VIII and in accordance with the following provisions (i), (ii) and (iii), the Trustees shall have the authority to enter into all transactions and agreements determined by the Trustees to be appropriate in exercising the authority, express or implied, otherwise granted to the Trustees under this Trust Agreement, and to perform all acts in furtherance thereof, including the following: (i) As among the Trustees, each Administrative Trustee, acting singly or collectively, shall have the power and authority (except during any period in which the Holders of the Preferred Securities shall have appointed a Special Administrative Trustee pursuant to Section 6.1(d) and except to the extent expressly provided by the terms hereof) to act on behalf of the Trust with respect to the following matters: (A) the issuance and sale of the Trust Securities; provided, however, that the Trust may issue no more than one series of Preferred Securities and no more than one series of Common Securities, and, provided further, that there shall be no interests in the Trust other than the Trust Securities, and the issuance of Trust Securities shall be limited to simultaneous issuances of both Preferred Securities and Common Securities on the Closing Date; -13- (B) causing the Trust to enter into, and executing, delivering and performing on behalf of the Trust, the Purchase Agreement, the Subscription Agreement, the Debenture Purchase Agreement and such other agreements as may be necessary or desirable in connection with the purposes and function of the Trust and the issuance of the Trust Securities; (C) assisting in the listing, if any, of the Preferred Securities upon the PORTAL Market; (D) sending notices (other than notices of default) and other information regarding the Trust Securities and the Debentures to the Holders in accordance with this Trust Agreement; (E) appointing a Paying Agent, Conversion Agent and Securities Registrar in accordance with this Trust Agreement; (F) registering transfer of the Trust Securities in accordance with this Trust Agreement; (G) to the extent provided in this Trust Agreement, the winding up of the affairs of and liquidation of the Trust and executing and filing the certificate of cancellation with the Secretary of State of the State of Delaware; (H) unless otherwise required by the Delaware Business Trust Act or the Trust Indenture Act, executing on behalf of the Trust (either acting alone or together with any or all of the Administrative Trustees) any documents that the Administrative Trustees have the power to execute pursuant to this Trust Agreement; and (I) taking any action incidental to the foregoing as the Administrative Trustees may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement for the benefit of the Holders (without consideration of the effect of any such action on any particular Holder). (ii) As among the Trustees, the Property Trustee shall have the power, duty and authority to act on behalf of the Trust with respect to the following matters: (A) establishing the Payment Account; (B) receiving and holding the Debentures; -14- (C) collecting principal of, premium, if any, and interest on, and any other payments made in respect of, the Debentures in the Payment Account; (D) distributing, through the Paying Agent, amounts owed to the Holders in respect of the Trust Securities; (E) exercising all of the rights, powers and privileges of a holder of the Debentures; (F) sending notices of default and other information regarding the Trust Securities and the Debentures to the Holders in accordance with this Trust Agreement; (G) distributing the Trust Property in accordance with the terms of this Trust Agreement; (H) to the extent provided in this Trust Agreement, winding up the affairs of and liquidating the Trust and the executing and filing the certificate of cancellation with the Secretary of State of the State of Delaware; and (I) except as otherwise provided in this Section 2.8(a)(ii), the Property Trustee shall have none of the duties, liabilities, powers or the authority of the Administrative Trustees set forth in Section 2.8(a)(i). (iii) At such times as a Special Administrative Trustee shall have been appointed by the Holders of the Preferred Securities pursuant to Section 6.1(d), the Special Administrative Trustee shall have the power and authority to act on behalf of the Trust jointly with the Administrative Trustees, and the Administrative Trustees and the Special Administrative Trustee shall act collectively as determined by a majority. (b) So long as this Trust Agreement remains in effect, the Trust (or the Trustees acting on behalf of the Trust) shall not undertake any business, activities or transaction except as expressly provided herein or contemplated hereby. In particular, the Trustees shall not: (i) acquire any investments or engage in any activities not authorized by this Trust Agreement; (ii) sell, assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of any of the Trust Property or interests therein, including to Holders, except as expressly provided herein; (iii) take any action that would cause the Trust to fail or cease to qualify as a "grantor trust" for United States federal income tax purposes; (iv) incur any indebtedness for borrowed money or issue any other debt; (v) take or consent to any action that would result in the creation of a Lien on any of the Trust Property; (vi) invest any proceeds received by the Trust from holding the Debentures, but shall distribute all such proceeds to Holders of Trust -15- Securities pursuant to the terms of this Trust Agreement and of the Trust Securities; (vii) acquire any assets other than the Trust Property; (viii) possess any power or otherwise act in such a way as to vary the Trust Property; (ix) possess any power or otherwise act in such a way as to vary the terms of the Trust Securities in any way whatsoever (except to the extent expressly authorized in this Trust Agreement or by the terms of the Trust Securities); or (x) issue any securities or other evidences of beneficial ownership of, or beneficial interest in, the Trust other than the Trust Securities. The Administrative Trustees shall defend all claims and demands of all Persons at any time claiming any Lien on any of the Trust Property adverse to the interest of the Trust or the Holders in their capacity as Holders. (c) In connection with the issue and sale of the Preferred Securities, the Depositor shall have the right and responsibility to assist the Trust with respect to, or effect on behalf of the Trust, the following (and any actions taken by the Depositor in furtherance of the following prior to the date of this Trust Agreement are hereby ratified and confirmed in all respects): (i) to determine the States in which to take appropriate action to qualify or register for sale or resale all or part of the Preferred Securities and to do any and all such acts, other than actions which must be taken by the Trust, and advise the Trust of actions it must take, and prepare for execution and filing any documents to be executed and filed by the Trust, as the Depositor deems necessary or advisable in order to comply with the applicable laws of any such States; (ii) to negotiate the terms of and execute the Purchase Agreement providing for the sale of the Preferred Securities; (iii) to the extent applicable, to provide all annual and quarterly reports and the information, documents and other reports that the Depositor is required to file, if any, with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act (the "SEC Reports") with the Indenture Trustee and the Property Trustee within 15 days after it files them with the Commission; (d) The Administrative Trustees are authorized and directed to conduct the affairs of the Trust and to operate the Trust so that the Trust will not be deemed to be an "investment company" required to be registered under the 1940 Act, or fail to be classified as a grantor trust for United States federal income tax purposes and so that the Debentures will be treated as indebtedness of the Depositor for United States federal income tax purposes. In this connection, the Depositor and the Administrative Trustees are authorized to take any action, not inconsistent with applicable law, the Certificate of Trust or this Trust Agreement, that each of the Depositor and any Administrative Trustee determines in its discretion to -16- be necessary or desirable for such purposes, as long as such action does not adversely affect in any material respect the interests of the Holders of the Preferred Securities. SECTION 2.9. ASSETS OF TRUST. The assets of the Trust shall consist solely of the Trust Property. SECTION 2.10. TITLE TO TRUST PROPERTY. Legal title to all Trust Property shall be vested at all times in the Property Trustee (in its capacity as such) and shall be held and administered by the Property Trustee for the benefit of the Trust and the Holders in accordance with this Trust Agreement. ARTICLE III PAYMENT ACCOUNT SECTION 3.1. PAYMENT ACCOUNT. (a) On or prior to the Closing Date, the Property Trustee will establish the Payment Account. The Property Trustee and any agent of the Property Trustee will have exclusive control and sole right of withdrawal with respect to the Payment Account for the purpose of making deposits in and withdrawals from the Payment Account in accordance with this Trust Agreement. All funds and other property deposited or held from time to time in the Payment Account will be held by the Property Trustee in the Payment Account for the exclusive benefit of the Holders and for distribution as provided herein, including (and subject to) any priority of payments provided for herein. (b) The Property Trustee will deposit in the Payment Account, promptly upon receipt, all payments of principal of, premium, if any, or interest on, and any other payments or proceeds with respect to the Debentures. Amounts held in the Payment Account will not be invested by the Property Trustee. -17- ARTICLE IV DISTRIBUTIONS; REDEMPTION; CONVERSION SECTION 4.1. DISTRIBUTIONS. (a) The Trust Securities represent undivided beneficial ownership interests in the Trust Property, and distributions (the "Distributions") will be made on the Trust Securities at the rate and on the dates that payments of interest (including Additional Interest, as defined in the Indenture) are made on the Debentures. Accordingly: (i) Distributions on the Trust Securities will be cumulative, and will accumulate whether or not there are funds of the Trust available for the payment of Distributions. Distributions will accrue from March 15, 2000, and, except in the event (and to the extent) that the Depositor exercises its right to defer the payment of interest on the Debentures pursuant to the Indenture, will be payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, commencing on July 1, 2000. If any date on which a Distribution is otherwise payable on the Trust Securities is not a Business Day, then the payment of such Distribution will be made on the next succeeding day that is a Business Day (without any additional Distributions or other payment in respect of such delay) except that, if such Business Day is in the next succeeding calendar year, payment of such Distribution shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date (each date on which Distributions are payable in accordance with this Section 4.1(a), a "Distribution Date"). (ii) Assuming payments of interest on the Debentures are made when due (and before giving effect to Additional Amounts, if applicable), Distributions on the Trust Securities shall be payable at an annual rate of 10% of the Liquidation Amount of the Trust Securities, the annual interest rate for the Debentures. The amount of Distributions payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. (iii) Distributions on the Trust Securities will be made by the Property Trustee from the Payment Account and shall be payable on each Distribution Date only to the extent that the Trust has funds then on hand and available in the Payment Account for the payment of such Distributions. -18- (b) Distributions on the Trust Securities with respect to a Distribution Date shall be payable to the Holders thereof as they appear on the Securities Register for the Trust Securities on the relevant record date, which shall be the 15th day of the month preceding the month in which the relevant Distribution Date occurs without giving effect to the third sentence of Section 4.1(a)(i) (whether or not such record date is a Business Day). SECTION 4.2. REDEMPTION. (a) On each Debenture Redemption Date and on the Debenture Stated Maturity, the Trust shall be required to redeem a Like Amount of Trust Securities at the Redemption Price. In addition, in the case of the occurrence of a Tax Event, if (i) the Depositor has received an opinion (a "Redemption Tax Opinion") from independent tax counsel experienced in such matters that, as a result of a Tax Event, there is more than an insubstantial risk that the Depositor would be precluded from deducting the interest on the Debentures for United States federal income tax purposes even after the Convertible Subordinated Debentures were distributed to the holders of Preferred Securities in liquidation of such holders' interests in the Trust Pursuant to Section 9.4 or (ii) the Administrative Trustees shall have been informed by such tax counsel that an opinion from independent tax counsel experienced in such matters to the effect that the holders of the Preferred Securities will not recognize any gain or loss for United States federal income tax purposes as a result of such dissolution and distribution of Convertible Subordinated Debentures (a "No Recognition Opinion") cannot be delivered, the Depositor shall have the right, upon not less than 30 nor more than 60 days notice, to redeem the Convertible Subordinated Debentures in whole or in part for cash within 90 days following the occurrence of such Tax Event, and, following such redemption, Preferred Securities with an aggregate liquidation amount equal to the aggregate principal amount of the Convertible Subordinated Debentures so redeemed shall be redeemed by the Trust at the Redemption Price on a pro rata basis or in such other manner as the Property Trustee deems appropriate; provided, however, that, if at the time there is available to the Depositor or the Trust the opportunity to eliminate, within such 90 day period, the Tax Event by taking some ministerial action, such as filing a form or making an election, or pursuing some other similar reasonable measure which has no adverse effect on the Trust, the holders of the Preferred Securities or the Depositor, the Trust will pursue such measure in lieu of redemption. (b) Notice of redemption shall be given by the Property Trustee by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date to each Holder of Trust Securities to be redeemed, at such Holder's address appearing in the Security Register. All notices of redemption shall state: (i) the Redemption Date; (ii) the Redemption Price; -19- (iii) if less than all the Outstanding Trust Securities are to be redeemed, the identification and the total Liquidation Amount of the particular Trust Securities to be redeemed; (iv) that on the Redemption Date the Redemption Price shall become due and payable upon each such Trust Security to be redeemed and that Distributions thereon shall cease to accrue on and after said date; and (v) the place and address where the Holders shall surrender their Certificated Preferred Securities. (c) The Trust Securities redeemed on each Redemption Date will be redeemed at the Redemption Price with the proceeds from the contemporaneous redemption on the Debenture Redemption Date or payment at the Debenture Stated Maturity. Redemptions of the Trust Securities will be made and the Redemption Price will be payable on each Redemption Date only to the extent that the Trust has funds then on hand and available in the Payment Account for the payment of such Redemption Price. (d) If the Property Trustee gives a notice of redemption in respect of any Preferred Securities, then, by 12:00 noon, New York City time, on the Redemption Date, subject to Section 4.2(c), the Property Trustee will irrevocably deposit with the Paying Agent funds sufficient to pay the applicable Redemption Price and will give the Paying Agent irrevocable instructions and authority to pay the Redemption Price to the Holders thereof upon surrender of their Preferred Securities Certificates. Notwithstanding the foregoing, Distributions payable on or prior to the Redemption Date for any Trust Securities called for redemption will be payable to the Holders of such Trust Securities as they appear on the Securities Register for the Trust Securities on the relevant record dates for the related Distribution Dates. If notice of redemption shall have been given and funds deposited as required, then upon the date of such deposit all rights of Holders holding Trust Securities so called for redemption shall cease, except (i) the right of such Holders to receive the Redemption Price and any Distribution payable on or prior to the Redemption Date, but without interest thereon and (ii) any right of the Holders to cause the Conversion Agent to convert the Trust Securities, and such Trust Securities will cease to be Outstanding. In the event that any date on which any Redemption Price is payable is not a Business Day, then payment of the Redemption Price payable on such date shall be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. In the event that payment of the Redemption Price in respect of any Trust Securities called for redemption is improperly withheld or refused and not paid either by the Trust or by the Depositor pursuant to the Guarantee, Distributions on such Trust Securities shall continue to accrue, at the then applicable -20- rate, from the Redemption Date originally established by the Trust for such Trust Securities to the date such Redemption Price is actually paid, in which case the actual payment date shall be the date fixed for redemption for purposes of calculating the Redemption Price. (e) Payment of the Redemption Price on the Trust Securities shall be made to the recordholders thereof as they appear on the Securities Register for the Trust Securities on the relevant record date, which shall be 15 days prior to the relevant Redemption Date. (f) Subject to Section 4.4(a), if less than all of the Outstanding Trust Securities are to be redeemed on a Redemption Date, then the aggregate Liquidation Amount of Trust Securities to be redeemed shall be allocated among the Common Securities and the Preferred Securities. The particular Preferred Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Property Trustee from the Outstanding Preferred Securities not previously called for redemption on a pro rata basis or by such other method as the Property Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $50 or an integral multiple of $50 in excess thereof) of the Liquidation Amount of Preferred Securities of a denomination larger than $50. The Property Trustee shall promptly notify the Security Registrar in writing of the Preferred Securities selected for redemption and, in the case of any Preferred Securities selected for partial redemption, the Liquidation Amount thereof to be redeemed. For all purposes of this Trust Agreement, unless the context otherwise requires, all provisions relating to the redemption of Preferred Securities shall relate, in the case of any Preferred Securities redeemed or to be redeemed only in part, to the portion of the Liquidation Amount of Preferred Securities that has been or is to be redeemed. SECTION 4.3. CONVERSION. The Holders shall have the right at any time prior to 5:00 p.m. (New York City time) on the second Business Day immediately preceding the date of repayment of such Trust Securities, whether at maturity or upon redemption (either at the option of the Depositor or pursuant to a Tax Event), at their option, to cause the Conversion Agent to convert Trust Securities, on behalf of the converting Holders, into shares of the Common Stock in the manner described herein on and subject to the following terms and conditions: (a) The Trust Securities shall be convertible at the office of the Conversion Agent into fully paid and nonassessable shares of Common Stock pursuant to the Holder's direction to the Conversion Agent to exchange such Trust Securities for a portion of the Debentures theretofore held by the Trust on the basis of one Trust Security per $50 principal amount of Debentures, and immediately convert such amount of Debentures (or any portion thereof that is an integral multiple of $50) into fully paid and nonassessable shares of Common Stock at an initial conversion premium of 17.5% -21- above the average closing price of the Common Stock during the ten (10) Trading Days after the Depositor's first earnings announcement after the Split-off, subject to certain adjustments set forth in the terms of the Debentures and the Indenture (as so adjusted, "Conversion Price"). Notwithstanding the foregoing, no holder of Preferred Securities that is subject to the restrictions of Section 4 of the Bank Holding Company Act of 1956, as amended (the "BHCA") (a "BHCA Person"), shall have the right to convert any Preferred Securities if, after giving effect to such conversion, the BHCA Person, its affiliates and transferees would own or be deemed to own shares of Common Stock in excess of either the maximum number of shares of Common Stock which the BHCA Person is permitted to own under the BHCA and the regulations of the Board of Governors of the Federal Reserve thereunder or such lower number as the relevant BHCA Person may have requested in writing to the Conversion Agent. No BHCA Person shall have the right to assign or transfer its Preferred Securities (other than to an Affiliate) unless such Preferred Securities are assigned or transferred (i) to the public in an offering registered under the Securities Act, (ii) in a transaction pursuant to Rule 144 or 144A under the Securities Act in which no person acquires Preferred Securities convertible into more than 2% of the outstanding Common Stock, (iii) in a single transaction to a third party who acquires a majority of the Common Stock without regard to the conversion of any Preferred Securities so transferred or (iv) in any other manner permitted under the BHCA. The Conversion Agent may rely on the representation of the relevant BHCA Person that a transfer has been made in the foregoing manner. (b) In order to convert Trust Securities into Common Stock, the Holder shall submit to the Conversion Agent an irrevocable request to convert Trust Securities on behalf of such Holder (the "Conversion Request"), together with such Trust Security Certificates. The Conversion Request shall: (i) set forth the number of Trust Securities to be converted and the name or names, if other than the Holder, in which the shares of Common Stock should be issued; and (ii) direct the Conversion Agent (A) to exchange such Trust Securities for a portion of the Debentures held by the Trust (at the rate of exchange specified in Section 4.3(a)) and (B) to immediately convert such Debentures on behalf of such Holder into Common Stock (at the Conversion Price specified in Section 4.3(a)). The Conversion Agent shall notify the Trust of the Holder's election to exchange Trust Securities for a portion of the Debentures held by the Trust and the Property Trustee on behalf of the Trust shall, upon receipt of such notice, deliver to the Conversion Agent the appropriate principal amount of Debentures for exchange in accordance with this Section 4.3. The Conversion Agent shall thereupon notify the Depositor of the Holder's election to convert such Debentures into shares of Common Stock. -22- (c) Accrued Distributions shall not be paid on Preferred Securities that are converted, nor will any payment, allowance or adjustment be made for accumulated and unpaid Distributions, whether or not in arrears, on converted Preferred Securities except that if any Preferred Security is converted (i) on or after a record date for payment of Distributions thereon, the amount of the Distributions payable on the related payment date with respect to such Preferred Security shall be paid to the converting Holder by the Trust and the Distributions payable on the related payment date with respect to such Preferred Security shall be distributed on such payment date to the Holder as of such record date, despite such conversion, and (ii) during an Extension Period and after the Property Trustee mails a notice of redemption with respect to the Preferred Securities that are converted, accrued and unpaid Distributions through the date of conversion on such Preferred Securities called for redemption shall be distributed to the Holder who converts such Preferred Securities, which Distribution shall be made on the redemption date fixed for redemption. Except as provided above, neither the Trust nor the Depositor shall make, or be required to make, any payment, allowance or adjustment upon any conversion on account of any accumulated and unpaid Distributions accrued on the Trust Securities (including Additional Amounts, if applicable) surrendered for conversion, or on account of any accumulated and unpaid dividends, if any, on the shares of Common Stock issued upon such conversion. The Depositor shall make no payment or allowance for distributions on the shares of Common Stock issued upon such conversion, except to the extent that such shares of Common Stock are held of record on the record date for any such distributions and except as provided in Section 13.9 of the Indenture. Trust Securities shall be deemed to have been converted immediately prior to 5:00 p.m. (New York City time) on the day on which a Conversion Request relating to such Trust Securities is received by the Trust in accordance with the foregoing provisions of this Section 4.3 (the "Conversion Date"). The Person or Persons entitled to receive the Common Stock issuable upon conversion of the Debentures shall be treated for all purposes as the record holder or holders of such Common Stock at such time. As promptly as practicable on or after the Conversion Date, the Depositor shall issue and deliver at the office of the Conversion Agent a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion, together with the cash payment, if any, in lieu of any fraction of any share to the Person or Persons entitled to receive the same as provided in Section 4.3(e), unless otherwise directed by the Holder in the Conversion Request, and the Conversion Agent shall distribute such certificate or certificates to such Person or Persons. (d) Each Holder of a Trust Security by his acceptance thereof appoints the Bank (the "Conversion Agent") for the purpose of effecting the conversion of Trust Securities in accordance with this Section 4.3. In effecting the conversion and trans- -23- actions described in this Section 4.3, the Conversion Agent shall be acting as agent of the Holders directing it to effect such conversion transactions. The Conversion Agent is hereby authorized (i) to exchange Trust Securities from time to time for Debentures held by the Trust in connection with the conversion of such Trust Securities in accordance with this Section 4.3 and (ii) to convert all or a portion of the Debentures into Common Stock and thereupon to deliver such shares of Common Stock in accordance with the provisions of this Section 4.3 and to deliver to the Trust a new Debenture or Debentures for any resulting unconverted principal amount. (e) No fractional shares of Common Stock shall be issued as a result of conversion, but in lieu thereof, such fractional interest shall be paid in cash (based on the last reported sale price of the Common Stock on the Conversion Date) by the Depositor to the Trust, which in turn shall make such payment to the Holder or Holders of Trust Securities so converted. (f) The Depositor shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of the Debentures, free from any preemptive or other similar rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all of the Debentures then outstanding. Notwithstanding the foregoing, the Depositor shall be entitled to deliver, upon conversion of Debentures, shares of Common Stock reacquired and held in the treasury of the Depositor (in lieu of the issuance of authorized and unissued shares of Common Stock), so long as any such treasury shares are free and clear of all liens, charges, security interests or encumbrances. Any shares of Common Stock issued upon conversion of the Debentures shall be duly authorized, validly issued, fully paid and nonassessable. The Trust shall deliver the shares of Common Stock received upon conversion of the Debentures to the converting Holder free and clear of all liens, charges, security interests and encumbrances, except for United States withholding taxes. Each of the Depositor and the Trust shall prepare and shall use its best efforts to obtain and keep in force such governmental or regulatory permits or other authorizations as may be required by law, and shall comply with all applicable requirements as to registration or qualification of the Common Stock (and all requirements to list the Common Stock issuable upon conversion of Debentures that are at the time applicable), in order to enable the Depositor to lawfully issue Common Stock to the Trust upon conversion of the Debentures and the Trust to lawfully deliver the Common Stock to each Holder upon conversion of the Trust Securities. (g) The Depositor will pay any and all taxes that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Debentures and the -24- delivery of the shares of Common Stock by the Trust upon conversion of the Trust Securities. The Depositor shall not, however, be required to pay any tax that may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the Trust Securities so converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Trust the amount of any such tax or has established to the satisfaction of the Trust that such tax has been paid. (h) Nothing in this Section 4.3 shall limit the requirement of the Trust to withhold taxes pursuant to the terms of the Trust Securities or as set forth in this Trust Agreement or otherwise require the Property Trustee or the Trust to pay any amount on account of such withholdings. SECTION 4.4. SUBORDINATION OF COMMON SECURITIES. (a) Payment of Distributions (including Additional Amounts) on, and the Redemption Price of, the Trust Securities, as applicable, shall be made, subject to Section 4.2(f), pro rata among the Common Securities and the Preferred Securities based on the Liquidation Amount of the Trust Securities; provided, however, that if on any Distribution Date or Redemption Date any Event of Default resulting from an Indenture Event of Default shall have occurred and be continuing, no payment of any Distribution (including Additional Amounts, if applicable) on, or Redemption Price of, any Common Security, and no other payment on account of the redemption, liquidation or other acquisition of Common Securities, shall be made unless payment in full in cash of all accumulated and unpaid Distributions (including Additional Amounts, if applicable) on all Outstanding Preferred Securities for all Distribution periods terminating on or prior thereto, or in the case of payment of the Redemption Price the full amount of such Redemption Price on all Outstanding Preferred Securities then called for redemption, shall have been made or provided for, and all funds available to the Property Trustee shall first be applied to the payment in full in cash of all Distributions (including Additional Amounts, if applicable) on, or the Redemption Price of, Preferred Securities then due and payable. (b) In the case of the occurrence of any Event of Default resulting from any Indenture Event of Default, the Holder of Common Securities shall be deemed to have waived any right to act with respect to any such Event of Default under this Trust Agreement until the effect of all such Events of Default with respect to the Preferred Securities shall have been cured, waived or otherwise eliminated. Until any such Event of Default under this Trust Agreement with respect to the Preferred Securities has been so cured, waived or otherwise eliminated, the Property Trustee shall act solely on behalf of the Holders of the Preferred Securities and not the Holder of the Common Securities, and only the Holders of the Preferred Securities shall have the right to direct the Property Trustee to act on their behalf. -25- SECTION 4.5. PAYMENT PROCEDURES. Payments of Distributions (including Additional Amounts, if applicable) in respect of the Preferred Securities shall be made by check mailed to the address of the Person entitled thereto as such address shall appear on the Securities Register. Payments in respect of the Common Securities shall be made in such manner as shall be mutually agreed in writing between the Property Trustee and the Holder of the Common Securities. SECTION 4.6. TAX RETURNS AND REPORTS. The Administrative Trustees shall prepare (or cause to be prepared), at the Depositor's expense, and file all United States federal, state and local tax and information returns and reports required to be filed by or in respect of the Trust. In this regard, the Administrative Trustees shall (a) prepare and file (or cause to be prepared and filed) the appropriate Internal Revenue Service Form required to be filed in respect of the Trust in each taxable year of the Trust and (b) prepare and furnish (or cause to be prepared and furnished) to each Holder the appropriate Internal Revenue Service form and the information required to be provided on such form. The Administrative Trustees shall provide the Depositor and the Property Trustee with a copy of all such returns and reports promptly after such filing or furnishing. The Trustees shall comply with United States federal withholding and backup withholding tax laws and information reporting requirements with respect to any payments to Holders under the Trust Securities. SECTION 4.7. PAYMENT OF EXPENSES OF TRUST. Pursuant to Section 10.6 of the Indenture, the Depositor, as borrower, has agreed to pay to the Trust, and reimburse the Trust for, the full amount of any costs, expenses or liabilities of the Trust (other than obligations of the Trust to pay the Holders of any Preferred Securities or other similar interests in the Trust the amounts due such Holders pursuant to the terms of the Preferred Securities or such other similar interests, as the case may be), including any taxes, duties or other governmental charges of whatever nature (other than withholding taxes) imposed on the Trust by the United States or any other taxing authority. Such payment obligation includes any such costs, expenses or liabilities of the Trust that are required by applicable law to be satisfied in connection with a termination of the Trust. SECTION 4.8. PAYMENTS UNDER INDENTURE OR PURSUANT TO DIRECT ACTIONS. Any amount payable hereunder to any Holder of Preferred Securities shall be reduced by the amount of any corresponding payment such Holder (or an Owner with respect -26- to the Holder's Preferred Securities) has directly received pursuant to Section 5.8 of the Indenture or Section 5.13 of this Trust Agreement. ARTICLE V TRUST SECURITIES CERTIFICATES SECTION 5.1. INITIAL OWNERSHIP. Upon the creation of the Trust and the contribution by the Depositor pursuant to Section 2.3 and until the issuance of the Trust Securities, and at any time during which no Trust Securities are Outstanding, the Depositor shall be the sole beneficial owner of the Trust. SECTION 5.2. TRUST SECURITIES CERTIFICATES. The Trust Securities Certificates shall be issued in minimum denominations of $50 Liquidation Amount and integral multiples of $50 in excess thereof. The Trust Securities Certificates shall be executed on behalf of the Trust by manual or facsimile signature of at least one Administrative Trustee and, if executed on behalf of the Trust by facsimile, countersigned by a transfer agent or its agent. The Certificated Preferred Securities shall be authenticated by the Property Trustee by manual or facsimile signature of an authorized signatory thereof and, if executed by such authorized signatory of the Property Trustee by facsimile, countersigned by a transfer agent or its agent. Trust Securities Certificates bearing the manual signatures of individuals who were, at the time when such signatures shall have been affixed, authorized to sign on behalf of the Trust or the Property Trustee or, if executed on behalf of the Trust or the Property Trustee by facsimile, countersigned by a transfer agent or its agent, shall be validly issued and entitled to the benefits of this Trust Agreement, notwithstanding that such individuals or any of them shall have ceased to be so authorized prior to the delivery of such Trust Securities Certificates or did not hold such offices at the date of delivery of such Trust Securities Certificates. A transferee of a Trust Securities Certificate shall become a Holder, and shall be entitled to the rights and subject to the obligations of a Holder hereunder, upon due registration of such Trust Securities Certificate in such transferee's name pursuant to Sections 5.4, 5.12 and 5.15. SECTION 5.3. EXECUTION AND DELIVERY OF TRUST SECURITIES CERTIFICATES. On the Closing Date, (i) the Administrative Trustees shall cause Trust Securities Certificates, in an aggregate Liquidation Amount as provided in, or determined in accor- -27- dance with, Sections 2.4 and 2.5, to be executed on behalf of the Trust and delivered to or upon the written order of the Depositor, signed by its chairman of the board, its president, any executive vice president or any vice president and its treasurer or assistant treasurer or controller without further corporate action by the Depositor, in authorized denominations and (ii) the Property Trustee shall authenticate the Certificated Preferred Securities in accordance with an order of the Depositor. SECTION 5.4. REGISTRATION OF TRANSFER AND EXCHANGE OF PREFERRED SECURITIES. (a) Trust Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Trust Agreement and in the terms of the Preferred Securities. Any transfer or purported transfer of any Trust Security not made in accordance with this Trust Agreement shall, to the fullest extent permitted by applicable law, be null and void. (b) Upon issuance of the Common Securities, the Depositor shall acquire and retain beneficial and record ownership of the Common Securities and, for so long as the Preferred Securities remain outstanding, the Depositor shall maintain 100% ownership of the Common Securities, provided that any permitted successor of the Depositor under the Indenture may succeed to the Depositor's ownership of the Common Securities; and provided further, that the Depositor and any wholly-owned subsidiary may transfer Common Securities to the Depositor or wholly-owned subsidiary of the Depositor or any entity owning all of the outstanding Common Stock of the Depositor, with any such transfer being subject to the condition precedent that the transferor obtain Opinion of Counsel that such transfer would not cause more than an insubstantial risk that: (i) the Trust would not be classified for United States federal income tax purposes as a grantor trust; or (ii) the Trust would be an investment company required to register under the Investment Company Act or the transferee would become an investment company required to register under the Investment Company Act. (c) Subject to this Article 5, Preferred Securities shall be freely transferable; provided that, any Holder which is a BHCA Person shall be subject to the restrictions set forth in Section 4.3(a) hereof. (d) The Trust shall not be required (i) to issue, register the transfer of or exchange any Preferred Securities during a period beginning at the opening of business 15 days before the day of any selection of Preferred Securities for redemption and ending at the close -28- of business on the earliest date on which the relevant notice of redemption is deemed to have been given to all Holders of Preferred Securities to be redeemed, or (ii) to register the transfer or exchange of any Preferred Security so selected for redemption in whole or in part, except the unredeemed portion of any Preferred Security being redeemed in part. Furthermore, the Trust shall refuse to register any transfer of any Preferred Security (and the Depositor shall refuse to register any transfer of Common Stock issued upon the conversion or exchange of a Preferred Security) if such transfer is not made pursuant to registration under the Securities Act or pursuant to Rule 144A or Regulation S under the Securities Act or pursuant to another available exemption from registration. (e) Each Trust Security that bears or is required to bear the legend set forth in this Section 5.4(e) (a "Transfer Restricted Security") shall be subject to the restrictions on transfer provided in the legend set forth in this Section 5.4(e), unless such restrictions on transfer shall be waived by the written consent of the Administrative Trustees, and the Holder of each Transfer Restricted Security, by such Holder's acceptance thereof, agrees to be bound by such restrictions on transfer. As used in this Section 5.4, the term "transfer" encompasses any sale, pledge, transfer or other disposition of any Transfer Restricted Security. Prior to the Resale Restriction Termination Date, any certificate representing Preferred Securities shall bear the following legend (unless such Preferred Securities have been sold pursuant to a registration statement that has been declared effective under the Securities Act): THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, RESOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER HEREOF MAY NOT ENGAGE IN HEDGING TRANSACTIONS IN THIS SECURITY UNLESS SUCH TRANSACTIONS ARE IN COMPLIANCE WITH THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, RESELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS THE LATER OF (X) TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE -29- HEREOF AND THE LAST DATE ON WHICH GENTIVA HEALTH SERVICES, INC. (THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. ANY TRANSFER OF THIS SECURITY IS REQUIRED TO BE MADE IN COMPLIANCE WITH THE APPLICABLE STATE SECURITIES LAWS AND APPLICABLE SECURITIES LAWS OF OTHER JURISDICTIONS. EACH PURCHASER OR HOLDER OF THE SECURITY EVIDENCED HEREBY WILL BE DEEMED TO HAVE REPRESENTED EITHER THAT IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO PART 4 OF SUBTITLE B OF TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, ("ERISA") OR A PLAN DESCRIBED IN SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE THE ASSETS OF ANY SUCH ERISA PLAN OR OTHER PLAN. -30- THE HOLDER OF THIS SECURITY AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS CAPITAL SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. In the case of a purchaser of Preferred Securities in the State of Georgia, for a period of one year from the Closing Date, the Preferred Securities shall contain the following additional legend: THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE SECTION 10-5-9 OF THE `GEORGIA SECURITIES ACT OF 1973', AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT. Following the Resale Restriction Termination Date, any Trust Security or security issued in exchange or substitution therefor (other than (i) Trust Securities acquired by the Depositor or any Affiliate of the Depositor and (ii) Common Stock issued upon the conversion or exchange of any Trust Security described in clause (i) above) may, upon surrender of such Trust Security for exchange to any Administrator on behalf of the Trust in accordance with the provisions of this Section 5.4, be exchanged for a new Trust Security or Trust Securities, of like tenor and aggregate liquidation amount, which shall not bear the restrictive legend required by this Section 5.4(e). (f) Any Preferred Security or Common Stock issued upon the conversion or exchange of a Preferred Security that, prior to the Resale Restriction Termination Date, is purchased or owned by the Depositor or any Affiliate thereof may not be resold by the Depositor or such Affiliate unless registered under the Securities Act or resold pursuant to an exemption from the registration requirements of the Securities Act in a transaction that results in such Preferred Securities or Common Stock, as the case may be, no longer being "restricted securities" (as defined under Rule 144). SECTION 5.5. TRANSFER OF CERTIFICATES. The Trust shall maintain an office or agency in The City of New York or Wilmington, Delaware where Securities may be presented for transfer, exchange or conversion. The Trust shall keep or cause to be kept at such office or agency a register for the purpose of registering Preferred Securities and transfers and exchanges of Preferred Securities (the "Securities Register"), such register to be held by a registrar (the "Securities Registrar"). The Securities Registrar shall provide for the registration of Trust Securities Certificates and of -31- transfers of Trust Securities Certificates, which will be effected without charge, but only upon payment (with such indemnity as the Securities Registrar may require) in respect of any tax or other government charges that may be imposed in relation to it. Upon surrender for registration of transfer of any Trust Securities Certificate, the Trust shall cause one or more new Trust Securities Certificates to be issued in the name of the designated transferee or transferees. Every Trust Securities Certificate surrendered for registration of transfer shall be accompanied by a written instrument of transfer in the form attached hereto as Exhibit D and which is satisfactory to the Securities Registrar and duly executed by the Holder or such Holder's attorney duly authorized in writing. Each Trust Securities Certificate surrendered for registration of transfer shall be canceled by the Securities Registrar. A transferee of a Trust Securities Certificate shall be entitled to the rights and subject to the obligations of a Holder hereunder upon the receipt by such transferee of a Trust Securities Certificate. By acceptance of a Trust Securities Certificate, each transferee shall be deemed to have agreed to be bound by this Trust Agreement. SECTION 5.6. DEEMED HOLDERS. The Trustees or the Securities Registrar may treat the Person in whose name any Trust Securities Certificate shall be registered on the books and records of the Trust as the sole Holder of such Trust Securities Certificate and of the Trust Securities represented by such Trust Securities Certificate for purposes of receiving Distributions and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Trust Securities Certificate or in the Trust Securities represented by such Trust Securities Certificate on the part of any Person, whether or not the Trustees or the Securities Registrar shall have actual or other notice thereof. SECTION 5.7. ACCESS TO LIST OF HOLDERS' NAMES AND ADDRESSES. Each Holder and each Owner shall be deemed to have agreed not to hold the Depositor, the Property Trustee or the Administrative Trustees accountable by reason of the disclosure of its name and address, regardless of the source from which such information was derived. SECTION 5.8. MAINTENANCE OF OFFICE OR AGENCY. The Administrative Trustees shall maintain an office or offices or agency or agencies where Trust Securities Certificates may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Trustees in respect of the Trust Securities Certificates may be served. The Administrative Trustees initially designate the corporate trust office of Wilmington Trust Company, a Delaware banking Corporation, Attn: Cor- -32- porate Trust Department, as their principal corporate trust office for such purposes. The Administrative Trustees shall give prompt written notice to the Depositor, the Property Trustee and to the Holders of any change in the location of the Securities Register or any such office or agency. SECTION 5.9. APPOINTMENT OF PAYING AGENT. The Paying Agent shall make Distributions to Holders from the Payment Account and shall report the amounts of such Distributions to the Property Trustee and the Administrative Trustees. Any Paying Agent shall have the revocable power to withdraw funds from the Payment Account for the purpose of making the Distributions referred to above. The Administrative Trustees may revoke such power and remove the Paying Agent if such Trustees determine in their sole discretion that the Paying Agent shall have failed to perform its obligations under this Trust Agreement in any material respect. The Paying Agent shall initially be the Bank and any co-paying agent chosen by the Bank and acceptable to the Administrative Trustees and the Depositor. Any Person acting as Paying Agent shall be permitted to resign as Paying Agent upon giving 30 days written notice to the Administrative Trustees, the Property Trustee and the Depositor. In the event that the Bank shall no longer be the Paying Agent or a successor Paying Agent shall resign or its authority to act be revoked, the Administrative Trustees shall appoint a successor that is acceptable to the Property Trustee and the Depositor to act as Paying Agent (which shall be a bank or trust company). The Administrative Trustees shall cause such successor Paying Agent or any additional Paying Agent appointed by the Administrative Trustees to execute and deliver to the Trustees an instrument in which such successor Paying Agent or additional Paying Agent shall agree with the Trustees that, as Paying Agent, such successor Paying Agent or additional Paying Agent will hold all sums, if any, held by it for payment to the Holders in trust for the benefit of the Holders entitled thereto until such sums shall be paid to such Holders. The Paying Agent shall return all unclaimed funds to the Property Trustee and upon resignation or removal of a Paying Agent such Paying Agent shall also return all funds in its possession to the Property Trustee. The provisions of Sections 8.1, 8.3 and 8.6 shall apply to the Bank also in its role as Paying Agent, for so long as the Bank shall act as Paying Agent and, to the extent applicable, to any other paying agent appointed hereunder. Any Paying Agent shall be bound by the requirements of the Trust Indenture Act with respect to paying agents of securities. Any reference in this Trust Agreement to the Paying Agent shall include any co-paying agent unless the context requires otherwise. The Paying Agent shall be entitled to the rights and protections extended to the Property Trustee when acting in such capacity. SECTION 5.10. APPOINTMENT OF CONVERSION AGENT. The Conversion Agent shall convert the Trust Securities of the Holders in accordance with Section 4.3. The Administrative Trustees may revoke such power and remove -33- the Conversion Agent if such Trustees determine in their sole discretion that the Conversion Agent shall have failed to perform its obligations under this Trust Agreement in any material respect. The Conversion Agent shall initially be the Bank. Any Person acting as Conversion Agent shall be permitted to resign as Conversion Agent upon giving 30 days written notice to the Administrative Trustees, the Property Trustee and the Depositor. In the event that the Bank shall no longer be the Conversion Agent or a successor Conversion Agent shall resign or its authority to act be revoked, the Administrative Trustees shall appoint a successor (which shall be a bank or trust company) that is acceptable to the Property Trustee and the Depositor to act as Conversion Agent. The provisions of Sections 8.1, 8.3 and 8.6 shall apply to the Bank also in its role as Conversion Agent for so long as the Bank shall act as Conversion Agent and, to the extent applicable, to any other conversion agent appointed hereunder. Any Conversion Agent shall be bound by the requirements with respect to conversion agents of securities issued pursuant to the Trust Indenture Act. Any reference in this Trust Agreement to the Conversion Agent shall include any co-paying agent unless the context requires otherwise. The Conversion Agent shall be entitled to the rights and protections extended to the Property Trustee when acting in such capacity. SECTION 5.11. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR. On the Closing Date, the Depositor shall acquire and retain beneficial and record ownership of the Common Securities. To the fullest extent permitted by law, other than a transfer in connection with a consolidation or merger of the Depositor into another Person, or any conveyance, transfer or lease by the Depositor of its properties and assets substantially as an entirety to any Person, pursuant to Section 8.1 of the Indenture, any attempted transfer of the Common Securities shall be void. The Administrative Trustees shall cause each Common Securities Certificate issued to the Depositor to contain a legend stating: "THIS CERTIFICATE IS NOT TRANSFERABLE TO ANY PERSON, EXCEPT THAT THE HOLDER AND ANY WHOLLY-OWNED SUBSIDIARY MAY TRANSFER THIS SECURITY TO GENTIVA HEALTH SERVICES, INC. OR A WHOLLY-OWNED SUBSIDIARY OF GENTIVA HEALTH SERVICES, INC. OR ANY ENTITY OWNING ALL OF THE OUTSTANDING COMMON STOCK OF GENTIVA HEALTH SERVICES, INC., SUBJECT TO RECEIPT BY THE TRUST OF AN OPINION OF COUNSEL THAT SUCH TRANSFER WOULD NOT CAUSE MORE THAN AN INSUBSTANTIAL RISK THAT (I) THE TRUST WOULD NOT BE CLASSIFIED FOR UNITED STATES FEDERAL INCOME TAX PURPOSES AS A GRANTOR TRUST; OR (II) THE TRUST WOULD BE AN INVESTMENT COMPANY REQUIRED TO REGISTER UNDER THE INVESTMENT -34- COMPANY ACT OR THE TRANSFEREE WOULD BECOME AN INVESMENT COMPANY REQUIRED TO REGISTER UNDER THE INVESTMENT COMPANY ACT." SECTION 5.12. MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES CERTIFICATES. If (a) any mutilated Trust Securities Certificate shall be surrendered to the Securities Registrar, or if the Securities Registrar shall receive evidence to its satisfaction of the destruction, loss or theft of any Trust Securities Certificate, and (b) there shall be delivered to the Securities Registrar and the Administrative Trustees such security or indemnity as may be required by them to save each of them harmless, then in the absence of notice that such Trust Securities Certificate shall have been acquired by a bona fide purchaser, the Administrative Trustees, or any one of them, on behalf of the Trust shall execute by manual or facsimile signature and, if executed on behalf of the Trust by facsimile signature, such certificate shall be countersigned by a transfer agent, and make available for delivery, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Trust Securities Certificate, a new Trust Securities Certificate of like class, tenor and denomination. In connection with the issuance of any new Trust Securities Certificate under this Section 5.12, the Administrative Trustees or the Securities Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Trust Securities Certificate issued pursuant to this Section 5.12 shall constitute conclusive evidence of an undivided beneficial interest in the Trust Property, as if originally issued, whether or not the lost, stolen or destroyed Trust Securities Certificate shall be found at any time. SECTION 5.13. RIGHTS OF HOLDERS. (a) The legal title to the Trust Property is vested exclusively in the Property Trustee (in its capacity as such) in accordance with Section 2.10, and the Holders shall not have any right or title therein other than the undivided beneficial ownership interest in the assets of the Trust conferred by their Trust Securities, and they shall have no right to call for any partition or division of property, profits or rights of the Trust except as described below. The Trust Securities shall be personal property giving only the rights specifically set forth therein and in this Trust Agreement. The Trust Securities shall have no preemptive or similar rights and when issued and delivered to Holders against payment of the purchase price therefor shall be fully paid and nonassessable by the Trust. The Holders of the Preferred Securities, in their capacities as such, shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. -35- (b) For so long as any Preferred Securities remain Outstanding, if, upon a Indenture Event of Default, the Indenture Trustee fails or the holders of not less than 25% in principal amount of the outstanding Debentures fail to declare the principal of all of the Debentures to be immediately due and payable, the Holders of at least 25% in Liquidation Amount of the Preferred Securities then Outstanding shall have such right by a notice in writing to the Depositor and the Indenture Trustee; and upon any such declaration such principal amount of and the accrued interest on all of the Debentures shall become immediately due and payable as set forth in the Indenture, provided that the payment of principal and interest on such Debentures shall remain subordinated to the extent provided in the Indenture. At any time after such a declaration of acceleration with respect to the Debentures has been made and before a judgment or decree for payment of the money due has been obtained by the Indenture Trustee as described in the Indenture, the Holders of a majority in Liquidation Amount of the Preferred Securities, by written notice to the Property Trustee, the Depositor and the Indenture Trustee, may rescind and annul such declaration and its consequences if: (i) the Depositor has paid or deposited with the Indenture Trustee a sum sufficient to pay (A) all overdue installments of interest (including any Additional Interest (as defined in the Indenture)) on all of the Debentures, (B) the principal of any Debentures which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Debentures and (C) all sums paid or advanced by the Indenture Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and the Property Trustee, their agents and counsel; and (ii) all Events of Default with respect to the Debentures, other than the non-payment of the principal of the Debentures which has become due solely by such acceleration, have been cured or waived as provided in Section 5.13 of the Indenture. (c) The Holders of a majority in aggregate Liquidation Amount of the Preferred Securities may, on behalf of the Holders of all the Preferred Securities, waive any past default under the Indenture, except a default in the payment of principal or interest (unless all Events of Default with respect to the Debentures, other than the non-payment of the principal of the Debentures which has become due solely by such acceleration, have been cured or annulled as provided in Section 5.13 of the Indenture and the Depositor has paid or deposited with the Indenture Trustee a sum sufficient to pay all overdue installments of interest (including any Additional Interest) on the Debentures, the principal of any Debentures which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Debentures, and all sums paid or advanced by the Indenture Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and the Property Trustee, their agents and counsel) or a default in respect of a covenant or provision which under the Indenture cannot be modified or amended without the consent of the holder of each outstanding Debenture. No such rescission shall affect any subsequent default or impair any right consequent thereon. -36- (d) Upon receipt by the Property Trustee of written notice declaring such an acceleration, or rescission and annulment thereof, by Holders of the Preferred Securities all or part of which is represented by Preferred Securities Certificates, a record date shall be established for determining Holders of Outstanding Preferred Securities entitled to join in such notice, which record date shall be at the close of business on the day the Property Trustee receives such notice. The Holders of Outstanding Preferred Securities on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether or not such Holders remain Holders after such record date; provided, that, unless such declaration of acceleration, or rescission and annulment, as the case may be, shall have become effective by virtue of the requisite percentage having joined in such notice prior to the day which is 90 days after such record date, such notice of declaration of acceleration, or rescission and annulment, as the case may be, shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new written notice of declaration of acceleration, or rescission and annulment thereof, as the case may be, that is identical to a written notice that has been canceled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 5.13(d). (e) Without limiting the generality of the foregoing, the Holders of a majority in aggregate Liquidation Amount of the Preferred Securities will have the right to appoint a Special Administrative Trustee under the circumstances described in Section 6.1(d), who shall have the same rights, powers and privileges as the other Administrative Trustees. (f) For so long as any Preferred Securities remain Outstanding, to the fullest extent permitted by law and subject to the terms of this Trust Agreement and the Indenture, upon an Indenture Event of Default specified in Section 5.1(1) or 5.1(2) of the Indenture, any Holder of Preferred Securities shall have the right to institute a proceeding directly against the Depositor, pursuant to Section 5.8 of the Indenture, for enforcement of payment to such Holder of the principal amount of or interest on Debentures having a principal amount equal to the Liquidation Amount of the Preferred Securities of such Holder (a "Direct Action"). Except as set forth in this Section 5.13, the Holders of Preferred Securities shall have no right to exercise directly any right or remedy available to the holders of, or in respect of, the Debentures. -37- ARTICLE VI ACTS OF HOLDERS; MEETINGS; VOTING SECTION 6.1. LIMITATIONS ON VOTING RIGHTS. (a) Except as provided in this Section 6.1, in Sections 5.13, 8.10 and 11.3 of the Trust Agreement and as otherwise required by law, no Holder of Preferred Securities shall have any right to vote or in any manner otherwise control the administration, operation and management of the Trust or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Trust Securities Certificates, be construed so as to constitute the Holders from time to time as partners or members of an association. (b) So long as any Debentures are held by the Property Trustee, the Trustees, without obtaining the prior approval of the Holders of at least a majority in Liquidation Amount of all Outstanding Preferred Securities, shall not: (i) direct the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustee, or executing any trust or power conferred on the Indenture Trustee with respect to such Debentures; (ii) waive any past default which is waiveable under Section 5.13 of the Indenture; (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable; or (iv) consent to any amendment, modification or termination of the Indenture or the Debentures, where such consent shall be required; provided, however, that where a consent under the Indenture would require the consent of each holder of Debentures affected thereby, no such consent shall be given by the Property Trustee without the prior written consent of each Holder of Preferred Securities. The Trustees shall not revoke any action previously authorized or approved by a vote of the Holders of Preferred Securities, except by a subsequent vote of the Holders of Preferred Securities. The Property Trustee shall notify all Holders of the Preferred Securities of any notice of default received from the Indenture Trustee with respect to the Debentures. In addition to obtaining the foregoing approvals of the Holders of the Preferred Securities, prior to taking any of the foregoing actions, the Administrative Trustees shall, at the expense of the Depositor, obtain an Opinion of Counsel experienced in such matters to the effect that such action shall not cause the Trust to fail to be classified as a grantor trust for United States federal income tax purposes. (c) If any proposed amendment to the Trust Agreement provides for, or the Trustees otherwise propose to effect, (i) any action that would adversely affect in any material respect the powers, preferences or special rights of the Preferred Securities, whether by way of amendment to the Trust Agreement or otherwise, or (ii) the dissolution, winding-up or termination of the Trust, other than pursuant to the terms of this Trust Agreement, then the Holders of Outstanding Preferred Securities as a class shall be entitled to vote on such amendment or -38- proposal and such amendment or proposal shall not be effective except with the approval of the Holders of at least a majority in Liquidation Amount of the Outstanding Preferred Securities. Notwithstanding any other provision of this Trust Agreement, no amendment to this Trust Agreement may be made if, as a result of such amendment, the Trust would fail to be classified as a grantor trust for United States federal income tax purposes. (d) If a Trust Agreement Event of Default occurs and is continuing (each, an "Appointment Event"), then the holders of the Preferred Securities, acting as a single class, will be entitled by the majority vote of such holders to appoint a Special Administrative Trustee. Any holder of Preferred Securities (other than the Depositor or any of its affiliates) shall be entitled to nominate any person to be appointed as Special Administrative Trustee. Not later than 30 days after such right to appoint a Special Administrative Trustee arises, the Administrative Trustees shall convene a meeting of the holders of Preferred Securities for the purpose of appointing a Special Administrative Trustee. If the Administrative Trustees fail to convene such meeting within such 30-day period, the holders of not less than 10% of the aggregate stated liquidation amount of the outstanding Preferred Securities will be entitled to convene such meeting. The provisions of this Agreement relating to the convening and conduct of the meetings of the holders will apply with respect to any such meeting. Any Special Administrative Trustee so appointed shall cease to be a Special Administrative Trustee if the Appointment Event pursuant to which the Special Administrative Trustee was appointed and all other Appointment Events cease to be continuing. SECTION 6.2. NOTICE OF MEETINGS. Notice of all meetings of the Holders, stating the time, place and purpose of the meeting, shall be given by the Property Trustee pursuant to Section 11.9 to each Holder of record, at his registered address, at least 15 days and not more than 90 days before the meeting. At any such meeting, any business properly before the meeting may be so considered whether or not stated in the notice of the meeting. Any adjourned meeting may be held as adjourned without further notice. SECTION 6.3. MEETINGS OF HOLDERS. (a) No annual meeting of Holders is required to be held. The Administrative Trustees, however, shall call a meeting of Holders to vote on any matter upon the written request of the Holders holding of record of 25% of the Outstanding Preferred Securities (based upon their Liquidation Amount) and the Administrative Trustees or the Property Trustee may, at any time in their discretion, call a meeting of Holders to vote on any matters as to which Holders are entitled to vote. -39- (b) Holders holding of record of 50% of the Outstanding Preferred Securities (based upon their Liquidation Amount), present in person or by proxy, shall constitute a quorum at any meeting of Holders. (c) If a quorum is present at a meeting, an affirmative vote by the Holders of record present, in person or by proxy, holding more than a majority of the Outstanding Preferred Securities (based upon their Liquidation Amount) held by Holders of record of Outstanding Preferred Securities present, either in person or by proxy, at such meeting shall constitute the action of the Holders, unless this Trust Agreement requires a greater number of affirmative votes. SECTION 6.4. VOTING RIGHTS. Holders shall be entitled to one vote for each $50 of Liquidation Amount represented by their Trust Securities in respect of any matter as to which such Holders are entitled to vote. SECTION 6.5. PROXIES, ETC. At any meeting of Holders, any Holder entitled to vote thereat may vote by proxy, provided that no proxy shall be voted at any meeting unless it shall have been placed on file with the Administrative Trustees, or with such other officer or agent of the Trust as the Administrative Trustees may direct, for verification prior to the time at which such vote shall be taken. Pursuant to a resolution of the Property Trustee, proxies may be solicited in the name of the Property Trustee or one or more officers of the Property Trustee. Only Holders of record shall be entitled to vote. When Trust Securities are held jointly by several Persons, any one of them may vote at any meeting in person or by proxy in respect of such Trust Securities, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in respect of such Trust Securities. A proxy purporting to be executed by or on behalf of a Holder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. No proxy shall be valid more than three years after its date of execution. SECTION 6.6. HOLDER ACTION BY WRITTEN CONSENT. Any action which may be taken by Holders at a meeting may be taken without a meeting if Holders holding a majority of all Outstanding Trust Securities (based upon their Liquidation Amount) entitled to vote in respect of such action (or such larger proportion thereof as shall be required by any express provision of this Trust Agreement) shall consent to the action in writing. Prompt notice of the action taken shall be given by the Holders to the -40- Property Trustee and the Depositor, and the Property Trustee shall give notice within 90 days of its receipt thereof by regular mail to all Holders entitled to vote who have not consented in writing. SECTION 6.7. RECORD DATE FOR VOTING AND OTHER PURPOSES. For the purposes of determining the Holders who are entitled to notice of and to vote at any meeting or by written consent, or to participate in any Distribution on the Trust Securities in respect of which a record date is not otherwise provided for in this Trust Agreement, or for the purpose of any other action, the Administrative Trustees may from time to time fix a date, not more than 90 days prior to the date of any meeting of Holders or the payment of a Distribution or other action, as the case may be, as a record date for the determination of the identity of the Holders of record for such purposes. SECTION 6.8. ACTS OF HOLDERS. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Trust Agreement to be given, made or taken by Holders or Owners may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders or Owners in person or by an agent duly appointed in writing; and, except as otherwise expressly provided herein, such action shall become effective when such instrument or instruments are delivered to an Administrative Trustee. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders or Owners signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Trust Agreement and (subject to Section 8.1) conclusive in favor of the Trustees, if made in the manner provided in this Section 6.8. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which any Trustee receiving the same deems sufficient. (c) The ownership of Preferred Securities shall be proved by the Securities Register. -41- (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of a Holder of any Trust Security shall bind every future Holder of the same Trust Security and the Holder of every Trust Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustees or the Trust in reliance thereon, whether or not notation of such action is made upon such Trust Security. (e) Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Trust Security may do so with regard to all or any part of the Liquidation Amount of such Trust Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such Liquidation Amount. (f) If any dispute shall arise between the Holders and the Administrative Trustees or among such Holders or Trustees with respect to the authenticity, validity or binding nature of any request, demand, authorization, direction, consent, waiver or other Act of such Holder or Trustee under this Article VI, then the determination of such matter by the Property Trustee shall be conclusive with respect to such matter. SECTION 6.9. INSPECTION OF RECORDS. Upon reasonable notice to the Administrative Trustees and the Property Trustee, the records of the Trust shall be open to inspection by Holders during normal business hours for any purpose reasonably related to such Holder's interest as a Holder. ARTICLE VII REPRESENTATIONS AND WARRANTIES SECTION 7.1. REPRESENTATIONS AND WARRANTIES OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE. The Property Trustee and the Delaware Trustee each on behalf of and as to itself, hereby represents and warrants for the benefit of the Depositor and the Holders that: (a) the Delaware Trustee is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) the Delaware Trustee has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Trust Agreement and has taken -42- all necessary action to authorize the execution, delivery and performance by it of this Trust Agreement; (c) the Property Trustee is a Delaware banking corporation duly organized, validly existing and in good standing in the State of Delaware; (d) the Property Trustee has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Trust Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Trust Agreement; (e) this Trust Agreement has been duly authorized, executed and delivered by the Property Trustee and, assuming due authorization, execution and delivery by the other parties hereto, constitutes the valid and legally binding agreement of the Property Trustee enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; (f) the execution, delivery and performance of this Trust Agreement has been duly authorized by all necessary corporate or other action on the part of the Property Trustee does not require any approval of stockholders of the Property Trustee and such execution, delivery and performance will not (i) violate the charter or by-laws of the Property Trustee, (ii) violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of, any Lien on any properties included in the Trust Property (other than as contemplated by this Trust Agreement) pursuant to the provisions of, any indenture, mortgage, credit agreement, license or other agreement or instrument to which the Property Trustee is a party or by which it is bound, or (iii) violate any law, governmental rule or regulation of the State of Delaware, as the case may be, governing the banking, trust or general powers of the Property Trustee (as appropriate in context) or any order, judgment or decree applicable to the Property Trustee; (g) neither the authorization, execution or delivery by the Property Trustee of this Trust Agreement nor the consummation of any of the transactions by the Property Trustee contemplated herein or therein requires the consent or approval of, the giving of notice to, the registration with or the taking of any other action with respect to any governmental authority or agency under any existing law or regulation or Delaware law governing the banking, trust or general powers of the Property Trustee, as the case may be; and -43- (h) there are no proceedings pending or, to the best of the Property Trustee's knowledge, threatened against or affecting the Property Trustee in any court or before any governmental authority, agency or arbitration board or tribunal which, individually or in the aggregate, would materially and adversely affect the Trust or would question the right, power and authority of the Property Trustee, as the case may be, to enter into or perform its obligations as one of the Trustees under this Trust Agreement. ARTICLE VIII THE TRUSTEES SECTION 8.1. CERTAIN DUTIES AND RESPONSIBILITIES. (a) The duties and responsibilities of the Trustees shall be as provided by this Trust Agreement and, in the case of the Property Trustee, by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Trust Agreement shall require the Trustees to expend or risk their own funds or otherwise incur any financial liability in the performance of any of their duties hereunder, or in the exercise of any of their rights or powers, if they shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to them. Whether or not therein expressly so provided, every provision of this Trust Agreement relating to the conduct or affecting the liability of or affording protection to the Trustees shall be subject to the provisions of this Section 8.1. Nothing in this Trust Agreement shall be construed to release an Administrative Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct. To the extent that, at law or in equity, an Administrative Trustee has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to the Holders, such Administrative Trustee shall not be liable to the Trust or to any Holder for such Trustee's good faith reliance on the provisions of this Trust Agreement. The provisions of this Trust Agreement, to the extent that they restrict the duties and liabilities of the Administrative Trustees otherwise existing at law or in equity, replace such other duties and liabilities of the Administrative Trustees. (b) All payments made by the Property Trustee or a Paying Agent in respect of the Trust Securities shall be made only from the revenue and proceeds from the Trust Property and only to the extent that there shall be sufficient revenue or proceeds from the Trust Property to enable the Property Trustee or a Paying Agent to make payments in accordance with the terms hereof. Each Holder, by its acceptance of a Trust Security, agrees that it shall look solely to the revenue and proceeds from the Trust Property to the extent legally available for distribution to it as herein provided and that the Trustees are not personally liable to it for any -44- amount distributable in respect of any Trust Security or for any other liability in respect of any Trust Security. This Section 8.1(b) does not limit the liability of the Trustees expressly set forth elsewhere in this Trust Agreement or, in the case of the Property Trustee, in the Trust Indenture Act. (c) No provision of this Trust Agreement shall be construed to relieve the Property Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) the Property Trustee shall not be liable for any error of judgment made in good faith by an authorized officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (ii) the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in Liquidation Amount of the Trust Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under this Trust Agreement; (iii) the Property Trustee's sole duty with respect to the custody, safe keeping and physical preservation of the Debentures and the Payment Account shall be to deal with such property in a similar manner as the Property Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Property Trustee under this Trust Agreement and the Trust Indenture Act; (iv) the Property Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree in writing with the Depositor; and money held by the Property Trustee need not be segregated from other funds held by it except in relation to the Payment Account maintained by the Property Trustee pursuant to Section 3.1 and except to the extent otherwise required by law; and (v) the Property Trustee shall not be responsible for monitoring the compliance by the Administrative Trustees or the Depositor with their respective duties under this Trust Agreement, nor shall the Property Trustee be liable for the default or misconduct of the Administrative Trustees or the Depositor. SECTION 8.2. CERTAIN NOTICES. (a) Within ten Business Days after the occurrence of any Event of Default actually known to the Property Trustee, the Property Trustee shall transmit, in the manner and to -45- the extent provided in Section 11.9, notice of such Event of Default to the Holders, the Administrative Trustees and the Depositor, unless such Event of Default shall have been cured or waived. (b) Within five Business Days after the receipt of notice of the Depositor's exercise of its right to defer the payment of interest on the Debentures pursuant to the Indenture, the Administrative Trustee shall transmit, in the manner and to the extent provided in Section 11.9, notice of such exercise to the Holders and the Property Trustee, unless such exercise shall have been revoked. SECTION 8.3. CERTAIN RIGHTS OF PROPERTY TRUSTEE. Subject to the provisions of Section 8.1: (a) the Property Trustee may rely and shall be protected in acting or refraining from acting in good faith upon any resolution, Opinion of Counsel, certificate, written representation of a Holder or transferee, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) if (i) in performing its duties under this Trust Agreement the Property Trustee is required to decide between alternative courses of action, (ii) in construing any of the provisions of this Trust Agreement the Property Trustee finds the same ambiguous or inconsistent with any other provisions contained herein or (iii) the Property Trustee is unsure of the application of any provision of this Trust Agreement, then, except as to any matter as to which the Holders are entitled to vote under the terms of this Trust Agreement, the Property Trustee shall deliver a notice to the Depositor requesting written instructions of the Depositor as to the course of action to be taken and the Property Trustee shall take such action, or refrain from taking such action, as the Property Trustee shall be instructed in writing to take, or to refrain from taking, by the Depositor; provided, however, that if the Property Trustee does not receive such instructions of the Depositor within ten Business Days after it has delivered such notice, or such reasonably shorter period of time set forth in such notice (which to the extent practicable shall not be less than two Business Days), it may, but shall be under no duty to, take or refrain from taking such action not inconsistent with this Trust Agreement as it shall deem advisable and in the best interests of the Holders, in which event the Property Trustee shall have no liability except for its own bad faith, negligence or willful misconduct; -46- (c) any direction or act of the Depositor or the Administrative Trustees contemplated by this Trust Agreement shall be sufficiently evidenced by an Officers' Certificate; (d) whenever in the administration of this Trust Agreement, the Property Trustee shall deem it desirable that a matter be established before undertaking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Depositor or the Administrative Trustees; (e) the Property Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) or any rerecording, refiling or reregistration thereof; (f) the Property Trustee may consult with counsel of its selection (which counsel may be counsel to the Depositor or any of its Affiliates, and may include any of its employees) and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice; and the Property Trustee shall have the right at any time to seek instructions concerning the administration of this Trust Agreement from any court of competent jurisdiction; (g) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Agreement at the request or direction of any of the Holders pursuant to this Trust Agreement, unless such Holders shall have offered to the Property Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (h) the Property 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 evidence of indebtedness or other paper or document, unless requested in writing to do so by one or more Holders, but the Property Trustee may make such further inquiry or investigation into such facts or matters as it may see fit; (i) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys, -47- provided that the Property Trustee shall be responsible for its own negligence or recklessness with respect to selection of any agent or attorney appointed by it hereunder; (j) whenever in the administration of this Trust Agreement the Property Trustee shall deem it desirable to receive written instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Property Trustee (i) may request written instructions from the Holders of the Trust Securities, which written instructions may only be given by the Holders of the same proportion in Liquidation Amount of the Trust Securities as would be entitled to direct the Property Trustee under the terms of the Trust Securities in respect of such remedy, right or action, (ii) may refrain from enforcing such remedy or right or taking such other action until such written instructions are received and (iii) shall be protected in acting in accordance with such written instructions; (k) except as otherwise expressly provided by this Trust Agreement, the Property Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Trust Agreement; and (l) any action taken by the Property Trustee or its agents hereunder shall bind the Trust and the Holders, and the signature of the Property Trustee or its agents alone shall be sufficient and effective to perform any such action and no third party shall be required to inquire as to the authority of the Property Trustee to so act or as to its compliance with any of the terms and provisions of this Trust Agreement, both of which shall be conclusively evidenced by the Property Trustee's or its agent's taking such action. No provision of this Trust Agreement shall be deemed to impose any duty or obligation on the Property Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Property Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Property Trustee shall be construed to be a duty. SECTION 8.4. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES. The recitals contained herein and in the Trust Securities Certificates shall be taken as the statements of the Trust, and the Trustees do not assume any responsibility for their correctness. The Trustees shall not be accountable for the use or application by the Depositor of the proceeds of the Debentures. -48- SECTION 8.5. MAY HOLD SECURITIES. Any Trustee or any other agent of any Trustee or the Trust, in its individual or any other capacity, may become the owner or pledgee of Trust Securities and, subject to Sections 8.8 and 8.13, except as provided in the definition of the term "Outstanding" in Article I, may otherwise deal with the Trust with the same rights it would have if it were not a Trustee or such other agent. SECTION 8.6. COMPENSATION; INDEMNITY; FEES. The Depositor, as borrower, agrees: (a) to pay to the Trustees from time to time such compensation as shall be agreed in writing with the Depositor for all services rendered by them hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) except as otherwise expressly provided herein, to reimburse the Trustees upon request for all reasonable expenses, disbursements and advances incurred or made by the Trustees in accordance with any provision of this Trust Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (c) to the fullest extent permitted by applicable law, to indemnify and hold harmless (i) each Trustee, (ii) any Affiliate of any Trustee, (iii) any officer, director, shareholder, employee, representative or agent of any Trustee and (iv) any employee or agent of the Trust or its Affiliates (referred to herein as an "Indemnified Person") from and against any and all loss, damage, liability, tax, penalty, expense or claim of any kind or nature whatsoever incurred by such Indemnified Person by reason of the creation, operation or termination of the Trust or any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Trust Agreement, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of negligence or willful misconduct with respect to such acts or omissions. When the Property Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.1(4) or Section 5.1(5) of the Indenture, the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute ex- -49- penses of administration under any applicable federal or state bankruptcy, insolvency or other similar law. (d) The provisions of this Section 8.6 shall survive the termination of this Trust Agreement. (e) No Trustee may claim any lien or charge on any Trust Property as a result of any amount due pursuant to this Section 8.6. (f) The Depositor and any Trustee (in the case of the Property Trustee, subject to Section 8.8 hereof) may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Trust Securities shall have no rights by virtue of this Trust Agreement in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. Neither the Depositor nor any Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and the Depositor and any Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Trustee may engage or be interested in any financial or other transaction with the Depositor or any Affiliate of the Depositor, or may act as depository for, trustee or agent for, or act on any committee or body of Holders of, securities or other obligations of the Depositor or its Affiliates. SECTION 8.7. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF TRUSTEES. (a) There shall at all times be a Property Trustee hereunder with respect to the Trust Securities. The Property Trustee shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If any such Person publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purposes of this Section 8.7, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Property Trustee with respect to the Trust Securities shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article VIII. The Property Trustee may also act as the Delaware Trustee if so eligible under clause (c) of this Section 8.7. -50- (b) There shall at all times be one or more Administrative Trustees hereunder with respect to the Trust Securities. Each Administrative Trustee shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more persons authorized to bind that entity. (c) There shall at all times be a Delaware Trustee with respect to the Trust Securities. The Delaware Trustee shall either be (i) a natural person who is at least 21 years of age and a resident of the State of Delaware or (ii) a legal entity with its principal place of business in the State of Delaware and that otherwise meets the requirements of applicable Delaware law that shall act through one or more persons authorized to bind such entity. The Delaware Trustee may also act as the Property Trustee if so eligible under clause (a) if this Section 8.7. SECTION 8.8. CONFLICTING INTERESTS. If the Property Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Property Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Trust Agreement. SECTION 8.9. CO-TRUSTEES AND SEPARATE TRUSTEE. (a) Unless an Event of Default shall have occurred and be continuing, at any time or times, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of the Trust Property may at the time be located, the Depositor and the Administrative Trustees, by agreed action of the majority of such Trustees, shall have power to appoint, and upon the written request of the Administrative Trustees, the Depositor shall for such purpose join with the Administrative Trustees in the execution, delivery and performance of all instruments and agreements necessary or proper to appoint, one or more Persons approved by the Property Trustee either to act as co-trustee, jointly with the Property Trustee, of all or any part of such Trust Property, or to the extent required by law to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons in the capacity aforesaid, any property, title, right or power deemed necessary or desirable, subject to the other provisions of this Section 8.9. If the Depositor does not join in such appointment within 15 days after the receipt by it of a request so to do, or in case an Indenture Event of Default has occurred and is continuing, the Property Trustee alone shall have power to make such appointment. Any co-trustee or separate trustee appointed pursuant to this Section 8.9 shall either be (i) a natural person who is at least 21 years of age and a resident of the United States or (ii) a legal entity with its principal place of business in the United States that shall act through one or more persons authorized to bind such entity. Should any written instrument from the -51- Depositor be required by any co-trustee or separate trustee so appointed for more fully confirming to such co-trustee or separate trustee such property, title, right, or power, any and all such instruments shall, on request, be executed, acknowledged and delivered by the Depositor. (b) Every co-trustee or separate trustee shall, to the extent permitted by law, but to such extent only, be appointed subject to the following terms, namely: (i) The Trust Securities shall be executed and delivered and all rights, powers, duties, and obligations hereunder in respect of the custody of securities, cash and other personal property held by, or required to be deposited or pledged with, the Trustees specified hereunder shall be exercised solely by such Trustees and not by such co-trustee or separate trustee. (ii) The rights, powers, duties, and obligations hereby conferred or imposed upon the Property Trustee in respect of any property covered by such appointment shall be conferred or imposed upon and exercised or performed by the Property Trustee or by the Property Trustee and such co-trustee or separate trustee jointly, as shall be provided in the instrument appointing such co-trustee or separate trustee, except to the extent that under any law of any jurisdiction in which any particular act is to be performed, the Property Trustee shall be incompetent or unqualified to perform such act, in which event such rights, powers, duties and obligations shall be exercised and performed by such co-trustee or separate trustee. (iii) The Property Trustee at any time, by an instrument in writing executed by it, with the written concurrence of the Depositor, may accept the resignation of or remove any co-trustee or separate trustee appointed under this Section 8.9, and, in case an Indenture Event of Default has occurred and is continuing, the Property Trustee shall have power to accept the resignation of, or remove, any such co-trustee or separate trustee without the concurrence of the Depositor. Upon the written request of the Property Trustee, the Depositor shall join with the Property Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to effectuate such resignation or removal. A successor to any co-trustee or separate trustee so resigned or removed may be appointed in the manner provided in this Section 8.9. (iv) No co-trustee or separate trustee hereunder shall be personally liable by reason of any act or omission of the Property Trustee or any other trustee hereunder. (v) The Property Trustee shall not be liable by reason of any act of a co-trustee or separate trustee. -52- (vi) Any Act of Holders delivered to the Property Trustee shall be deemed to have been delivered to each such co-trustee and separate trustee. SECTION 8.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. (a) No resignation or removal of any Trustee (the "Relevant Trustee") and no appointment of a successor Trustee pursuant to this Article VIII shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 8.11. (b) Subject to Section 8.10(a), the Relevant Trustee may resign at any time by giving written notice thereof to the Holders. If the instrument of acceptance by the successor Trustee required by Section 8.11 shall not have been delivered to the Relevant Trustee within 30 days after the giving of such notice of resignation, the Relevant Trustee may petition, at the expense of the Trust, any court of competent jurisdiction for the appointment of a successor Relevant Trustee. (c) Unless an Indenture Event of Default shall have occurred and be continuing, any Trustee may be removed at any time by Act of the Holders of Common Securities (which such removal shall not constitute an amendment of this Trust Agreement). If an Indenture Event of Default shall have occurred and be continuing, the Property Trustee may be removed at such time by Act of the Holders of a majority in Liquidation Amount of the Preferred Securities, delivered to the Relevant Trustee (in its individual capacity and on behalf of the Trust). An Administrative Trustee may be removed by the Holder of Common Securities at any time. If the instrument of acceptance by the successor Trustee required by Section 8.11 shall not have been delivered to the Relevant Trustee within 30 days after such removal, the Relevant Trustee may petition, at the expense of the Trust, any court of competent jurisdiction for the appointment of a successor Relevant Trustee. (d) If any Trustee shall resign, be removed or become incapable of acting as Trustee, or if a vacancy shall occur in the office of any Trustee for any cause, at a time when no Indenture Event of Default shall have occurred and be continuing, the Holder of Common Securities, by Act of the Holder of Common Securities delivered to the retiring Trustee, shall promptly appoint a successor Trustee or Trustees, and the retiring Trustee shall comply with the applicable requirements of Section 8.11. If the Property Trustee shall resign, be removed or become incapable of continuing to act as the Property Trustee at a time when a Indenture Event of Default shall have occurred and be continuing, the Holders, by Act of the Holders holding a majority in Liquidation Amount of the Preferred Securities then Outstanding delivered to the retiring Relevant Trustee, shall promptly appoint a successor Relevant Trustee or Trustees, and such successor Trustee shall comply with the applicable requirements of Section -53- 8.11. If an Administrative Trustee shall resign, be removed or become incapable of acting as Administrative Trustee, at a time when an Indenture Event of Default shall have occurred and be continuing, the Holder of Common Securities by Act of the Holder of Common Securities delivered to the Administrative Trustee shall promptly appoint a successor Administrative Trustee or Administrative Trustees and such successor Administrative Trustee or Trustees shall comply with the applicable requirements of Section 8.11. If no successor Relevant Trustee shall have been so appointed by the Holder of Common Securities or the Holders and accepted appointment in the manner required by Section 8.11, any Holder who has been a Holder of Trust Securities for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Relevant Trustee. (e) The Property Trustee shall give notice of each resignation and each removal of a Trustee and each appointment of a successor Trustee to all Holders in the manner provided in Section 11.9 and shall give notice to the Depositor. Each notice shall include the name of the successor Relevant Trustee and the address of its Corporate Trust Office if it is the Property Trustee. (f) Notwithstanding the foregoing or any other provision of this Trust Agreement, in the event any Administrative Trustee who is a natural person dies or becomes, in the opinion of the Depositor, incompetent or incapacitated, the vacancy created by such death, incompetence or incapacity may be filled by (i) the unanimous act of the remaining Administrative Trustees if there are at least two of them or (ii) otherwise by the Depositor (with the successor in each case being a Person who satisfies the eligibility requirement for Administrative Trustees set forth in Section 8.7). SECTION 8.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. In case of the appointment hereunder of a successor Relevant Trustee, the retiring Relevant Trustee and each successor Relevant Trustee with respect to the Trust Securities shall execute and deliver an amendment hereto wherein each successor Relevant Trustee shall accept such appointment and which (a) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Relevant Trustee all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Trust Securities and the Trust and (b) shall add to or change any of the provisions of this Trust Agreement as shall be necessary to provide for or facilitate the administration of the Trust by more than one Relevant Trustee, it being understood that nothing herein or in such amendment shall constitute such Relevant Trustees co-trustees and upon the execution and delivery of such amendment the resignation or removal of the retiring Relevant Trustee shall become effective to the extent provided therein and each such successor Relevant Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and -54- duties of the retiring Relevant Trustee; but, on written request of the Trust or any successor Relevant Trustee such retiring Relevant Trustee shall duly assign, transfer and deliver to such successor Relevant Trustee all Trust Property, all proceeds thereof and funds held by such retiring Relevant Trustee hereunder with respect to the Trust Securities and the Trust. Upon written request of any such successor Relevant Trustee, the Trust shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Relevant Trustee all such rights, powers and trusts referred to in this Section 8.11. No successor Relevant Trustee shall accept its appointment unless at the time of such acceptance such successor Relevant Trustee shall be qualified and eligible under this Article. SECTION 8.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any Person into which the Property Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which such Relevant Trustee shall be a party, or any Person succeeding to all or substantially all the corporate trust business of such Relevant Trustee, shall be the successor of such Relevant Trustee hereunder, provided such Person shall be otherwise qualified and eligible under this Article VIII, without the execution or filing of any paper or any further act on the part of any of the parties hereto. SECTION 8.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR TRUST. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other similar judicial proceeding relative to the Trust or any other obligor upon the Trust Securities or the property of the Trust or of such other obligor or their creditors, the Property Trustee (irrespective of whether any Distributions on the Trust Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Property Trustee shall have made any demand on the Trust for the payment of any past due Distributions) shall be entitled and empowered, to the fullest extent permitted by law, by intervention in such proceeding or otherwise: (i) to file and prove a claim for the whole amount of any Distributions owing and unpaid in respect of the Trust Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Property Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Property Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and -55- (ii) to collect and receive any money or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Property Trustee and, in the event the Property Trustee shall consent to the making of such payments directly to the Holders, to pay to the Property Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Property Trustee, its agents and counsel, and any other amounts due the Property Trustee. Nothing herein contained shall be deemed to authorize the Property Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement adjustment or compensation affecting the Trust Securities or the rights of any Holder thereof or to authorize the Property Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 8.14. REPORTS BY PROPERTY TRUSTEE. (a) The Property Trustee shall transmit to Holders such reports concerning the Property Trustee and its actions under this Trust Agreement as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. If required by Section 313(a) of the Trust Indenture Act, the Property Trustee shall, within 60 days after each May 15 following the date of this Trust Agreement, deliver to Holders a brief report, dated as of such May 15, which complies with the provisions of such Section 313(a). (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Property Trustee with each national stock exchange, the Nasdaq National Market or such other interdealer quotation system or self-regulatory organization upon which the Preferred Securities are listed or traded, if any, with the Commission and with the Depositor. The Depositor will promptly notify the Property Trustee of any such listing or trading. SECTION 8.15. REPORTS TO PROPERTY TRUSTEE. The Depositor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such documents, reports and information as required by Section 314 of the Trust Indenture Act (if any) and the compliance certificate required by Section 314(a) of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. Delivery of such reports, information and documents to the Property Trustee is for informational purposes only and the Property Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Trust's compliance with any of its -56- covenants hereunder (as to which the Property Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 8.16. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. Each of the Depositor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Trust Agreement that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an Officers' Certificate. SECTION 8.17. NUMBER OF TRUSTEES. (a) The number of Trustees shall be five (four if the Property Trustee and the Delaware Trustee are the same Person), provided that the Holder of all of the Common Securities by written instrument may increase or decrease the number of Administrative Trustees and provided that the number of Trustees may be increased to add a Special Administrative Trustee. The Property Trustee and the Delaware Trustee may be the same Person. (b) If a Trustee ceases to hold office for any reason and the number of Administrative Trustees is not reduced pursuant to Section 8.17(a), or if the number of Trustees is increased pursuant to Section 8.17(a), a vacancy shall occur. The vacancy shall be filled with a Trustee appointed in accordance with Section 8.10. (c) The death, resignation, retirement, removal, bankruptcy, incompetence or incapacity to perform the duties of a Trustee shall not operate to dissolve, terminate or annul the Trust. Whenever a vacancy in the number of Administrative Trustees shall occur, until such vacancy is filled by the appointment of an Administrative Trustee in accordance with Section 8.10, the Administrative Trustees in office, regardless of their number (and notwithstanding any other provision of this Trust Agreement), shall have all the powers granted to the Administrative Trustees and shall discharge all the duties imposed upon the Administrative Trustees by this Trust Agreement. SECTION 8.18. DELEGATION OF POWER. (a) Any Administrative Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 2.8, including any registration -57- statement or amendment thereto filed with the Commission, or making any other governmental filing. (b) The Administrative Trustees shall have power to delegate from time to time to such of their number or to the Depositor the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Administrative Trustees or otherwise as the Administrative Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of this Trust Agreement, as set forth herein. ARTICLE IX DISSOLUTION, LIQUIDATION, TERMINATION AND MERGER SECTION 9.1. TERMINATION UPON EXPIRATION DATE. Unless earlier terminated, the Trust shall automatically dissolve on July 1, 2005 (the "Expiration Date"), following the distribution of the Trust Property in accordance with Section 9.4. SECTION 9.2. EARLY TERMINATION. The first to occur of any of the following events is an "Early Termination Event": (a) the occurrence of a Bankruptcy Event in respect of the Holder of the Common Securities, or the filing by the Holder of Common Securities of a certificate of dissolution or its equivalent with respect to the Holder of Common Securities (except for permitted mergers, consolidations or reorganizations of the Holder of Common Securities) or the revocation of the charter of the Holder of Common Securities and the expiration of 90 days after the date of such revocation without reinstatement thereof; (b) the occurrence of (i) a Tax Event, but only if the Administrative Trustees shall have received an opinion from independent tax counsel experienced in such matters, which opinion may rely on published revenue rulings of the Internal Revenue Service, to the effect that the holders of the Preferred Securities will not recognize any gain or loss for United States federal income tax purposes as a result of such Early Termination Event and distribution of Debentures; unless at the time there is available to the Trust the opportunity to eliminate, within such 90 day period, the Tax Event by -58- taking some ministerial action, such as filing a form or making an election, or pursuing some other similar reasonable measure, which has no adverse effect on the Trust, Gentiva Health Services, Inc. or the holders of the Preferred Securities, and the Trust pursues such measure in lieu of dissolution; or (ii) an Investment Company Event; (c) the redemption of all of the Preferred Securities in connection with the redemption of all of the Debentures; (d) the entry of an order for dissolution of the Trust by a court of competent jurisdiction; and (e) the distribution of Common Stock to all Holders upon conversion of all outstanding Preferred Securities. SECTION 9.3. TERMINATION. The respective obligations and responsibilities of the Trustees and, to the fullest extent permitted by applicable law, the Trust created and continued hereby shall terminate upon the latest to occur of the following: (a) the distribution by the Property Trustee to Holders upon the liquidation of the Trust pursuant to Section 9.4, or upon the redemption of all of the Trust Securities pursuant to Section 4.2 or repurchase of all the Trust Securities pursuant to Article X, of all amounts required to be distributed hereunder upon the final payment of the Trust Securities; (b) the payment of any expenses owed by the Trust; and (c) the discharge of all administrative duties of the Administrative Trustees, including the performance of any tax reporting obligations with respect to the Trust or the Holders. Upon the completion of the liquidation of the Trust and its termination, the Property Trustee and Administrative Trustee shall execute and file a Certificate of Cancellation of the Trust with the Secretary of State of the State of Delaware. SECTION 9.4. LIQUIDATION. (a) If an Early Termination Event specified in clause (a), (b) or (d) of Section 9.2 occurs or upon the Expiration Date, the Trust shall be liquidated by the Trustees as expeditiously as the Trustees determine to be possible by distributing, after satisfaction or the making of reasonable provisions for the payment of liabilities to creditors of the Trust as provided by applicable law, to each Holder a Like Amount of Debentures, subject to Section 9.4(d). Notice of liquidation shall be given by the Property Trustee by first-class mail, postage prepaid mailed not later than 30 nor more than 60 days prior to the Liquidation Date to each Holder of Trust Securities at such Holder's address appearing in the Securities Register. All notices of liquidation shall: -59- (i) state the Liquidation Date; (ii) state that from and after the Liquidation Date, the Trust Securities will no longer be deemed to be Outstanding and any Trust Securities Certificates not surrendered for exchange will be deemed to represent a Like Amount of Debentures; and (iii) provide such information with respect to the mechanics by which Holders may exchange Trust Securities Certificates for Debentures or, if Section 9.4(d) applies, receive a Liquidation Distribution, as the Administrative Trustees or the Property Trustee shall deem appropriate. (b) Except where Section 9.2(c) or 9.2(e) applies, in order to effect the liquidation of the Trust and distribution of the Debentures to Holders, the Property Trustee shall establish a record date for such distribution (which shall be not more than 45 days prior to the Liquidation Date) and, either itself acting as exchange agent or through the appointment of a separate exchange agent, shall establish such procedures as it shall deem appropriate to effect the distribution of Debentures in exchange for the Outstanding Trust Securities Certificates. (c) Except where Section 9.2(c) or 9.2(e) applies, after the Liquidation Date, (i) the Trust Securities shall no longer be deemed to be Outstanding, (ii) certificates representing a Like Amount of Debentures shall be issued to Holders of Trust Securities Certificates, upon surrender of such certificates to the Administrative Trustees or their agent for exchange, (iii) the Depositor shall use its best efforts to have the Debentures listed on any exchange, interdealer quotation system or self-regulatory organization as the Preferred Securities are then listed or traded, (iv) any Trust Securities Certificates not so surrendered for exchange shall be deemed to represent a Like Amount of Debentures, accruing interest at the rate provided for in the Debentures from the last Distribution Date on which a Distribution was made on such Trust Securities Certificates until such certificates are so surrendered (and until such certificates are so surrendered, no payments of interest or principal will be made to Holders of Trust Securities Certificates with respect to such Debentures), and (v) all rights of Holders holding Trust Securities shall cease, except the right of such Holders to receive Debentures upon surrender of Trust Securities Certificates. (d) In the event that, notwithstanding the other provisions of this Section 9.4, whether because of an order for dissolution entered by a court of competent jurisdiction or otherwise, distribution of the Debentures in the manner provided herein is determined by the Property Trustee not to be practical, the Trust Property shall be liquidated, and the Trust shall be wound-up or terminated, by the Property Trustee. In such event, Holders will be entitled to receive out of the assets of the Trust available for distribution to Holders, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, an amount equal to the Liquidation Amount per Trust Security plus accumulated and unpaid Distributions thereon to the -60- date of payment (such amount being the "Liquidation Distribution"). If, upon any such winding up or termination, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then, subject to the next succeeding sentence, the amounts payable by the Trust on the Trust Securities shall be paid on a pro rata basis (based upon Liquidation Amounts). The Holder of the Common Securities shall be entitled to receive Liquidation Distributions upon any such winding-up or termination pro rata (determined as aforesaid) with Holders of Preferred Securities, except that, if a Indenture Event of Default has occurred and is continuing, the Preferred Securities shall have a priority over the Common Securities. SECTION 9.5. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF TRUST. The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other Person, except pursuant to this Article IX. At the request of the Depositor, with the consent of the Administrative Trustees and without the consent of the Holders of the Preferred Securities, the Property Trustee or the Delaware Trustee, the Trust may consolidate, amalgamate, merge with or into, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to a trust organized as such under the laws of any State; provided, that (i) such successor entity either (a) expressly assumes all of the obligations of the Trust with respect to the Preferred Securities or (b) substitutes for the Preferred Securities other securities having substantially the same terms as the Preferred Securities (the "Successor Securities") so long as the Successor Securities rank the same as the Preferred Securities rank in priority with respect to Distributions and payments upon liquidation, redemption and otherwise, (ii) the Depositor expressly appoints a trustee of such successor entity possessing the same powers and duties as the Property Trustee as the holder of the Debentures, (iii) the Successor Securities are listed or traded, or any Successor Securities shall be listed upon notification of issuance, on any national securities exchange or other organization on which the Preferred Securities are then listed or traded, if any, (iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not cause the Preferred Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization, (v) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders of the Preferred Securities (including any Successor Securities) in any material respect, (vi) such successor entity has a purpose substantially identical to that of the Trust, (vii) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Depositor has received an Opinion of Counsel to the effect that (a) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders of the Preferred Securities (including any -61- Successor Securities) in any material respect, and (b) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor such successor entity will be required to register as an investment company under the 1940 Act, and (viii) the Depositor owns all of the common securities of such successor entity and guarantees the obligations of such successor entity under the Successor Securities at least to the extent provided by the Guarantee. Notwithstanding the foregoing, the Trust shall not, except with the consent of Holders of 100% in Liquidation Amount of the Preferred Securities, consolidate, amalgamate, merge with or into, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to any other Person or permit any other Person to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger, replacement, conveyance, transfer or lease would cause the Trust or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes. ARTICLE X RIGHT TO REQUIRE REPURCHASE SECTION 10.1. RIGHT TO REQUIRE REPURCHASE. In the event that there shall occur a Change of Control (as defined in Section 10.6), then each Holder shall have the right, at such Holder's option, to require the Trust to purchase, and upon the exercise of such right, the Trust shall, subject to the provisions of Section 14.3 of the Indenture, purchase, all or any part of such Holder's Preferred Securities on the date (the "Repurchase Date") that is 30 days after the date the Depositor gives notice of the Change of Control as contemplated in Section 10.2(a) at a price (the "Repurchase Price") equal to $50 per Preferred Security, together with accrued and unpaid Distributions, if any, to the Repurchase Date. SECTION 10.2. NOTICE; METHOD OF EXERCISING REPURCHASE RIGHT. (a) Within 30 days following a Change of Control (as defined in Section 10.6), the Depositor, or at the written request of the Depositor received by the Property Trustee at least 40 days prior to the Repurchase Date, the Property Trustee (in the name and at the expense of the Depositor), in its capacity as tender agent (for which services it shall be reasonably compensated), shall give notice of the occurrence of the Change of Control and of the repurchase right set forth herein arising as a result thereof by first-class mail, postage prepaid, to -62- the Property Trustee and to each Holder of the Preferred Securities at such Holder's address appearing in the Security Register. Each notice of a repurchase right shall state: (1) the event constituting the Change of Control and the date thereof, (2) the Repurchase Date, (3) the date by which the repurchase right must be exercised, (4) the Repurchase Price, and (5) the instructions a Holder must follow to exercise a repurchase right. No failure of the Depositor to give the foregoing notice shall limit any Holder's right to exercise a repurchase right. The Property Trustee shall have no affirmative obligation to determine if there shall have occurred a Repurchase Event. (b) To exercise a repurchase right, a Holder shall deliver to the Depositor, the Trust (or an agent designated by the Depositor for such purpose in the notice referred to in (a) above) and to the Property Trustee on or before the close of business on the second Business Day preceding the Repurchase Date (i) written notice of the Holder's exercise of such right, in the form attached hereto as Exhibit E, and (ii) the Preferred Security or Preferred Securities with respect to which the repurchase right is being exercised, duly endorsed for transfer to the Trust. Such written notice shall be irrevocable. In the event a repurchase right shall be exercised in accordance with the terms hereof, the Depositor shall on the Repurchase Date cause to be paid in cash by the Trust to the Holder thereof the Repurchase Price of the Preferred Security or Preferred Securities as to which the repurchase right had been exercised. In the event that a repurchase right is exercised with respect to less than the entire amount of Preferred Securities represented by a Certificated Preferred Security, the Trust shall cause to be issued and executed in the name of the Holder a new Certificated Preferred Security representing the unrepurchased portion of such surrendered Certificated Preferred Security. SECTION 10.3. DEPOSIT OF REPURCHASE PRICE. On or prior to the Repurchase Date, the Depositor shall redeem Debentures equal in aggregate principal amount to the Liquidation Amount of Preferred Securities to be repurchased on the Repurchase Date and cause to be deposited with the Property Trustee or with a Paying Agent an amount of money in same day funds sufficient to pay the redemption -63- price therefor. The Trust shall cause such funds to be applied to the payment of the Repurchase Price of the Preferred Securities which are to be repaid on the Repurchase Date. SECTION 10.4. SECURITIES NOT REPURCHASED ON REPURCHASE DATE. If any Preferred Security surrendered for repurchase shall not be so paid on the Repurchase Date, such Preferred Security shall, until paid, accrue Distributions to the extent permitted by applicable law from the Repurchase Date at the Distribution rate per annum applicable to such Preferred Security. SECTION 10.5. SECURITIES REPURCHASED IN PART. Any Preferred Securities, only a portion of which are to be repurchased, shall be surrendered at any office or agency of the Property Trustee designated for that purpose (with, if the Trust or the Property Trustee so requires, due endorsement by, or written instrument of transfer in form satisfactory to the Trust and the Property Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Trust shall issue to the Holder, without service charge, a Certificated Preferred Security of any authorized denomination as requested by such Holder, in aggregate amount equal to and in exchange for the unrepurchased portion of Preferred Securities so surrendered. SECTION 10.6. DEFINITIONS. (a) A "Change in Control" shall occur when: (a) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, or all or substantially all of the assets of the Depositor and its subsidiaries, taken as a whole, (b) the adoption of a plan relating to the liquidation or dissolution of the Depositor, (c) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" or "group" (as such terms are used in Section 13(d)(3) of the Exchange Act) becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly through one or more intermediaries, of more than 50% of the voting power of the outstanding voting stock of the Depositor, (d) the Depositor consolidates with, or merges with or into, any person, or any person consolidates with, or merges with or into, the Depositor, other than any such transaction where the beneficial owners of the outstanding common stock of the Depositor immediately prior to such transaction beneficially own a majority of the outstanding shares of voting stock of the surviving person immediately after such transaction, or (e) the first day on which more than a majority of the members of the Board of Directors of the Depositor are not Continuing Directors; provided, however, that a Change of Control shall not be deemed to have occurred if the last reported sale price per share of the Common Stock for any -64- ten Trading Days (as defined) within the period of twenty consecutive Trading Days (x) ending immediately after the later of the Change of Control and the public announcement of the Change in Control (in the case of a Change in Control under clause (a), (b), (c) or (e) above) or (y) ending immediately before the Change in Control (in the case of a Change in Control under clause (d) above) shall equal or exceed 105% of the Conversion Price in effect on each such Trading Day. If not earlier made, the Company shall make a public announcement of a Change of Control within five Business Days of the occurrence of such Change of Control. (b) "Continuing Directors" means as of any date of determination, any member of the board of directors of the Depositor who (a) was a member of the board of directors on the date of original issuance of the Preferred Securities or (b) was nominated for election to the board of directors with the approval of, or whose election was ratified by, at least two-thirds of the Continuing Directors who were members of the board of directors at the time of such nomination or election. ARTICLE XI MISCELLANEOUS PROVISIONS SECTION 11.1. LIMITATION OF RIGHTS OF HOLDERS. The death, incapacity, liquidation, dissolution, termination or bankruptcy of any Person having an interest, beneficial or otherwise, in Trust Securities shall not operate to terminate this Trust Agreement, nor entitle the legal representatives or heirs of such Person or any Holder for such Person, to claim an accounting, take any action or bring any proceeding in any court for a partition or winding up of the arrangements contemplated hereby, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. SECTION 11.2. LIABILITY. (a) Except as expressly set forth in this Trust Agreement, the Guarantee and the terms of the Trust Securities, the Depositor shall not be: (i) personally liable for the return of any portion of the capital contributions (or any return thereon) of the Holders, which shall be made solely from assets of the Trust; or (ii) required to pay to any Holder any deficit upon dissolution of the Trust or otherwise. -65- (b) The Holder of the Common Securities shall be liable for all of the debts and obligations of the Trust (other than with respect to the Trust Securities) to the extent not satisfied out of the Trust's assets. (c) Pursuant to Section 3803(a) of the Business Trust Act, the Holders of the Preferred Securities shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. SECTION 11.3. AMENDMENT. (a) This Trust Agreement may be amended from time to time by the Property Trustee, the Administrative Trustees and the Depositor, without the consent of any Holders, (i) to cure any ambiguity, correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Trust Agreement, which shall not be inconsistent with the other provisions of this Trust Agreement, or to add to the covenants of the Trust for the benefit of the Holders or to surrender any right or power herein conferred upon the Trust, (ii) to modify, eliminate or add to any provisions of this Trust Agreement to such extent as shall be necessary to ensure that the Trust will be classified for United States federal income tax purposes as a grantor trust at all times that any Trust Securities are Outstanding or to ensure that the Trust will not be required to register as an investment company under the 1940 Act or (iii) to cause this Trust Agreement to be qualified under the Trust Indenture Act; provided, however, that in the case of clause (i), (ii) or (iii), such action shall not adversely affect in any material respect the interests of any Holder, and any such amendments of this Trust Agreement shall become effective when notice thereof is given to the Holders. (b) Except as provided in Section 11.3(c) hereof, any provision of this Trust Agreement may be amended by the Trustees and the Depositor with (i) the consent of Holders representing not less than a majority (based upon Liquidation Amounts) of the Trust Securities then Outstanding, and (ii) receipt by the Trustees of an Opinion of Counsel to the effect that such amendment or the exercise of any power granted to the Trustees in accordance with such amendment will not affect the Trust's status as a grantor trust for United States federal income tax purposes or the Trust's exemption from status of an investment company under the 1940 Act. (c) In addition to and notwithstanding any other provision in this Trust Agreement, without the consent of each affected Holder (such consent being obtained in accordance with Section 6.3 or 6.6 hereof), this Trust Agreement may not be amended to (i) change the amount or timing of any Distribution on the Trust Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Trust Secu- -66- rities as of a specified date, or (ii) restrict the right of a Holder to institute suit for the enforcement of any such payment on or after such date; notwithstanding any other provision herein, without the unanimous consent of the Holders (such consent being obtained in accordance with Section 6.3 or 6.6 hereof), this Section 11.3(c) may not be amended. (d) Notwithstanding any other provisions of this Trust Agreement, no Trustee shall enter into or consent to any amendment to this Trust Agreement which would cause the Trust to fail or cease to qualify for the exemption from status of an investment company under the 1940 Act or fail or cease to be classified as a grantor trust for United States federal income tax purposes. (e) Notwithstanding anything in this Trust Agreement to the contrary, without the consent of the Depositor, this Trust Agreement may not be amended in a manner which imposes any additional obligation on the Depositor. (f) In the event that any amendment to this Trust Agreement is made, the Administrative Trustees shall promptly provide to the Depositor a copy of such amendment. (g) Neither the Property Trustee nor the Delaware Trustee shall be required to enter into any amendment to this Trust Agreement which affects its own rights, duties or immunities under this Trust Agreement. The Property Trustee shall be entitled to receive an Opinion of Counsel and an Officers' Certificate stating that any amendment to this Trust Agreement is in compliance with this Trust Agreement. SECTION 11.4. SEPARABILITY. In case any provision in this Trust Agreement or in the Trust Securities Certificates shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.5. GOVERNING LAW. THIS TRUST AGREEMENT AND TILE RIGHTS AND OBLIGATIONS OF EACH OF THE HOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES). SECTION 11.6. PAYMENTS DUE ON NON-BUSINESS DAY. If the date fixed for any payment on any Trust Security shall be a day that is not a Busi- -67- ness Day, then such payment shall be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) (except as otherwise provided in Sections 4.1(a) and 4.2(d)), with the same force and effect as though made on the date fixed for such payment. SECTION 11.7. SUCCESSORS. This Trust Agreement shall be binding upon and shall inure to the benefit of any successor to the Depositor, the Trust or the Relevant Trustee, including any successor by operation of law. Except in connection with a consolidation, merger or sale involving the Depositor that is permitted under Article Eight of the Indenture and pursuant to which the assignee agrees in writing to perform the Depositor's obligations hereunder, the Depositor shall not assign its obligations hereunder. SECTION 11.8. HEADINGS. The Article and Section headings are for convenience only and shall not affect the construction of this Trust Agreement. SECTION 11.9. REPORTS, NOTICES AND DEMANDS. (a) Any report, notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon any Holder or the Depositor may be given or served in writing by deposit thereof, first-class postage prepaid, in the United States mail, hand delivery or facsimile transmission, in each case, addressed: (i) in the case of a Holder, to such Holder as such Holder's name and address may appear on the Securities Register; and (ii) in the case of the Holder of Common Securities or the Depositor, to Gentiva Health Services, Inc. 175 Broad Hollow Road, Melville, New York 11747, Attention: Chief Financial Officer, facsimile no.: (631) 844-7335. Such notice, demand or other communication to or upon a Holder shall be deemed to have been sufficiently given or made, for all purposes, upon hand delivery, mailing or transmission. Such notice, demand or other communication to or upon the Depositor shall be deemed to have been sufficiently given or made only upon actual receipt of the writing by the Depositor. (b) Any notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon the Trust, the Property Trustee or the Administrative Trustees shall be given in writing addressed (until another address is published by the Trust) as follows: (i) with respect to the Property Trustee to Wilmington Trust Company, 1100 N. Market Street, Wilmington, Delaware 19801, Attention: Corporate Trust Administration; and (ii) with respect to the Administrative Trustees, to them at the address above for notices to the Depositor, marked "Attention Administrative Trustees of Gentiva Trust." Such notice, demand or other communication to or upon the Trust or the -68- Property Trustee shall be deemed to have been sufficiently given or made only upon actual receipt of the writing by the Trust or the Property Trustee. SECTION 11.10. AGREEMENT NOT TO PETITION. Each of the Trustees and the Depositor agree for the benefit of the Holders that, until at least one year and one day after the Trust has been terminated in accordance with Article IX, they shall not file, or join in the filing of, a petition against the Trust under any bankruptcy, insolvency, reorganization or other similar law (including the United States Bankruptcy Code) (collectively, "Bankruptcy Laws") or otherwise join in the commencement of any proceeding against the Trust under any Bankruptcy Law. In the event the Depositor takes action in violation of this Section 11.10, the Property Trustee agrees, for the benefit of Holders, that at the expense of the Depositor, it shall file an answer with the bankruptcy court or otherwise properly contest the filing of such petition by the Depositor against the Trust or the commencement of such action and raise the defense that the Depositor has agreed in writing not to take such action and should be stopped and precluded therefrom and such other defenses, if any, as counsel for the Property Trustee or the Trust may assert. The provisions of this Section 11.10 shall survive the termination of this Trust Agreement. SECTION 11.11. TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT. (a) This Trust Agreement shall be subject to the provisions of the Trust Indenture Act whether or not such provisions are required or deemed to be part of this Trust Agreement and shall, to the extent applicable, be governed by such provisions. (b) The Property Trustee shall be the only Trustee which is a trustee for the purposes of the Trust Indenture Act. (c) If any provision hereof limits, qualifies or conflicts with another provision hereof which is or would be required or deemed to be included in this Trust Agreement by any of the provisions of the Trust Indenture Act, such required or deemed provision shall control. If any provision of this Trust Agreement modifies or excludes any provision of the Trust Indenture Act which may be so modified or excluded, the latter provision shall be deemed to apply to this Trust Agreement as so modified or excluded, as the case may be. (d) The application of the Trust Indenture Act to this Trust Agreement shall not affect the nature of the Trust Securities as equity securities representing undivided beneficial interests in the assets of the Trust. -69- SECTION 11.12. ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE AND INDENTURE. THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY OR ON BEHALF OF A HOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY ALL HOLDERS HAVING A BENEFICIAL INTEREST IN SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH HOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND SUCH HOLDER AND SUCH OTHERS. SECTION 11.13. HOLDERS ARE PARTIES. Notwithstanding that Holders have not executed and delivered this Trust Agreement or any counterpart thereof, Holders shall be deemed to be parties to this Trust Agreement and shall be bound by all of the terms and conditions hereof and of the Trust Securities by acceptance and delivery of the Trust Securities. SECTION 11.14. COUNTERPARTS. This Trust Agreement may contain more than one counterpart of the signature page and this Trust Agreement may be executed by the affixing of the signature of each of the Trustees of one of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. GENTIVA HEALTH SERVICES, INC. By: -------------------------------- Name: Title: -70- Wilmington Trust Company, as Property Trustee and Delaware Trustee By: -------------------------------- Name: Title: Edward A. Blechshmidt, as Administrative Trustee By: -------------------------------- John J. Collura, as Administrative Trustee By: -------------------------------- Patricia C. Ma, as Administrative Trustee By: -------------------------------- -71- EXHIBIT A CERTIFICATE OF TRUST OF GENTIVA TRUST THIS Certificate of Trust of Gentiva Trust (the "Trust") is being duly executed and filed on behalf of the Trust by the undersigned, as trustees, to form a business trust under the Delaware Business Trust Act (12 Del. C.ss.3801 et seq.) (the "Act"). Name. The name of the business trust formed by this Certificate of Trust is Gentiva Trust. Delaware Trustee. The name and business address of the trustee of the Trust in the State of Delaware are Wilmington Trust Company, 1100 North Market Street, Wilmington, Delaware 19801, Attn: Corporate Trust Administration. Effective Date. This Certificate of Trust shall be effective upon filing. A-1 IN WITNESS WHEREOF, the undersigned have duly executed this Certificate of Trust in accordance with Section 3811(a)(1) of the Act. Edward A. Blechschmidt, not in its individual capacity but solely as Trustee By: ---------------------------------------------- Name: Title: Patricia C. Ma, not in its individual capacity but solely as Trustee By: ---------------------------------------------- Name: Title: John J. Collura, not in its individual capacity but solely as Trustee By: ---------------------------------------------- Name: Title: Wilmington Trust Company, not in its individual capacity but solely as Trustee By: ---------------------------------------------- Name: Title: A-2 EXHIBIT B FORM OF COMMON SECURITY THIS CERTIFICATE IS NOT TRANSFERABLE TO ANY PERSON, EXCEPT THAT THE HOLDER AND ANY WHOLLY-OWNED SUBSIDIARY MAY TRANSFER THIS SECURITY TO GENTIVA HEALTH SERVICES, INC. OR A WHOLLY-OWNED SUBSIDIARY OF GENTIVA HEALTH SERVICES, INC. OR ANY ENTITY OWNING ALL OF THE OUTSTANDING COMMON STOCK OF GENTIVA HEALTH SERVICES, INC., SUBJECT TO RECEIPT BY THE TRUST OF AN OPINION OF COUNSEL THAT SUCH TRANSFER WOULD NOT CAUSE MORE THAN AN INSUBSTANTIAL RISK THAT (I) THE TRUST WOULD NOT BE CLASSIFIED FOR UNITED STATES FEDERAL INCOME TAX PURPOSES AS A GRANTOR TRUST; OR (II) THE TRUST WOULD BE AN INVESTMENT COMPANY REQUIRED TO REGISTER UNDER THE INVESTMENT COMPANY ACT OR THE TRANSFEREE WOULD BECOME AN INVESTMENT COMPANY REQUIRED TO REGISTER UNDER THE INVESTMENT COMPANY ACT. CERTIFICATE NUMBER: NUMBER OF COMMON SECURITIES: Certificate Evidencing Common Securities of GENTIVA TRUST (Liquidation Amount $50 per Common Security) Gentiva Trust, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that Gentiva Health Services, Inc. (the "Holder") is the registered owner of common securities of the Trust representing beneficial ownership interests of the Trust and designated the Common Securities (Liquidation Amount $50 per Common Security) (the "Common Securities"). In accordance with Section 5.11 of the Trust Agreement (as defined below) the Common Securities are not transferable except in limited circumstances and any attempted transfer, except in such limited circumstances, shall be void. The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities are set forth in, and this certificate and the Common Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Trust Agreement of the Trust dated as of March 9, 2000, as the same may be amended from time to time (the "Trust Agreement") including the designation of the terms of the Common Securities as set forth therein. The Trust will furnish a copy of the Trust Agree- B-1 ment to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon receipt of this certificate, the Holder is bound by the Trust Agreement and is entitled to the benefits thereunder and by acceptance hereof agrees to the provisions of (i) the Guarantee Agreement entered into by Gentiva Health Services, Inc., a Delaware corporation ("Gentiva"), and Wilmington Trust Company, as guarantee trustee, dated as of March 15, 2000, and (ii) the Indenture entered into by Gentiva and Wilmington Trust Company, as trustee, dated as of March 15, 2000. This Certificate shall be construed in accordance with and governed by the laws of the State of Delaware (without regard to conflict of laws principles). IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has executed this certificate on this day of . GENTIVA TRUST By: -------------------------------------------- Name: Title: B-2 EXHIBIT C FORM OF PREFERRED SECURITY THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, RESOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER HEREOF MAY NOT ENGAGE IN HEDGING TRANSACTIONS IN THIS SECURITY UNLESS SUCH TRANSACTIONS ARE IN COMPLIANCE WITH THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, RESELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS THE LATER OF (X) TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH GENTIVA HEALTH SERVICES, INC. (THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. ANY TRANSFER OF THIS SECURITY IS REQUIRED TO BE MADE IN COMPLIANCE WITH C-1 THE APPLICABLE STATE SECURITIES LAWS AND APPLICABLE SECURITIES LAWS OF OTHER JURISDICTIONS. EACH PURCHASER OR HOLDER OF THE SECURITY EVIDENCED HEREBY WILL BE DEEMED TO HAVE REPRESENTED EITHER THAT IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO PART 4 OF SUBTITLE B OF TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, ("ERISA") OR A PLAN DESCRIBED IN SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE THE ASSETS OF ANY SUCH ERISA PLAN OR OTHER PLAN. In the case of a purchaser of Preferred Securities in the State of Georgia, for a period of one year from the Closing Date, the Preferred Securities shall contain the following additional legend: THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE SECTION 10-5-9 OF THE `GEORGIA SECURITIES ACT OF 1973', AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT. THE HOLDER OF THIS SECURITY AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. C-2 CERTIFICATE NUMBER: NUMBER OF PREFERRED SECURITIES: Certificate Evidencing Preferred Securities of GENTIVA TRUST 10% Shared Preference Redeemable Preferred Securities, (Liquidation Amount $50 per Preferred Security) Gentiva Trust, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that (the "Holder") is the registered owner of preferred securities of the Trust representing an undivided beneficial ownership interest in the assets of the Trust and designated the Gentiva Trust Shared Preference Redeemable Securities (SPuRSSM) (Liquidation Amount $50 per Preferred Security) (the "Preferred Securities"). The Preferred Securities are transferable on the books and records of the Trust, in person by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer as provided in Section 5.4 of the Trust Agreement (as defined below). The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities are set forth in, and this certificate and the Preferred Securities represented hereby are issued and shall in all respects be subject to, the terms and provisions of, the Trust Agreement of the Trust dated as of March 9, 2000, as the same may be amended from time to time (the "Trust Agreement") including the designation of the terms of Preferred Securities as set forth herein. The Holder is entitled to the benefits of the Guarantee Agreement entered into by Gentiva Health Services, Inc., a Delaware corporation ("Gentiva"), and Wilmington Trust Company ("Preferred Guaranty Trustee"), as guarantee trustee, dated as of March 15, 2000 (the "Guarantee"). The Trust will furnish a copy of the Trust Agreement and the Guarantee to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon receipt of this certificate, the Holder is bound by the Trust Agreement and is entitled to the benefits thereunder and by acceptance hereof agrees to the provisions of (i) the Guarantee, and (ii) the Indenture entered into by Gentiva and Wilmington Trust Company, as trustee, dated as of March 15, 2000. This Certificate shall be construed in accordance with and governed by the laws of the State of Delaware (without regard to conflict of laws principles). C-3 IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has executed this certificate. Dated: GENTIVA TRUST By: --------------------------------------- Name: Title: C-4 This is one of the Securities referred to in the within mentioned Trust Agreement. Date of Authentication: Wilmington Trust Company, as Property Trustee By: -------------------------------------------- Name: Title: C-5 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Trust Security to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert assignee's social security or tax identification number) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert address and zip code of assignee) and irrevocably appoints - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- agent to transfer this Preferred Securities Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: _______________ Signature:______________________________ (Sign exactly as your name appears on the other side of this Trust Security certificate) Signature Guarantee*: *(Signature must be guaranteed by an "eligible guarantor institution" that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended) C-6 CONVERSION REQUEST To: Wilmington Trust Company, as Conversion Agent under the Trust Agreement of Gentiva Trust The undersigned owner of these Preferred Securities hereby irrevocably exercises the option to convert these Preferred Securities, or the portion below designated, into common stock of GENTIVA HEALTH SERVICES, INC., par value $.10 per share (the "Common Stock"), in accordance with the terms of the Trust Agreement. Pursuant to the aforementioned exercise of the option to convert these Preferred Securities, the undersigned hereby directs the Conversion Agent (as that term is defined in the Trust Agreement) to (i) exchange such Preferred Securities for a portion of the Debentures (as that term is defined in the Trust Agreement) held by the Trust at the Conversion Price specified in the Trust Agreement, and (ii) immediately convert such Debentures on behalf of the undersigned, into Common Stock at the Conversion Price specified in the Trust Agreement. The number of shares issuable upon conversion of Preferred Securities shall be determined by (i) multiplying the number of Preferred Securities to be converted by $50 and (ii) dividing such amount by the Conversion Price in effect on the Conversion Date. The undersigned also hereby directs the Conversion Agent that the shares issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned, unless a different name has been indicated in the assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. If the undersigned is a BHCA Person (as that term is defined in the Trust Agreement, the undersigned certifies that it is in compliance with Section 4.3(a) of the Trust Agreement. Date: ___________________ Number of Preferred Securities to be converted: _____________ C-7 If a name or names other than the undersigned, please indicate in the spaces below the name or names in which the shares of Common Stock are to be issued, along with the address or addresses of such person or persons. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Sign exactly as your name appears on the other side of this Trust Security certificate) (for conversion of definitive Preferred Securities only) Please Print or Typewrite Name and Address, Including Zip Code, and Social Security or Other Identifying Number. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Signature Guarantee*:___________________________________________________________ *(Signature must be guaranteed by an "eligible guarantor institution" that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended) C-8 CERTIFICATE FOR EXCHANGE OR TRANSFER Re: 10% Shared Preference Redeemable Securities ("SPuRS" or "Preferred Securities) This Certificate relates to _________ Preferred Securities held by _________ (the "Transferor"). The Transferor has requested the Trustee by written order to exchange or register the transfer of a Preferred Security or Preferred Securities. In connection with such request and in respect of each such security, the Transferor does hereby certify to the Depositor and the Trustee that Transferor is familiar with the Trust Agreement relating to the above captioned Preferred Securities and, as provided in Section 5.4 and Section 5.5 of such Trust Agreement, the transfer of this Preferred Security does not require registration under the Securities Act (as defined below) because: [ ] Such Preferred Security is being acquired for the Transferor's own account, without transfer. [ ] Such Preferred Security is being transferred pursuant to an effective registration statement under the Securities Act. [ ] Such Preferred Security is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933, as amended (the "Securities Act")) in reliance on Rule 144A. [ ] Such Preferred Security is being transferred in reliance on and in compliance with an exemption from the registration requirements of the Securities Act pursuant to Regulation S, Rule 144 or otherwise (other than pursuant to Rule 144A) under the Securities Act. An opinion of counsel to the effect that such transfer does not require registration under the Securities Act accompanies this Certificate. If this certificate is being delivered in connection with a transfer or exchange of Preferred Securities held by a BHCA Person (as that term is defined in the Trust Agreement), such BHCA Person certifies that this transfer or exchange complies with Section 4.3(a) of the Trust Agreement. C-9 You are entitled to rely upon this certificate and you are irrevocably authorized to produce this certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. ____________________________________ [INSERT NAME OF TRANSFEROR] By:_________________________________ Date: C-10 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have Preferred Securities represented by this certificate purchased by the Depositor pursuant to Article X of the Trust Agreement, check the Box: [ ] If you wish to have a portion of the Preferred Securities represented by this certificate purchased by the Depositor pursuant to Article X of the Trust Agreement, state the number of Preferred Securities you wish to have purchased: _____________ Date: ___________________ Your Signature(s): (Sign exactly as your name appears on the face of this Security) Tax Identification No.: _____________________ Signature Guarantee*:__________________________________________________________ *(Signature must be guaranteed by an "eligible guarantor institution" that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended) C-11 EXHIBIT D FORM OF CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF PREFERRED SECURITIES CERTIFICATE FOR EXCHANGE OR TRANSFER Re: 10.0% Shared Preference Redeemable Securities ("SpuRS" or "Preferred Securities) This Certificate relates to _________ Preferred Securities held by _________ (the "Transferor"). The Transferor has requested the Trustee by written order to exchange or register the transfer of a Preferred Security or Preferred Securities. In connection with such request and in respect of each such security, the Transferor does hereby certify to the Depositor and the Trustee that Transferor is familiar with the Trust Agreement relating to the above captioned Preferred Securities and, as provided in Section 5.4 and Section 5.5 of such Trust Agreement, the transfer of this Preferred Security does not require registration under the Securities Act (as defined below) because: / / Such Preferred Security is being acquired for the Transferor's own account, without transfer. / / Such Preferred Security is being transferred pursuant to an effective registration statement under the Securities Act. / / Such Preferred Security is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933, as amended (the "Securities Act")) in reliance on Rule 144A. / / Such Preferred Security is being transferred in reliance on and in compliance with an exemption from the registration requirements of the Securities Act pursuant to Regulation S, Rule 144 or otherwise (other than pursuant to Rule 144A) under the Securities Act. An opinion of counsel to the effect that such transfer does not require registration under the Securities Act accompanies this Certificate. If this certificate is being delivered in connection with a transfer or exchange of Preferred Securities held by a BHCA Person (as that term is defined in the Trust Agree- D-1 ment), such BHCA Person certifies that this transfer or exchange complies with Section 4.3(a) of the Trust Agreement. You are entitled to rely upon this certificate and you are irrevocably authorized to produce this certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. - -------------------------------------------------------------------------------- [INSERT NAME OF TRANSFEROR] By: Date: __________________________ D-2 EXHIBIT E OPTION OF HOLDER TO ELECT PURCHASE If you wish to have Preferred Securities represented by this certificate purchased by the Depositor pursuant to Article X of the Trust Agreement, check the Box: / / If you wish to have a portion of the Preferred Securities represented by this certificate purchased by the Depositor pursuant to Article X of the Trust Agreement, state the number of Preferred Securities you wish to have purchased: - -------------------- Date: ___________________ Your Signature(s):_________________________ Tax Identification No.: (Sign exactly as your name appears on the face of this Security) Signature Guarantee:_______________________________________________ E-1 EX-4.8 4 INDENTURE GENTIVA HEALTH SERVICES, INC. to WILMINGTON TRUST COMPANY, as Trustee INDENTURE Dated as of March 15, 2000 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1. Definitions......................................................2 SECTION 1.2. Compliance Certificate and Opinions.............................10 SECTION 1.3. Forms of Documents Delivered to Trustee.........................10 SECTION 1.4. Acts of Holders.................................................11 SECTION 1.5. Notices, etc. to Trustee and Company............................13 SECTION 1.6. Notice to Holders; Waiver.......................................14 SECTION 1.7. Conflict with Trust Indenture Act...............................14 SECTION 1.8. Effect of Headings and Table of Contents........................14 SECTION 1.9. Successors and Assigns..........................................14 SECTION 1.10. Separability Clause.............................................14 SECTION 1.11. Benefits of Indenture...........................................15 SECTION 1.12. Governing Law...................................................15 SECTION 1.13. Non-Business Days...............................................15 ARTICLE II DEBENTURE FORMS SECTION 2.1. Forms Generally.................................................15 SECTION 2.2. Form of Face of Debenture.......................................16 SECTION 2.3. Form of Reverse Debenture.......................................21 SECTION 2.4. Form of Trustee's Certificate of Authentication.................25 SECTION 2.5. Form of Conversion Notice.......................................25 ARTICLE III DEBENTURES SECTION 3.1. Title and Terms; Paying Agent...................................26 SECTION 3.2. Denominations...................................................27 SECTION 3.3. Execution, Authentication, Delivery and Dating..................27 SECTION 3.4. Temporary Debentures............................................28 SECTION 3.5. Registration, Transfer and Exchange.............................29 SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Debentures................30 SECTION 3.7. Payment of Interest; Interest Rights Preserved..................31 SECTION 3.8. Persons Deemed Owners...........................................32 -i- Page SECTION 3.9. Cancellation....................................................33 SECTION 3.10. Computation of Interest.........................................33 SECTION 3.11. Deferrals of Interest Payment Dates.............................33 SECTION 3.12. Right of Set-Off................................................34 SECTION 3.13. Agreed Tax Treatment............................................35 SECTION 3.14. Shortening of Stated Maturity...................................35 ARTICLE IV SATISFACTION AND DISCHARGE SECTION 4.1. Satisfaction and Discharge of Indenture.........................35 SECTION 4.2. Application of Trust Money......................................36 ARTICLE V REMEDIES SECTION 5.1. Events of Default...............................................37 SECTION 5.2. Acceleration of Maturity; Rescission and Annulment..............38 SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee....................................................39 SECTION 5.4. Trustee May File Proofs of Claim................................40 SECTION 5.5. Trustee May Enforce Claims Without Possession of Debentures.....41 SECTION 5.6. Application of Money Collected..................................41 SECTION 5.7. Limitation on Suits.............................................41 SECTION 5.8. Unconditional Right of Holders to Receive Principal, Premium and Interest; Direct Action by Holders of Preferred Securities.......................................42 SECTION 5.9. Restoration of Rights and Remedies..............................43 SECTION 5.10. Rights and Remedies Cumulative..................................43 SECTION 5.11. Delay or Omission Not Waiver....................................43 SECTION 5.12. Control by Holders..............................................43 SECTION 5.13. Waiver of Past Defaults.........................................44 SECTION 5.14. Undertaking for Costs...........................................44 ARTICLE VI TRUSTEE SECTION 6.1. Certain Duties and Responsibilities.............................45 SECTION 6.2. Notice of Defaults..............................................46 SECTION 6.3. Certain Rights of Trustee.......................................47 SECTION 6.4. Not Responsible for Recitals or Issuance of Debentures..........48 SECTION 6.5. May Hold Debentures.............................................48 -ii- Page SECTION 6.6. Money Held in Trust.............................................48 SECTION 6.7. Compensation and Reimbursement..................................48 SECTION 6.8. Disqualification; Conflicting Interests.........................49 SECTION 6.9. Corporate Trustee Required; Eligibility.........................49 SECTION 6.10. Resignation and Removal; Appointment of Successor...............50 SECTION 6.11. Acceptance of Appointment by Successor..........................51 SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business.....51 SECTION 6.13. Preferential Collection of Claims Against Company...............52 SECTION 6.14. Appointment of Authenticating Agent.............................52 ARTICLE VII HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 7.1. Company to Furnish Trustee Names and Addresses of Holders.......54 SECTION 7.2. Preservation of Information, Communications to Holders..........54 SECTION 7.3. Reports by Trustee..............................................54 SECTION 7.4. Reports by Company..............................................55 ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 8.1. Company May Consolidate, etc., Only on Certain Terms............55 SECTION 8.2. Successor Corporation Substituted...............................56 ARTICLE IX SUPPLEMENTAL INDENTURES SECTION 9.1. Supplemental Indentures without Consent of Holders..............57 SECTION 9.2. Supplemental Indentures with Consent of Holders.................58 SECTION 9.3. Execution of Supplemental Indentures............................59 SECTION 9.4. Effect of Supplemental Indentures...............................59 SECTION 9.5. Conformity with Trust Indenture Act.............................60 SECTION 9.6. Reference in Debentures to Supplemental Indentures..............60 ARTICLE X COVENANTS SECTION 10.1. Payment of Principal, Premium and Interest......................60 SECTION 10.2. Maintenance of Office or Agency.................................60 SECTION 10.3. Money for Debenture Payments to be Held in Trust................61 -iii- Page SECTION 10.4. Statement as to Compliance......................................62 SECTION 10.5. Waiver of Certain Covenants.....................................62 SECTION 10.6. Payment of Trust Costs and Expenses.............................63 SECTION 10.7. Additional Covenants............................................63 ARTICLE XI REDEMPTION OF SECURITIES AT THE OPTION OF THE COMPANY SECTION 11.1. Applicability of Article........................................64 SECTION 11.2. Election to Redeem; Notice to Trustee...........................64 SECTION 11.3. Selection of Debentures to be Redeemed..........................64 SECTION 11.4. Notice of Redemption............................................65 SECTION 11.5. Deposit of Redemption Price.....................................66 SECTION 11.6. Payment of Debentures Called for Redemption.....................66 SECTION 11.7. Right of Redemption of Debentures...............................67 ARTICLE XII MANDATORY REDEMPTION SECTION 12.1. Mandatory Redemption............................................67 SECTION 12.2. Notice of Redemption............................................67 SECTION 12.3. Deposit of Repurchase Price.....................................67 SECTION 12.4. Right to Require Repurchase of Debentures.......................68 SECTION 12.5. Definitions.....................................................68 ARTICLE XIII CONVERSION OF SECURITIES SECTION 13.1. Conversion Rights...............................................69 SECTION 13.2. Conversion Procedures...........................................70 SECTION 13.3. Conversion Price Adjustments....................................72 SECTION 13.4. Reclassification, Consolidation, Merger or Sale of Assets.......76 SECTION 13.5. Notice of Adjustments of Conversion Price.......................77 SECTION 13.6. Prior Notice of Certain Events..................................77 SECTION 13.7. Certain Defined Terms...........................................78 SECTION 13.8. Dividend or Interest Reinvestment Plans.........................79 SECTION 13.9. Certain Additional Rights.......................................79 SECTION 13.10.Trustee Not Responsible for Determining Conversion Price or Adjustments..........................................80 -iv- Page ARTICLE XIV SUBORDINATION OF SECURITIES SECTION 14.1. Debentures Subordinate to Senior Indebtedness...................80 SECTION 14.2. Payment Over of Proceeds Upon Dissolution, etc..................80 SECTION 14.3. Prior Payment to Senior Indebtedness Upon Acceleration of Debentures.................................................81 SECTION 14.4. No Payment when Senior Indebtedness in Default..................82 SECTION 14.5. Payment Permitted if No Default.................................82 SECTION 14.6. Subrogation to Rights of Holders of Senior Indebtedness.........83 SECTION 14.7. Provisions Solely to Define Relative Rights.....................83 SECTION 14.8. Trustee to Effectuate Subordination.............................84 SECTION 14.9. No Waiver of Subordination Provisions...........................84 SECTION 14.10.Notice to Trustee...............................................84 SECTION 14.11.Reliance on Judicial Order or Certificate of Liquidating Agent.............................................85 SECTION 14.12.Trustee Not Fiduciary for Holders of Senior Indebtedness........85 SECTION 14.13.Rights of Trustee as Holder of Senior Indebtedness..............86 SECTION 14.14.Article Applicable to Paying Agents.............................86 SECTION 14.15.Certain Conversions or Exchanges Deemed Payment.................86 SECTION 14.16.Trust Funds Not Subordinated....................................86 -v- Reconciliation and tie between the Trust Indenture Act of 1939 (including cross-references to provisions of Sections 310 to and including 317 which, pursuant to Section 318(c) of the Trust Indenture Act of 1939, as amended by the Trust Reform Act of 1990, are a part of and govern the Indenture whether or not physically contained therein) and the Indenture, dated as of March 15, 2000. Trust Indenture Act Section Indenture Section - --------------------------- ----------------- Section 310 (a)(1), (2) and(5)............. 6.9 (a)(3)......................... Not Applicable (a)(4)......................... Not Applicable (b)............................ 6.8, 6.10 (c)............................ Not Applicable Section 311 (a)............................ 6.13 (b)............................ 6.13 Section 312 (a)............................ 7.1, 7.2(a) (b)............................ 7.2(b) (c)............................ 7.2(c) Section 313 (a)............................ 7.3(a) (b)............................ 7.3(b) (c)............................ 7.3(a) (d)............................ 7.3(b) Section 314 (a)(1), (2) and(3)............. 7.4 (a)(4)......................... 10.4 (b)............................ Not Applicable (c)(1)......................... 1.2 (c)(2)......................... 1.2 (c)(3)......................... Not Applicable (d)............................ Not Applicable (e)............................ 1.2 (f)............................ Not Applicable Section 315 (a)............................ 6.1(a) (b)............................ 6.2 (c)............................ 6.1(b) (d)............................ 6.1(c) (d)(1)......................... 6.1(a)(1) and 6.1(a)(2) (d)(2)......................... 6.1(c)(2) (d)(3)......................... 6.1(c)(3) (e)............................ 5.14 Section 316 (a)(1)(A)................... 5.12 (a)(1)(B)................... 5.13 (a)(2)...................... Not Applicable (b)......................... 5.8 (c)......................... 1.4(f) Section 317 (a)(1)...................... 5.3 (a)(2)...................... 5.4 (b)......................... 10.3 Section 318 (a)......................... 1.7 Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Junior Subordinated Indenture. -vi- INDENTURE, dated as of March 15, 2000 between GENTIVA HEALTH SERVICES, INC., a Delaware corporation (the "Company") having its principal office at 175 Broad Hollow Road, Melville, New York 11747, and Wilmington Trust Company, a Delaware corporation, as Trustee (the "Trustee"). RECITALS A. For its lawful corporate purposes, the Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of securities to be known as its 10% Convertible Subordinated Debentures due 2005 (the "Debentures"), the form and substance of such Debentures and the terms, provisions and conditions thereof to be set forth as provided in this Indenture. B. Gentiva Trust, a Delaware statutory business trust (the "Trust"), has offered to the investors $20,000,000 aggregate liquidation amount of preferred interests in such Trust (the "Preferred Securities") and proposes to invest the proceeds from such offering, together with the proceeds of the issuance and sale by the Trust to the Company of $618,600 aggregate liquidation amount of common interests in such Trust (the "Common Securities" and collectively with the Preferred Securities, the "Trust Securities"), in $20,618,600 aggregate principal amount of the Debentures. C. The Company has requested that the Trustee execute and deliver this Indenture. D. All requirements necessary to make this Indenture a valid instrument in accordance with its terms, and to make the Debentures, when executed by the Company and authenticated and delivered by the Trustee, the valid obligations of the Company, have been performed, and the execution and delivery of this Indenture have been duly authorized in all respects. E. To provide the terms and conditions upon which the Debentures are to be authenticated, issued and delivered, the Company has duly authorized the execution of this Indenture. F. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the promises and the purchase of the Debentures by the Holders (as defined herein) thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all of the Holders of the Debentures, as follows: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) The terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (2) All other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) All accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder means such accounting principles which are generally accepted at the date or time of such computation; provided that when two or more principles are so generally accepted, it means that set of principles consistent with those in use by the Company; and (4) The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act" when used with respect to any Holder has the meaning specified in Section 1.4. "Additional Interest" means the interest, if any, that shall accrue on any interest on the Debentures the payment of which has not been made on the applicable Interest Payment Date and which shall accrue at the rate of 10.0% per annum compounded quarterly. "Additional Taxes" means the sum of any additional taxes, duties and other governmental charges to which the Trust has become subject from time to time as a result of a Tax Event. "Administrative Trustee" means each Person identified as an "Administrative Trustee" in the Trust Agreement, solely in such Person's capacity as Administrative Trustee of the Trust under such Trust Agreement and not in such Person's individual capacity, or any successor administrative trustee appointed as therein provided. -2- "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; provided, however, the Trust shall not be deemed to be an Affiliate of the Company. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 6.14 to act on behalf of the Trustee to authenticate Debentures. "BHCA Person" has the meaning set forth in Section 13.1. "Board of Directors" means either the board of directors of the Company or any committee of the board duly authorized to act hereunder. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors, or such committee of the Board of Directors or officers of the Company to which authority to act on behalf of the Board of Directors has been delegated, and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day other than (i) a Saturday or Sunday, (ii) a day on which banking institutions in The City of New York or the State of Delaware are authorized or required by law or executive order to remain closed. "Closing Prices" has the meaning specified in Section 13.7(a). "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Securities" has the meaning specified in the Recitals of this Indenture. "Common Stock" means the common stock, par value $.10 per share, of the Company. "Company" means the Person named as the "Company" in the first paragraph of this Indenture until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Request" and "Company Order" mean, respectively, the written request or order signed in the name of the Company by the Chairman of the Board of Directors, -3- its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Conversion Agent" means the Person appointed to act on behalf of the holders of Preferred Securities in effecting the conversion of Preferred Securities to Debentures and Debentures to Common Stock as and in the manner set forth in the Trust Agreement and this Indenture. "Conversion Price" has the meaning specified in Section 13.1. "Conversion Request" means (a) the irrevocable request to be given by a Holder to the Conversion Agent directing the Conversion Agent to convert the Holder's Debenture into shares of Common Stock, and (b) the irrevocable request to be given by a holder of Preferred Securities to the Conversion Agent directing the Conversion Agent to exchange such Preferred Securities for Debentures and to convert such Debentures into Common Stock on behalf of such holder. "Corporate Trust Office" means the principal office of the Trustee at which at any particular time its corporate trust business shall be administered, which at the date hereof is 1100 N. Market Street, Wilmington, Delaware 19801 Attention: Corporate Trust Administration. "Corporation" includes a corporation, association, company, joint-stock company or business trust. "Current Market Price" has the meaning specified in Section 13.3(f). "Debentures" or "Debenture" has the meaning specified in the Recitals to this Indenture. "Debenture Register" and "Debenture Registrar" have the respective meanings specified in Section 3.5. "Defaulted Interest" has the meaning specified in Section 3.7. "Distributions," with respect to the Trust Securities, means amounts payable in respect of such Trust Securities as provided in the Trust Agreement and referred to therein as "Distributions." "Dollar" means the currency of the United States of America that, as at the time of payment, is legal tender for the payment of public and private debts. "Event of Default" has the meaning specified in Article V. -4- "Exchange Act" means the Securities Exchange Act of 1934 and any statute successor thereto, in each case as amended from time to time. "Expiration Date" has the meaning specified in Section 1.4(h). "Extension Period" has the meaning specified in Section 2.2. "Guarantee," with respect to the Trust Securities, means the guarantee by the Company of Distributions on such Trust Securities to the extent provided in the Guarantee Agreement. "Guarantee Agreement," with respect to the Trust Securities, means the Preferred Securities Guarantee Agreement, dated as of March 15, 2000, between the Company and Wilmington Trust Company, as guarantee trustee, as amended from time to time. "Holder" means a Person in whose name a Debenture is registered in the Register. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Debentures. "Junior Subordinated Payment" has the meaning specified in Section 14.2. "Like Amount" means with respect to a redemption of Debentures pursuant to Article XII in connection with a Change of Control, Debentures having a principal amount equal to the Liquidation Amount of Trust Securities to be redeemed in accordance with Article X of the Trust Agreement. "Liquidation Amount" means the stated amount of $50 per Trust Security. "Maturity" when used with respect to the Debentures means the date on which the principal of the Debentures becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption, in connection with a Change of Control or otherwise. "Notice of Default" means a written notice of the kind specified in Section 6.2. "Officers' Certificate" means a certificate signed by the Chairman of the Board of Directors, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company and delivered to the Trustee. -5- "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, and who shall be acceptable to the Trustee. "Original Issue Date" means March 15, 2000. "Outstanding" means, as of the date of determination, all Debentures theretofore authenticated and delivered under this Indenture, except: (i) Debentures theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Debentures for whose payment or redemption price money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent in trust for the Holders of such Debentures; and (iii) Debentures in substitution for or in lieu of which other Debentures have been authenticated and delivered or which have been paid pursuant to Section 3.6, unless proof satisfactory to the Trustee is presented that any such Debentures are held by Holders in whose hands such Debentures are valid, binding and legal obligations of the Company. Debentures so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Debentures and that the pledgee is not the Company or any other obligor upon the Debentures or any Affiliate of the Company or such other obligor. Upon the written request of the Trustee, the Company promptly shall furnish to the Trustee an Officers' Certificate listing and identifying all Debentures, if any, known by the Company to be owned or held by or for the account of the Company or any other obligor on the Debentures or any Affiliate of the Company or such obligor, and, subject to the provisions of Section 6.1, the Trustee shall be entitled to accept such Officers' Certificate as conclusive evidence of the facts therein set forth and of the fact that all Debentures not listed therein are Outstanding for the purpose of any such determination. "Paying Agent" means the Trustee or any Person authorized by the Company to pay the principal of, premium, if any, or interest on the Debentures on behalf of the Company. "Person" means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment" means, with respect to the Debentures, the place or places where the principal of, premium, if any, and interest on the Debentures are payable pursuant to Section 3.11. "Predecessor Debenture" of any particular Debenture means every previous Debenture evidencing all or a portion of the same debt as that evidenced by such particular Debenture; and, for the purposes of this definition, any Debenture authenticated and delivered -6- under Section 3.6 in lieu of a lost, destroyed or stolen Debenture shall be deemed to evidence the same debt as the lost, destroyed or stolen Debenture. "Preferred Securities" has the meaning specified in the Recitals of this Indenture. "Proceeding" has the meaning specified in Section 14.2. "Property Trustee" means the commercial bank or trust company identified as the "Property Trustee" in the Trust Agreement, solely in its capacity as Property Trustee of such Trust under such Trust Agreement and not in its individual capacity, or its successor in interest in such capacity, or any successor property trustee appointed as therein provided. "Purchased Shares" has the meaning specified in Section 13.3(e). "Redemption Date," when used with respect to any Debenture to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price," when used with respect to any Debenture to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Regular Record Date" for the interest payable on any Interest Payment Date means the date which is 15 days next preceding such Interest Payment Date (whether or not a Business Day). "Responsible Officer" when used with respect to the Trustee means any officer of the Trustee assigned by the Trustee from time to time to administer its corporate trust matters. "Rights Plan" means a plan of the Company, if any, providing for the issuance by the Company to all holders of Common Stock of rights entitling the holders thereof to subscribe for or purchase shares of Common Stock or any class or series of preferred stock of the Company, which rights (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of Common Stock, in each case until the occurrence of a specified event or events. "SEC Reports" shall have the meaning specified in Section 7.4. "Senior Indebtedness" means, with respect to the Company, whether outstanding at the date of execution of this Indenture or thereafter incurred, created or assumed the (i) principal, premium, if any, and interest (including any interest accruing after the filing of any bankruptcy or insolvency proceeding whether or not such interest constitutes an allowable claim in such proceeding) of (A) indebtedness of such obligor for money borrowed under any credit agreements, notes, guarantees or similar documents and (B) indebtedness evidenced by securities, debentures, bonds or other similar instruments issued by such obligor, (ii) all capi- -7- tal lease obligations of such obligor, (iii) all obligations of such obligor issued or assumed as the deferred purchase price of property, all conditional sale obligations of such obligor and all obligations of such obligor under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business), (iv) all obligations of such obligor for the reimbursement on any letter of credit bankers' acceptance, security purchase facility or similar credit transaction, (v) all obligations of such obligor (contingent or otherwise) with respect to an interest rate or other swap, cap or collar agreements, commodity hedge transactions or other similar instruments or agreements or foreign currency hedge, exchange, purchase or similar instruments or agreements, (vi) all obligations of the types referred to in clauses (i) through (v) above of other persons for the payment of which such obligor is responsible or liable as obligor, guarantor or otherwise and (vii) all obligations of the types referred to in clauses (i) through (vi) above of other persons secured by any lien on any property or asset of such obligor (whether or not such obligation is assumed by such obligor); provided, however, that Senior Indebtedness shall not include (1) any such indebtedness that is by its terms expressly subordinated to or pari passu with the Convertible Subordinated Debentures and (2) any indebtedness between or among the Company and its Affiliates, including all debt securities and guarantees in respect of those debt securities, issued to any trust, or a trustee of such trust, partnership or other entity affiliated with the Company that is a financing vehicle of the Company (a "financing entity") in connection with the issuance by such financing entity of preferred securities or other securities that rank pari passu with, or junior to, the Preferred Securities. Such Senior Indebtedness shall continue to be Senior Indebtedness and be entitled to the benefits of the subordination provisions irrespective of any deferrals, renewals, extensions or refundings of, or amendments, modifications, supplements or waivers of any term of such Senior Indebtedness. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.7. "Split-off" means the date of the issuance of all Common Stock of the Company to stockholders of Olsten Corporation ("Olsten") in exchange for their Olsten stock and separation of Gentiva Health Services, Inc. from its parent company, Olsten, to become a separate publicly-traded company pursuant to the separation Agreement dated August 17, 1999 by and among Olsten, Adecco SA and the Company (formerly known as Aaronco Corp.). "Stated Maturity" when used with respect to any Debenture or any installment of principal thereof or interest thereon means the date specified pursuant to the terms of such Debenture as the date on which the principal of such Debenture or such installment of interest is due and payable, in the case of such principal, as such date may be shortened or extended as provided pursuant to the terms of such Debenture and this Indenture. "Subsidiary" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For purposes of this defini- -8- tion, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Tax Event" means the receipt by the Trust of an Opinion of Counsel (as defined in the Trust Agreement) experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced proposed change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or which proposed change, pronouncement or decision is announced on or after the date of issuance of the Preferred Securities, there is more than an insubstantial risk that: (i) the Trust is, or will be within 90 days of the date of such Opinion of Counsel, subject to United States federal income tax with respect to income received or accrued on the Debentures; (ii) interest payable by the Company on the Debentures is not, or within 90 days of the date of such Opinion of Counsel, will not be, deductible by the Company, in whole or in part, for United States federal income tax purposes; or (iii) such Trust is, or will be within 90 days of the date of such Opinion of Counsel, subject to more than a de minimis amount of other taxes, duties or other governmental charges. "Trading Day" means each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day on which securities are generally not traded on the applicable securities exchange or in the applicable securities market. "Trust" has the meaning specified in the second recital of this Indenture. "Trust Agreement" means the Trust Agreement dated as of March 9, 2000 between the Company, as depositor, Edward A. Blechschmidt, John J. Collura and Patricia C. Ma, as Administrative Trustees, Wilmington Trust Company as Delaware Trustee and as Property Trustee, as amended from time to time. "Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbb), as amended and as in effect on the date as of this Indenture, except as provided in Section 9.5. "Trust Securities" has the meaning specified in the second recital of this Indenture. "Trust Securities Repurchase Price" means, with respect to any Trust Security, the Liquidation Amount of such Trust Security, plus accrued and unpaid Distributions, if any, to the Repurchase Date, paid by the Trust upon the repurchase of Trust Securities pursuant to Article X of the Trust Agreement in connection with the Change of Control. -9- "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include such successor Trustee. "Vice President," when used with respect to the Company means any duly appointed vice president, whether or not designated by a number or a word or words added before or after the title "vice president." SECTION 1.2. Compliance Certificate and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company will furnish to the Trustee an Officers' Certificate stating that all conditions precedent (including covenants, compliance with which constitutes a condition precedent), if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent (including covenants, compliance with which constitute a condition precedent), if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than the certificates provided pursuant to Section 10.5) shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (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 each such individual, he has made or caused to be 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, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.3. Forms of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or -10- covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer or counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his or her certificate or opinion is based are erroneous. Any Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel rendering such Opinion of Counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.4. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given to or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent or proxy duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments is or are delivered to the Trustee, and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent or proxy shall be sufficient for any purpose of this Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section 1.4. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a Person acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. (c) The fact and date of the execution by any Person of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other -11- manner which the Trustee deems sufficient and in accordance with such reasonable rules as the Trustee may determine. (d) The ownership of Debentures shall be proved by the Debenture Register. (e) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Debenture shall bind every future Holder of the same Debenture and the Holder of every Debenture issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Debenture. (f) The Company may set any day as a record date for the purpose of determining the Holders of Outstanding Debentures entitled to give, make or take any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders of Debentures, provided that the Company may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in the next paragraph. If any record date is set pursuant to this paragraph, the Holders of the relevant Outstanding Debentures on such record date, and no other Holders, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date, provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of the relevant Outstanding Debentures on such record date. Nothing in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be canceled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of the relevant Outstanding Debentures on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustee in writing and to each Holder of the relevant Debentures in the manner set forth in Section 1.6. (g) The Trustee may set any day as a record date for the purpose of determining the Holders of Outstanding Debentures entitled to join in the giving or making of (i) any Notice of Default, (ii) any declaration of acceleration referred to in Section 5.2, (iii) any request to institute proceedings referred to in Section 5.7(2) or (iv) any direction referred to in Section 5.12. If any record date is set pursuant to this paragraph, the Holders of the Outstanding Debentures on such record date shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date, provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of the Outstanding Debentures on such record date. Nothing in this paragraph shall be construed to prevent the Trustee from -12- setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be canceled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of the Outstanding Debentures on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Company's expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Company in writing and to each Holder of the Debentures in the manner set forth in Section 1.6. (h) With respect to any record date set pursuant to this Section, the party hereto which sets such record dates may designate any day as the "Expiration Date" and from time to time may change the Expiration Date to any earlier or later day, provided that no such change shall be effective unless notice of the proposed new Expiration Date is given to the other party hereto in writing, and to each Holder of the Outstanding Debentures in the manner set forth in Section 10.6 on or prior to the existing Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section 1.4, the party hereto which set such record date shall be deemed to have initially designated the 180th day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this Section 1.4(h). Notwithstanding the foregoing, no Expiration Date shall be later than the 180th day after the applicable record date. (i) Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any Debenture may do so with regard to all or any part of the principal amount of such Debenture or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. SECTION 1.5. Notices, etc. to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder, any holder of Preferred Securities or the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, or (2) the Company by the Trustee, any Holder or any holder of Preferred Securities shall be sufficient for every purpose hereunder (except as otherwise provided in Section 5.1) if in writing and mailed, first class, postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company. -13- SECTION 1.6. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first class postage prepaid, to each Holder affected by such event, at the address of such Holder as it appears in the Debenture Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 1.7. Conflict with Trust Indenture Act. (a) This Indenture shall be subject to the provisions of the Trust Indenture Act whether or not such provisions are required or deemed to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. (b) If any provision hereof limits, qualifies or conflicts with another provision hereof which is or would be required or deemed to be included in this Indenture by any of the provisions of the Trust Indenture Act, such required or deemed provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act which may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or excluded, as the case may be. SECTION 1.8. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.9. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 1.10. Separability Clause. In case any provision of this Indenture or in the Debentures 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. -14- SECTION 1.11. Benefits of Indenture. Nothing in this Indenture or in the Debentures, express or implied, shall give to any Person, other than the parties hereto and their successors and assigns, the holders of Senior Indebtedness, the Holders of the Debentures and, to the extent expressly provided in Sections 5.2, 5.8, 5.9, 5.11, 5.13, 9.1 and 9.2, the holders of Preferred Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.12. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES THEREOF. SECTION 1.13. Non-Business Days. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Debenture shall not be a Business Day, then (notwithstanding any other provision of this Indenture or the Debentures) payment of principal of, premium, if any, and interest thereon need not be made on such date, but may be made on the next succeeding Business Day (and no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be, until such next succeeding Business Day) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day (in each case with the same force and effect as if made on the Interest Payment Date or Redemption Date or at the Stated Maturity). ARTICLE II DEBENTURE forms SECTION 2.1. Forms Generally. The Debentures and the Trustee's certificate of authentication shall be in substantially the forms set forth in this Article II, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with applicable tax laws or the rules of any securities exchange or automated quotation system on which the Debentures may be listed or traded or as may, consistently herewith, be determined by the officers executing such Debentures, as evidenced by their execution of the Debentures. -15- The definitive Debentures shall be typewritten, printed, lithographed or engraved or produced by any combination of these methods, if required by any securities exchange or automated quotation system on which the Debentures may be listed or traded, on a steel engraved border or steel engraved borders or may be produced in any other manner permitted by the rules of any securities exchange or automated quotation system on which the Debentures may be listed or traded, all as determined by the officers executing such Debentures, as evidenced by their execution of such Debentures. SECTION 2.2. Form of Face of Debenture. THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, RESOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER HEREOF MAY NOT ENGAGE IN HEDGING TRANSACTIONS IN THIS SECURITY UNLESS SUCH TRANSACTIONS ARE IN COMPLIANCE WITH THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, RESELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS THE LATER OF (X) TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH GENTIVA HEALTH SERVICES, INC. (THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES -16- ACT, SUBJECT TO THE COMPANY'S AND THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. ANY TRANSFER OF THIS SECURITY IS REQUIRED TO BE MADE IN COMPLIANCE WITH THE APPLICABLE STATE SECURITIES LAWS AND APPLICABLE SECURITIES LAWS OF OTHER JURISDICTIONS. IN THE CASE OF A PURCHASER OF DEBENTURES IN THE STATE OF GEORGIA, FOR A PERIOD OF ONE YEAR FROM THE CLOSING DATE, THE PREFERRED SECURITIES SHALL CONTAIN THE FOLLOWING LANGUAGE: THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE SECTION 10-5-9 OF THE 'GEORGIA SECURITIES ACT OF 1973,' AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT. THE HOLDER OF THIS SECURITY AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. -17- GENTIVA HEALTH SERVICES, INC. 10.0% Convertible Subordinated Debentures No. _____ $ GENTIVA HEALTH SERVICES, INC., a corporation organized and existing under the laws of the state of Delaware (the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to Gentiva Trust, or registered assigns, the principal sum of Dollars on March 15, 2005; provided that the Company, subject to certain conditions set forth in Section 3.14 of the Indenture, may shorten the Stated Maturity of the principal of this Debenture. The Company further promises to pay interest on said principal sum from March 15, 2000, or from the most recent interest payment date (each such date, an "Interest Payment Date") on which interest has been paid or duly provided for, quarterly (subject to deferral as set forth herein) in arrears on January 1, April 1, July 1 and October 1 of each year, commencing July 1, 2000, at the rate of 10.0% per annum, until the principal hereof shall have become due and payable, plus Additional Interest, if any, until the principal hereof is paid or duly provided for or made available for payment and on any overdue principal and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the rate of 10.0% per annum, compounded quarterly. The amount of interest payable for any period shall be computed on the basis of twelve 30-day months and a 360-day year. The amount of interest payable for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on this Debenture is not a Business Day, then a payment of the interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on the date the payment was originally payable. A "Business Day" shall mean any day other than (i) a Saturday or Sunday or (ii) a day on which banking institutions in The City of New York or the State of Delaware are authorized or required by law or executive order to remain closed. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date shall, as provided in the Indenture, be paid to the Person in whose name this Debenture (or one or more Predecessor Debentures) is registered at the close of business on the Regular Record Date for such interest installment, which shall be the 15th day of the month next preceding such Interest Payment Date (whether or not a Business Day). Any such interest installment not so punctually paid, duly provided or deferred (as provided below) for shall forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Debenture (or one or more Predecessor Debentures) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Debentures not less than ten days prior to such Special Record Date, or be paid at any time in any -18- other lawful manner not inconsistent with the requirements of any securities exchange or automated quotation system on which the Debentures may be listed or traded, and upon such notice as may be required by such exchange or self-regulatory organization, all as more fully provided in the Indenture. So long as no Event of Default has occurred and is continuing, the Company shall have the right at any time during the term of this Debenture to defer payment of interest on this Debenture, at any time or from time to time, for up to 20 consecutive quarterly interest payment periods with respect to each deferral (each an "Extension Period"), during which Extension Periods the Company shall have the right to make partial payments of interest on any Interest Payment Date, and at the end of such Extension Periods the Company shall pay all interest then accrued and unpaid (together with Additional Interest thereon to the extent permitted by applicable law); provided, however, that no Extension Period shall extend beyond the Stated Maturity of the principal of this Debenture; and provided, further, that during any such Extension Period, the Company shall not, and shall not permit any Subsidiary of the Company to, (i) declare or pay any dividends or distributions on or redeem, purchase, acquire or make a liquidation payment with respect to, any of the Company's capital stock, (ii) make any payment of principal of, premium, if any, or interest or on or repay, repurchase or redeem any debt security of the Company that ranks pari passu with or junior in interest to this Debenture or (iii) make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to this Debenture (other than (a) dividends or distributions in the Company's capital stock, (b) any declaration of a dividend in connection with the implementation of a Rights Plan or the redemption or repurchase of any rights distributed pursuant to a Rights Plan, (c) payments under the Guarantee with respect to this Debenture and (d) purchases of Common Stock related to the issuance of Common Stock or rights under any of the Company's benefit plans for its directors, officers or employees, related to the issuance of Common Stock or rights under a dividend reinvestment and stock purchase plan or related to the issuance of Common Stock (or securities convertible or exchangeable for Common Stock) as consideration in an acquisition transaction that was entered into prior to the commencement of such Extension Period). Prior to the termination of any such Extension Period, the Company may further defer the payment of interest, provided that no Extension Period shall exceed 20 consecutive quarters or extend beyond the Stated Maturity of the principal of this Debenture. Upon the termination of any such Extension Period and upon the payment of all accrued and unpaid interest and any Additional Interest then due, the Company may elect to begin a new Extension Period, subject to the above requirements. No interest shall be due and payable during an Extension Period except at the end thereof. If the Trust is the sole Holder of this Debenture, the Company shall give the Trustees notice of its selection of such Extension Period at least one Business Day prior to the earlier of (i) the next succeeding date on which Distributions on the Preferred Securities would be payable but for such deferral or (ii) the date the Administrative Trustees are required to give notice to any securities exchange or other applicable self-regulatory organization or to holders of such Preferred Securities of the record date or the date such Distributions are payable, if any, but in any event not less than one Busi- -19- ness Day prior to such record date. If the Trustee shall not be the sole Holder of this Debenture, the Company shall give the Holders of this Debenture notice of its selection of such Extension Period at least ten Business Days prior to the earlier of (i) the next Interest Payment Date or (ii) the date the Company is required to give notice to any applicable securities exchange or self-regulatory organization, if any, or to the Holders of this Debenture of the record or payment date of such related interest payment. Payment of principal of, premium, if any, and interest on this Debenture shall be made at the office or agency of the Company maintained for that purpose in the United States, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made, except in the case of Debentures in global form, by check mailed to the address of the Person entitled thereto as such address shall appear in the Debenture Register. The indebtedness evidenced by this Debenture is, to the extent provided in the Indenture, subordinate and subject in right of payments to the prior payment in full of all Senior Indebtedness, and this Debenture is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such actions as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. Each Holder hereof, by his acceptance hereof, waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. Reference is hereby made to the further provisions of this Debenture set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Debenture shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. -20- IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. GENTIVA HEALTH SERVICES, INC. By: ___________________________________ Attest: _________________________________ SECTION 2.3. Form of Reverse Debenture. This Debenture is one of a duly authorized issue of securities of the Company, designated as its 10.0% Convertible Subordinated Debentures (the "Debentures"), limited in aggregate principal amount to $20,618,600 issued under an Indenture, dated as of March 15, 2000 (the "Indenture"), between the Company and Wilmington Trust Company, as Trustee (the "Trustee," which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Trustee, the Company and the Holders of the Debentures, and of the terms upon which the Debentures are, and are to be, authenticated and delivered. All capitalized terms used but not defined in this Debenture that are defined in the Indenture or in the Trust Agreement, dated as of March 9, 2000 (the "Trust Agreement"), among Gentiva Health Services, Inc., as Depositor, and the Trustees named therein, shall have the meanings assigned to them in the Indenture or the Trust Agreement, as the case may be. The Company may at any time, at its option, on or after March 15, 2001, and subject to the terms and conditions of Article XI of the Indenture, redeem this Debenture in whole at any time or in part from time to time at the redemption prices set forth below (as expressed as a percentage of the principal amount of the Debentures), in each case, together with accrued and unpaid interest, including Additional Interest, if any, to the Redemption Date, upon not less than 30 nor more than 60 days' prior written notice, if redeemed during the 12-month period commencing on March 15 of each of the years set forth below. Year Redemption Price - ---- ---------------- 2001........................................... 108% 2002........................................... 106% 2003........................................... 104% 2004........................................... 102% Upon the occurrence and during the continuation of a Tax Event, the Company may, at its option, at any time within 90 days of the occurrence of such Tax Event redeem this -21- Debenture, in whole or in part, subject to the provisions of Section 11.7 and the other provisions of Article XI of the Indenture, at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, including Additional Interest, if any, to the Redemption Date. Upon the occurrence of a Change in Control, the Company is required to redeem Debentures issued under the Indenture equal in aggregate principal amount to the Liquidation Amount of Preferred Securities required to be repurchased by the Trust upon such a Change of Control in accordance with Article X of the Trust Agreement. In the event of redemption of this Debenture in part only, a new Debenture or Debentures for the unredeemed portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof. If at any time Debentures are distributed to Holders of Preferred Securities upon a liquidation of the Trust permitted by the Trust Agreement, such Holders shall have the right to require the Company to repurchase Debentures upon a Change of Control in accordance with Article XII of the Indenture. The Indenture contains provisions for satisfaction and discharge of the entire indebtedness of this Debenture upon compliance by the Company with certain conditions set forth in the Indenture. The Indenture permits, with certain exceptions as therein provided, the Company and the Trustee at any time to enter into a supplemental indenture or indentures for the purpose of modifying in any manner the rights and obligations of the Company and of the Holders of the Debentures, with the consent of the Holders of not less than a majority in principal amount of the Outstanding Debentures. The Indenture also contains provisions permitting Holders of specified percentages in principal amount of the Debentures at the time Outstanding, on behalf of the Holders of all Debentures, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Debenture shall be conclusive and binding upon such Holder and upon all future Holders of this Debenture and of any Debenture issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Debenture. As provided in and subject to the provisions of the Indenture, if an Event of Default occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Debentures may declare the principal amount of all the Debentures to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), provided that, in the case of the Debentures issued to the Trust, if upon an Event of Default the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Debentures fail to declare the principal of all the Debentures to be immediately due and payable, the holders of at least 25% in aggregate Liquidation Amount of the Preferred Securities then outstanding shall have such right by a notice in writing to the Company and the Trustee; and upon any such declaration the principal amount of and the accrued interest, including Additional Interest, if any, on all the Debentures shall become immediately due and payable, provided that the payment of principal and inter- -22- est, including Additional Interest, if any, on such Debentures shall remain subordinated to the extent provided in Article XIV of the Indenture. Subject to Section 13.1(a) of the Indenture, the Holder of any Debenture has the right, exercisable at any time on or before 5:00 p.m. (New York City time) on the second Business Day immediately preceding the date of repayment of the Debentures, whether at maturity or upon redemption (either at the option of the Company or pursuant to a Tax Event), to convert the principal amount thereof (or any portion thereof that is an integral multiple of $50) into fully paid and nonassessable shares of Common Stock at an initial conversion premium of 17.5% above the average closing price of the Common Stock during the ten (10) Trading Days after the Company's first earnings announcement after the Split-off (the "Conversion Price"), subject to adjustment under certain circumstances. The number of shares issuable upon conversion of a Debenture is determined by dividing the principal amount of the Debenture to be converted by the Conversion Price in effect on the Conversion Date. No fractional shares of Common Stock shall be issued upon conversion and, in lieu thereof, a cash payment shall be made for any fractional interest. The outstanding principal amount of any Debenture shall be reduced by the portion of the principal amount thereof converted into shares of Common Stock. To convert a Debenture, a Holder shall (i) complete and sign a Conversion Request substantially in the form attached hereto, (ii) surrender the Debenture to the Conversion Agent, (iii) furnish appropriate endorsements or transfer documents if required by the Debenture Registrar or Conversion Agent and (iv) pay any transfer or similar tax, if required. If a Conversion Request is delivered on or after the Regular Record Date and prior to the subsequent Interest Payment Date, the Holder shall be required to pay to the Company the interest payment to be made on the subsequent Interest Payment Date, and shall be entitled to receive the interest payable on the subsequent Interest Payment Date, on the portion of Debentures to be converted notwithstanding the conversion thereof prior to such Interest Payment Date. Notwithstanding the foregoing, if, during an Extension Period, a notice of redemption is mailed pursuant to Section 11.4 of the Indenture and a Debenture is converted after such mailing but prior to the relevant Redemption Date, all accrued but unpaid interest (including Additional Interest, if any) through the date of conversion shall be paid to the holder of such Debenture on the Redemption Date. Except as otherwise provided in the immediately preceding two sentences, in the case of any Debenture which is converted, interest with a Stated Maturity which is after the date of conversion of such Debenture shall not be payable, and the Company shall not make nor be required to make any other payment, adjustment or allowance with respect to accrued but unpaid interest (including Additional Interest, if any) on the Debentures being converted, which shall be deemed to be paid in full. If any Debenture called for redemption is converted, any money deposited with the Trustee or with any Paying Agent or so segregated and held in trust for the redemption of such Debenture shall (subject to any right of the Holder of such Debenture or any Predecessor Debenture to receive interest as provided in the last paragraph of Section 3.7 of the Indenture and this paragraph) be paid to the Company upon Company Request or, if then held by the Company, shall be discharged from such trust. -23- No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Debenture at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Debenture is registrable in the Debenture Register, upon surrender of this Debenture for registration of transfer at the office or agency of the Company maintained under Section 10.2 of the Indenture duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Debenture Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Debentures, of authorized denominations and for the same aggregate principal amount, shall be issued to the designated transferee or transferees. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Debenture for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Debenture is registered as the owner hereof for all purposes, whether or not this Debenture be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. The Debentures are issuable only in registered form without coupons in denominations of $50 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Debentures are exchangeable for a like aggregate principal amount of Debentures of a different authorized denomination, as requested by the Holder surrendering the same. The Company and, by its acceptance of this Debenture or a beneficial interest therein, the Holder of, and any Person that acquires a beneficial interest in, this Debenture agree that for United States federal, state and local tax purposes it is intended that this Debenture constitute indebtedness. THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF. -24- SECTION 2.4. Form of Trustee's Certificate of Authentication. This is one of the Debentures referred to in the within mentioned Indenture. Dated: WILMINGTON TRUST COMPANY -------------------------------------- as Trustee By: __________________________________ Authorized Signatory SECTION 2.5. Form of Conversion Notice. CONVERSION REQUEST To: Gentiva Health Services, Inc. The undersigned owner of these Debentures hereby irrevocably elects to convert these Debentures, or the portion below designated, into Common Stock of the Company (the "Common Stock") in accordance with the terms of the Indenture (the "Indenture"), dated as of March 15, 2000, between the Company and Wilmington Trust Company, as Trustee. The undersigned owner of these Debentures hereby directs the Conversion Agent to convert such Debentures on behalf of the undersigned into Common Stock at the Conversion Price specified in the Indenture. The undersigned owner of these Debentures also hereby notifies the Conversion Agent that the shares issuable and deliverable upon conversion, together with any check in payment for fractional shares, should be issued in the name of and delivered to the undersigned, unless a different name has been indicated in the assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Date: _________________ Principal Amount of Debentures to be converted ($50 or integral multiples thereof): _____________ If a name or names other than the undersigned, please indicate in the spaces below the name or names in which the shares of Common Stock are to be issued, along with the address or addresses of such person or persons. -25- - ----------------------- - ----------------------- - ----------------------- (Sign exactly as your name appears on the other side of this Debenture) (for conversion only) Please print or type name and address, including zip code, and social security or other identifying number: - ----------------------- - ----------------------- - ----------------------- Signature Guarantee:*____________________________________ ARTICLE III DEBENTURES SECTION 3.1. Title and Terms; Paying Agent. The aggregate principal amount of Debentures which may be authenticated and delivered under this Indenture is limited to $20,618,600, except for Debentures authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Debentures pursuant to Section 3.4, 3.5, 3.6, 9.6, 11.6 or 12.1 and except for any Debentures which, pursuant to the last paragraph of Section 3.3, are deemed never to have been authenticated and delivered hereunder. The Debentures shall be known and designated as the "10.0% Convertible Subordinated Debentures due 2005" of the Company. Their Stated Maturity shall be March - ---------- * Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities and Exchange Act of 1934, as amended. -26- 15, 2005, or if the Company elects to accelerate the maturity date in accordance with Section 5.2 hereof, such earlier date as the Company selects. The Debentures shall bear interest at the rate of 10.0% per annum, from March 15, 2000 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, payable quarterly (subject to deferral as set forth herein), in arrears, on January 1, April 1, July 1 and October 1 of each year, commencing July 1, 2000 until the principal thereof is paid or made available for payment. Accrued interest that is not paid on the applicable Interest Payment Date (even if unpaid due to an extension of an interest payment period as set forth below in this Section 3.1) shall bear Additional Interest on the amount thereof. In the event that any date on which interest is payable on the Debentures is not a Business Day, then a payment of the interest payable on such date shall be made on the next succeeding day which is a Business Day (except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day) (and without any interest or other payment in respect of any such delay), in each case with the same force and effect as if made on the date the payment was originally payable. The principal of, premium, if any, and interest on the Debentures shall be payable at the office of the Paying Agent or Paying Agents as the Company may designate for such purpose from time to time, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made, except in the case of Global Debentures, by check mailed to the address of the Person entitled thereto as such address shall appear in the Debenture Register. The Company designates the Trustee as the initial Paying Agent with respect to the Debentures. The Company may at any time designate additional Paying Agents or rescind the designation of any Paying Agent or approve a change in the office through which any Paying Agent acts pursuant to Section 10.2. The Debentures shall be subordinated in right of payment to Senior Indebtedness as provided in Article XIV. SECTION 3.2. Denominations. The Debentures shall be in registered form without coupons and shall be issuable in denominations of $50 and any integral multiple thereof. SECTION 3.3. Execution, Authentication, Delivery and Dating. The Debentures shall be executed on behalf of the Company by its Chief Executive Officer, President or one of its Vice Presidents under its corporate seal reproduced or impressed thereon and attested by its Secretary or one of its Assistant Secretaries. The signa- -27- ture of any of these officers on the Debentures may be manual or facsimile. Debentures bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Debentures or did not hold such offices at the date of such Debentures. The Debentures may contain such notations, legends or endorsements required by law, stock exchange rule or usage. Each Debenture shall be dated the date of its authentication by the Trustee. A Debenture shall not be valid until manually authenticated by an authorized signatory of the Trustee, or by an Authenticating Agent. Such signature shall be conclusive evidence that the Debenture so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture. Notwithstanding the foregoing, if any Debenture shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Debenture to the Trustee for cancellation as provided in Section 3.9, for all purposes of this Indenture such Debenture shall be deemed never to have been authenticated and delivered hereunder and shall not be entitled to the benefits of this Indenture. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Debentures executed by the Company to the Trustee for authentication, together with a written order of the Company for the authentication and delivery of such Debentures signed by its Chief Executive Officer, President or any Vice President and its Treasurer or any Assistant Treasurer, and the Trustee in accordance with such written order shall authenticate and deliver such Debentures. In authenticating such Debentures and accepting the additional responsibilities under this Indenture in relation to such Debentures, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the form and terms thereof have been established in conformity with the provisions of this Indenture. The Trustee shall not be required to authenticate such Debentures if the issue of such Debentures pursuant to this Indenture shall affect the Trustee's own rights, duties or immunities under the Debentures and this Indenture or otherwise in a manner that is not reasonably acceptable to the Trustee. Each Debenture shall be dated the date of its authentication. SECTION 3.4. Temporary Debentures. Pending the preparation of definitive Debentures, the Company may execute, and upon Company Order the Trustee shall authenticate and make available for delivery, temporary Debentures which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Debentures in lieu of which they are issued and with such appropriate insertions, omissions, substi- -28- tutions and other variations as the officers executing such Debentures may determine, as evidenced by their execution of such Debentures. If temporary Debentures are issued, the Company will cause definitive Debentures to be prepared without unreasonable delay. After the preparation of definitive Debentures, the temporary Debentures shall be exchangeable for definitive Debentures upon surrender of the temporary Debentures at the office or agency of the Company designated for that purpose without charge to the Holder. Upon surrender for cancellation of any one or more temporary Debentures, the Company shall execute and the Trustee shall authenticate and make available for delivery in exchange therefor one or more definitive Debentures, of any authorized denominations having the same Original Issue Date and Stated Maturity and having the same terms as such temporary Debentures. Until so exchanged, the temporary Debentures shall in all respects be entitled to the same benefits under this Indenture as definitive Debentures. SECTION 3.5. Registration, Transfer and Exchange. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the "Debenture Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Debentures and of transfers of Debentures. The Trustee is hereby appointed "Debenture Registrar" for the purpose of registering Debentures and transfers of Debentures as herein provided. Upon surrender for registration of transfer of any Debenture at the office or agency of the Company designated for that purpose the Company shall execute, and the Trustee shall authenticate and make available for delivery, in the name of the designated transferee or transferees, one or more new Debentures of any authorized denominations, of a like aggregate principal amount, of the same Original Issue Date and Stated Maturity and having the same terms. At the option of the Holder, Debentures may be exchanged for other Debentures of any authorized denominations, of a like aggregate principal amount, of the same Original Issue Date and Stated Maturity and having the same terms, upon surrender of the Debentures to be exchanged at such office or agency; provided that, any Holder which is a BHCA Person shall be subject to the transfer restrictions set forth in Section 13.1(a) hereof. Whenever any Debentures are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and make available for delivery, the Debentures which the Holder making the exchange is entitled to receive. All Debentures issued upon any registration of transfer or exchange of Debentures shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Debentures surrendered upon such registration of transfer or exchange. -29- Every Debenture presented or surrendered for registration of transfer or exchange shall (if so required by the Company or the Debenture Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Debenture Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made to a Holder for any transfer or exchange of Debentures, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Debentures. Neither the Company nor the Trustee shall be required, pursuant to the provisions of this Section 3.5, (a) to issue, register the transfer of or exchange any Debenture during a period beginning at the opening of business 15 days before the day of selection for redemption of Debentures pursuant to Article XI and ending at the close of business on the day of mailing of notice of redemption or (b) to register the transfer of or exchange any Debenture so selected for redemption in whole or in part, except, in the case of any Debenture to be redeemed in part, any portion thereof not to be redeemed. SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Debentures. If any mutilated Debenture is surrendered to the Trustee together with such security or indemnity as may be required by the Company or the Trustee to save each of them harmless, the Company shall execute and the Trustee shall authenticate and make available for delivery in exchange therefor a new Debenture of like tenor and principal amount, having the same Original Issue Date and Stated Maturity and bearing the same interest rate as such mutilated Debenture, and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and to the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Debenture and (ii) such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Debenture has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and make available for delivery, in lieu of any such destroyed, lost or stolen Debenture, a new Debenture of like tenor and principal amount, having the same Original Issue Date and Stated Maturity and bearing the same interest rate as such destroyed, lost or stolen Debenture and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Debenture has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Debenture, pay such Debenture. Upon the issuance of any new Debenture under this Section 3.6, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge -30- that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Debenture issued pursuant to this Section 3.6 in lieu of any destroyed, lost or stolen Debenture shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Debenture shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Debentures duly issued hereunder. The provisions of this Section 3.6 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures. SECTION 3.7. Payment of Interest; Interest Rights Preserved. Interest on any Debenture which is payable, and is punctually paid or duly provided for, on any Interest Payment Date, shall be paid to the Person in whose name that Debenture (or one or more Predecessor Debentures) is registered at the close of business on the Regular Record Date for such interest payment, except that, unless otherwise provided in the Debentures, interest payable on the Stated Maturity of the principal of a Debenture shall be paid to the Person to whom principal is paid. The initial payment of interest on any Debenture which is issued between a Regular Record Date and the related Interest Payment Date shall be payable as provided in such Debenture. At the option of the Company, interest on any Debentures may be paid (i) by check mailed to the address of the Person entitled thereto as it shall appear on the Debenture Register or (ii) by wire transfer in immediately available funds at such place and to such account as designated by the Person entitled thereto as specified in the Debenture Register. Any interest on any Debenture which is payable, but is not timely paid or duly provided for, on any Interest Payment Date ("Defaulted Interest"), shall forthwith cease to be payable to the registered Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Debentures (or their respective Predecessor Debentures) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Debenture and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the -31- Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than ten days prior to the date of the proposed payment and not less than ten days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first class, postage prepaid, to each Holder of a Debenture at the address of such Holder as it appears in the Debenture Register not less than ten days prior to such Special Record Date. The Trustee may, in its discretion, in the name and at the expense of the Company, cause a similar notice to be published at least once in a newspaper, customarily published in the English language on each Business Day and of general circulation in New York City, but such publication shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Debentures (or their respective Predecessor Debentures) are registered on such Special Record Date and shall no longer be payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange or automated quotation system on which the Debentures may be listed or traded and, upon such notice as may be required by such exchange (or by the Trustee if the Debentures are not listed), if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such payment shall be deemed practicable by the Trustee. Any interest on any Debenture which is deferred or extended pursuant to Section 3.11 shall not be Defaulted Interest for the purposes of this Section 3.7. Subject to the foregoing provisions of this Section 3.7, each Debenture delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Debenture shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Debenture. SECTION 3.8. Persons Deemed Owners. The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name any Debenture is registered on the Debenture Register as the owner of such Debenture for the purpose of receiving payment of principal of, premium, if any, and (subject to Section 3.7) interest on such Debenture and for all other purposes whatsoever, whether or not such Debenture be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. -32- SECTION 3.9. Cancellation. All Debentures surrendered for payment, redemption, registration of transfer, conversion or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee, and any such Debentures and Debentures surrendered directly to the Trustee for any such purpose shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Debentures previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Debentures so delivered shall be promptly canceled by the Trustee. No Debentures shall be authenticated in lieu of or in exchange for any Debentures canceled as provided in this Section 3.9, except as expressly permitted by this Indenture. All canceled Debentures shall be returned by the Trustee to the Company and destroyed by the Company. SECTION 3.10. Computation of Interest. Interest on the Debentures payable for any full quarterly period shall be computed on the basis of a 360-day year of twelve 30-day months and interest on the Debentures for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. SECTION 3.11. Deferrals of Interest Payment Dates. So long as no Event of Default has occurred and is continuing, the Company shall have the right, at any time during the term of the Debentures, from time to time to defer the payment of interest on the Debentures for up to 20 consecutive quarterly interest payment periods with respect to each deferral period (each, an "Extension Period"), during which Extension Periods the Company shall have the right to make partial payments of interest on any Interest Payment Date. No Extension Period shall end on a date other than an Interest Payment Date. At the end of any such Extension Period the Company shall pay all interest then accrued and unpaid on the Debentures (together with Additional Interest thereon, if any, at the rate of 10.0%, to the extent permitted by applicable law) to the Persons in whose names the Debentures are registered at the close of business on the Regular Record Date with respect to the Interest Payment Date at the end of such Extension Period; provided, however, that no Extension Period shall extend beyond the Stated Maturity of the principal of the Debentures; and provided, further, that during any such Extension Period, the Company shall not, and shall not permit any Subsidiary to, (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the Company's capital stock, (ii) make any payment of principal of, premium, if any, or interest on or repay, repurchase or redeem any debt security of the Company that ranks pari passu with or junior in interest to the Debentures or (iii) make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiary of the Company that by their terms rank pari passu with or junior in interest to the Debentures (other than (a) dividends or distributions in the Company's capital stock, (b) any declaration of a dividend in connection with the implementation of a Rights Plan, or the redemption or repurchase of any rights distributed -33- pursuant to a Rights Plan, (c) payments under the Guarantee with respect to such Debenture and (d) purchases of Common Stock related to the issuance of Common Stock or rights under any of the Company's benefit plans for its directors, officers or employees, related to the issuance of Common Stock or rights under a dividend reinvestment and stock purchase plan or related to the issuance of Common Stock (or securities convertible or exchangeable for Common Stock) as consideration in an acquisition transaction that was entered into prior to the commencement of such Extension Period). Prior to the termination of any such Extension Period, the Company may further defer the payment of interest, provided that no Extension Period shall exceed 20 consecutive quarterly periods or extend beyond the Stated Maturity of the principal of the Debentures. Upon termination of any Extension Period and upon the payment of all accrued and unpaid interest and any Additional Interest then due on any Interest Payment Date, the Company may elect to begin a new Extension Period, subject to the above requirements. No interest shall be due and payable during an Extension Period, except at the end thereof. If the Property Trustee shall be the sole Holder of the Debentures, the Company shall give the Administrative Trustees and the Property Trustee written notice of its election to begin any such Extension Period at least one Business Day prior to the earlier of (i) the next succeeding date on which Distributions on the Preferred Securities of the Trust would be payable but for such deferral or (ii) the date the Administrative Trustees of the Trust are required to give notice to any securities exchange or other applicable self-regulatory organization or to holders of such Preferred Securities of the record date or the date such Distributions are payable, but in any event not less than one Business Day prior to such record date. If the Property Trustee shall not be the sole Holder of the Debentures, the Company shall give Holders written notice of its election to begin any such Extension Period at least ten Business Days prior to the earlier of (i) the next succeeding date Interest Payment Date or (ii) the date the Company is required to give notice to any securities exchange or other applicable self-regulatory organization or to Holders of the record date or the date of such Interest Payment Date. Notwithstanding any other provision of this Indenture, for all purposes under this Indenture Distributions on the Debentures shall not be deemed payable, and the deferral of Distributions shall not constitute an Event of Default, at any time during which an Extension Period is in effect. The Trustee shall promptly give notice, in the name and at the expense of the Company, of the Company's election to begin any such Extension Period to the Holders of the Outstanding Debentures. SECTION 3.12. Right of Set-Off. Notwithstanding anything to the contrary in the Indenture, the Company shall have the right to set-off any payment it is otherwise required to make thereunder in respect of any Debenture to the extent the Company has theretofore made, or is concurrently on the date of such payment making, a payment under the Guarantee or under Section 5.8 of this Indenture. -34- SECTION 3.13. Agreed Tax Treatment. Each Debenture issued hereunder shall provide that the Company and, by its acceptance of a Debenture or a beneficial interest therein, the Holder of, and any Person that acquires a beneficial interest in, such Debenture intend that such Debenture constitutes indebtedness and agree to treat such Debenture as indebtedness for United States federal, local and state tax purposes. SECTION 3.14. Shortening of Stated Maturity. Upon the occurrence of a Tax Event and subject to (i) the receipt by the Company of an opinion of independent tax counsel experienced in such matters that after advancing the Stated Maturity, interest paid on the Debentures will be deductible for United States income tax purposes and (ii) advancing the Stated Maturity shall not result in a taxable event to holders of the Preferred Securities, the Company shall have the right, prior to the termination of the Trust, to advance the Stated Maturity of the Debentures to the minimum extent required in order to allow for the payments of interest in respect of the Debentures to be tax deductible. In the event that the Company elects to shorten the Stated Maturity of the Debentures pursuant to this Section 3.14, it shall give written notice to the Trustee, and the Trustee shall give notice of such shortening to the Holders, no less than 30 and no more than 60 days prior to the effectiveness thereof. ARTICLE IV SATISFACTION AND DISCHARGE SECTION 4.1. Satisfaction and Discharge of Indenture. This Indenture shall, upon Company Request, cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Debentures herein expressly provided for and as otherwise provided in this Section 4.1) and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Debentures theretofore authenticated and delivered (other than (i) Debentures which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.6 and (ii) Debentures for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.3) have been delivered to the Trustee for cancellation; or -35- (B) all such Debentures not theretofore delivered to the Trustee for cancellation. (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year of the date of deposit, or (iii) 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 at the expense, of the Company, and the Company, in the case of clause (B)(i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose an amount in the currency or currencies in which the Debentures are payable sufficient to pay and discharge the entire indebtedness on such Debentures not theretofore delivered to the Trustee for cancellation, for principal, premium, if any and interest (including any Additional Interest) to the date of such deposit (in the case of Debentures which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.7, the obligations of the Company to any Authenticating Agent under Section 6.14 and, if money shall have been deposited with the Trustee pursuant to Section 4.2(1)(B), the obligations of the Trustee under Section 4.2 and the last paragraph of Section 10.3 shall survive. SECTION 4.2. Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.3, all money deposited with the Trustee pursuant to Section 4.1 shall be held in trust and applied by the Trustee, in accordance with the provisions of the Debentures and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal, premium, if any, and interest for the payment of which such money has been deposited with or received by the Trustee. -36- ARTICLE V REMEDIES SECTION 5.1. Events of Default. "Event of Default," wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest upon the Debentures, including any Additional Interest in respect thereof, when it becomes due and payable, and continuance of such default for a period of 30 days; provided, however, that the deferral of any Distributions at any time an Extension Period is in effect shall not constitute and Event of Default; (2) default in the payment of the principal of or premium, if any, on the Debentures at their Maturity; (3) default in the performance, or breach, in any material respect, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in the performance of which or the breach of which is elsewhere in this Section 5.1 specifically dealt with), and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Debentures a written notice specifying such default or breach and requiring it to be remedied; (4) the entry of a decree or order by a court having jurisdiction in the premises adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; (5) the institution by the Company of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal or state bankruptcy, insolvency, re- -37- organization or other similar law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its' property, or the making by it of an assignment for the benefit for creditors, or the admission by it in writing of its inability to pay its debts generally as they become due and its willingness to be adjudicated a bankrupt, or the taking of corporate action by the Company in furtherance of any such action; or (6) the voluntary or involuntary dissolution, winding-up or termination of the Trust, except in connection with the distribution of the Debentures to the holders of Preferred Securities in liquidation of the Trust and in connection with certain mergers, consolidations or amalgamations permitted by the Trust Agreement. SECTION 5.2. Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 5.1(4) or 5.1(5)) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Debentures may declare the principal amount of all the Debentures to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), provided that, in the case of the Debentures issued to the Trust, if, upon an Event of Default, the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Debentures fail to declare the principal amount of all the Debentures to be immediately due and payable, the holders of at least 25% in aggregate liquidation amount of the corresponding Preferred Securities then outstanding shall have such right by a notice in writing to the Company and the Trustee; and upon any such declaration such principal amount (or specified portion thereof) of and the accrued interest (including any Additional Interest) on all the Debentures shall become immediately due and payable. Payment of principal and interest (including any Additional Interest) on such Debentures shall remain subordinated to the extent provided in Article XIV notwithstanding that such amount shall become immediately due and payable as herein provided. If an Event of Default specified in Section 5.1(4) or 5.1(5) occurs, the principal amount of all the Debentures shall automatically, and without any declaration or other action on the part of the Trustee or any Holder, become immediately due and payable. At any time after such a declaration of acceleration with respect to Debentures has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article V provided, the Holders of a majority in principal amount of the Outstanding Debentures, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (1) the Company has paid or deposited with the Trustee a sum sufficient to pay: -38- (A) all overdue installments of interest (including any Additional Interest) on all of the Debentures, (B) the principal of and premium, if any, on any Debentures which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Debentures, and (C) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default, other than the non-payment of the principal of Debentures which has become due solely by such acceleration, have been cured or waived as provided in Section 5.13; provided that, in the case of Debentures held by the Trust, if the Holders of at least a majority in principal amount of the Outstanding Debentures fail to rescind and annul such declaration and its consequences, the holders of a majority in aggregate Liquidation Amount of the Preferred Securities then outstanding shall have such right by written notice to the Company and the Trustee, subject to the satisfaction of the conditions set forth in Clauses (1) and (2) above of this Section 5.2. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if: (1) default is made in the payment of any installment of interest (including any Additional Interest) on any Debenture when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of and premium, if any, on any Debenture at the Maturity thereof, the Company shall, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders of such Debentures, the whole amount then due and payable on such Debentures for principal, premium, if any, and interest (including any Additional Interest); and, in addition thereto, all amounts owing the Trustee under Section 6.7. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the amounts so due and unpaid, and may prosecute such proceeding to -39- judgment or final decree, and may enforce the same against the Company or any other obligor upon the Debentures and collect the money adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Debentures, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 5.4. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Debentures or the property of the Company or of such other obligor or their creditors, (a) the Trustee (irrespective of whether the principal of the Debentures shall then be due and payable as therein expressed or by declaration of acceleration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal, premium, if any, or interest (including any Additional Interest)) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove a claim for the whole amount of principal, premium, if any, and interest (including any Additional Interest) owing and unpaid in respect to the Debentures and to file such other papers or documents as may be necessary or advisable and to take any and all actions as are authorized under the Trust Indenture Act in order to have the claims of the Holders and any predecessor to the Trustee under Section 6.7 allowed in any such judicial proceedings; and (ii) in particular, the Trustee shall be authorized to collect and receive any money or other property payable or deliverable on any such claims and to distribute the same in accordance with Section 5.6; and (b) any custodian, receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee for distribution in accordance with Section 5.6, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it and any predecessor Trustee under Section 6.7. -40- Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Debentures or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; provided, however, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and be a member of a creditors' or other similar committee. SECTION 5.5. Trustee May Enforce Claims Without Possession of Debentures. All rights of action and claims under this Indenture or the Debentures may be prosecuted and enforced by the Trustee without the possession of any of the Debentures or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of all the amounts owing the Trustee and any predecessor Trustee under Section 6.7, its agents and counsel, be for the ratable benefit of the Holders of the Debentures in respect of which such judgment has been recovered. SECTION 5.6. Application of Money Collected. Any money or property collected or to be applied by the Trustee pursuant to this Article V shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money or property on account of principal, premium, if any, or interest (including any Additional Interest), upon presentation of the Debentures and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee and any predecessor Trustee under Section 6.7; SECOND: Subject to Article XIV, to the payment of the amounts then due and unpaid upon the Debentures for principal (and premium, if any), interest (including any Additional Interest) and Additional Taxes, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on the Debentures for principal, premium, if any, and interest (including any Additional Interest), respectively; and THIRD: The balance, if any, to the Person or Persons entitled thereto. SECTION 5.7. Limitation on Suits. Subject to Section 5.8, no Holder of any Debenture shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture or for the appoint- -41- ment of a receiver, assignee, trustee, liquidator, sequestrator (or other similar official) or for any other remedy hereunder, unless: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in principal amount of the Outstanding Debentures shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of security or indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Debentures; it being understood and intended that no one or more of the Holders shall have any right in any manner whatever by virtue of, or by availing itself of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all Holders. SECTION 5.8. Unconditional Right of Holders to Receive Principal, Premium and Interest; Direct Action by Holders of Preferred Securities. Notwithstanding any other provision in this Indenture, the Holder of any Debenture shall have the right which is absolute and unconditional to receive payment of the principal of, premium, if any, and (subject to Section 3.7) interest (including any Additional Interest) on such Debenture on the respective Stated Maturities expressed in such Debenture (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. In the case of Debentures held by the Trust, any holder of the Preferred Securities shall have the right, upon the occurrence of an Event of Default described in Section 5.1(1) or 5.1(2), to institute a suit directly against the Company for enforcement of payment to such holder of principal of, premium, if any, and (subject to Section 3.7) interest (including any Additional Interest) on the Debentures having a principal amount equal to the aggregate Liquidation Amount of such Preferred Securities held by such holder. -42- SECTION 5.9. Restoration of Rights and Remedies. If the Trustee, any Holder or any holder of Preferred Securities has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee, such Holder or such holder of Preferred Securities, then and in every such case the Company, the Trustee, the Holders and such holder of Preferred Securities shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee, the Holders and the holders of Preferred Securities shall continue as though no such proceeding had been instituted. SECTION 5.10. Rights and Remedies Cumulative. Except as otherwise provided in the last paragraph of Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.11. Delay or Omission Not Waiver. No delay or omission of the Trustee, any Holder of any Debenture or any holder of any Preferred Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article V or by law to the Trustee or to the Holders and the right and remedy given to the holders of Preferred Securities by Section 5.8 may be exercised from time to time, and as often as may be deemed expedient, by the Trustee, the Holders or the holders of Preferred Securities, as the case may be. SECTION 5.12. Control by Holders. The Holders of a majority in principal amount of the Outstanding Debentures shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that: (1) such direction shall not be in conflict with any rule of law or with this Indenture, -43- (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (3) subject to the provisions of Section 6.1, the Trustee shall have the right to decline to follow such direction if a Responsible Officer or Officers of the Trustee shall, in good faith, determine that the proceeding so directed would be unjustly prejudicial to the Holders not joining in any such direction or would involve the Trustee in personal liability. SECTION 5.13. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Debentures and, in the case of any Debentures issued to the Trust, the holders of a majority in Liquidation Amount of Preferred Securities issued by the Trust may waive any past default hereunder and its consequences, except a default: (1) in the payment of the principal of, premium, if any, or interest (including any Additional Interest) on any Debenture (unless all Events of Default, other than the non-payment of the principal of Debentures which has become due solely by such acceleration, have been cured or annulled as provided in Section 5.3 and the Company has paid or deposited with the Trustee a sum sufficient to pay all overdue installments of interest (including any Additional Interest) on all Debentures, the principal of and premium, if any, on any Debentures which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Debentures, and all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel), or (2) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Outstanding Debenture affected. Any such waiver shall be deemed to be on behalf of the Holders of all the Debentures or, in the case of a waiver by holders of Preferred Securities, by all holders of Preferred Securities. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 5.14. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Debenture by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, -44- 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, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 5.14 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder or group of Holders holding in the aggregate more than 10% in principal amount of the Outstanding Debentures, to any suit instituted pursuant to Section 5.8 by any holder or group of holders holding in the aggregate more than 10% in aggregate Liquidation Amount of Preferred Securities, or to any suit instituted by any Holder for the enforcement of the payment of the principal of, premium, if any, or interest (including any Additional Interest) on any Debenture on or after the respective Stated Maturities expressed in such Debenture. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, 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 (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE VI TRUSTEE SECTION 6.1. Certain Duties and Responsibilities. (a) 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; but in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture. -45- (b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct except that (1) this subsection (c) shall not be construed to limit the effect of subsection (a) of this Section 6.1; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of Holders pursuant to Section 5.12 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Whether or not therein expressly so provided, 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 6.1. SECTION 6.2. Notice of Defaults. Within 90 days after actual knowledge by a Responsible Officer of the Trustee of the occurrence of any default hereunder, the Trustee shall transmit by mail to all Holders of Debentures, as their names and addresses appear in the Debenture Register, notice of such default, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of, premium, if any, or interest (including any Additional Interest) on any Debenture, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of Debentures; and provided, further, that, in the case of any default of the character specified in Section 5.1(3), no such notice to -46- Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section 6.2, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. SECTION 6.3. Certain Rights of Trustee. Subject to the provisions of Section 6.1: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, Debenture or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (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, direction, consent, order, bond, indenture, Debenture or other paper or document, but the Trustee in its discretion may make such inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such 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 may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trus- -47- tee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; and (h) the Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture. SECTION 6.4. Not Responsible for Recitals or Issuance of Debentures. The Recitals contained herein and in the Debentures, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Debentures. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of the Debentures or the proceeds thereof. SECTION 6.5. May Hold Debentures. The Trustee, any Authenticating Agent, any Paying Agent, any Debenture Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Debentures and, subject to Sections 6.8 and 6.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Debenture Registrar or such other agent. SECTION 6.6. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. SECTION 6.7. Compensation and Reimbursement. The Company, as borrower, agrees (1) to pay to the Trustee from time to time such compensation as shall be agreed in writing between the Company and the Trustee for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses -48- and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any and all loss, liability, damage, claim or expense (including the reasonable compensation and the expenses and disbursements of its agents and counsel) incurred without negligence or bad faith, arising out of or in connection with the acceptance or administration of this trust or the performance of its duties hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. This indemnification shall survive the termination of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 5.1(4) or (5) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under the Bankruptcy Reform Act of 1978 or any successor statute. SECTION 6.8. Disqualification; Conflicting Interests. The Trustee shall be subject to the provisions of Section 310(b) of the Trust Indenture Act. Nothing herein shall prevent the Trustee from filing with the Commission the application referred to in said Section 310(b). SECTION 6.9. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be: (a) a corporation organized and doing business under the laws of the United States of America or of any state or territory or the District of Columbia, authorized under such laws to exercise corporate trust powers and subject to supervision or examination by federal, state, territorial or District of Columbia authority, or (b) a corporation or other Person organized and doing business under the laws of a foreign government that is permitted to act as Trustee pursuant to a rule, regulation or order of the Commission, authorized under such laws to exercise corporate trust powers, and subject to supervision or examination by authority of such foreign government or a political subdivision thereof substantially equivalent to supervision or examination applicable to United States institutional trustees, in either case having a combined capital and surplus of at least $50,000,000. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then, for the purposes of this Section 6.9, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the pro- -49- visions of this Section 6.9, it shall resign immediately in the manner and with the effect hereinafter specified in this Article VI. Neither the Company nor any Person directly or indirectly controlling, controlled by or under common control with the Company shall serve as Trustee. SECTION 6.10. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article VI shall become effective until the acceptance of appointment by the successor Trustee under Section 6.11. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Debentures, delivered to the Trustee and to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after such removal, the Trustee being removed may petition any court of competent jurisdiction for the appointment of a successor Trustee. (d) If at any time: (1) the Trustee shall fail to comply with Section 6.8 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Debenture for at least six months, (2) the Trustee shall cease to be eligible under Section 6.9 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company, acting pursuant to the authority of a Board Resolution, may remove the Trustee or (ii) subject to Section 5.14, any Holder who has been a bona fide Holder of a Debenture for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee or Trustees. -50- (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Debentures delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Debenture for at least six months may, subject to Section 5.14, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Debentures as their names and addresses appear in the Debenture Register. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 6.11. Acceptance of Appointment by Successor. (a) In case of the appointment hereunder of a successor Trustee, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. (b) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all rights, powers and trusts referred to in Section 6.11(a). (c) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article VI. SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or -51- consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article VI, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Debentures shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Debentures so authenticated, and in case any Debentures shall not have been authenticated, any successor to the Trustee may authenticate such Debentures either in the name of any predecessor Trustee or in the name of such successor Trustee, and in all cases the certificate of authentication shall have the full force which it is provided anywhere in the Debentures or in this Indenture that the certificate of the Trustee shall have. SECTION 6.13. Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Debentures), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). SECTION 6.14. Appointment of Authenticating Agent. The Trustee may appoint an Authenticating Agent or Agents which shall be authorized to act on behalf of the Trustee to authenticate Debentures issued upon original issue and upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 3.6. Debentures so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Debentures by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, or of any state or territory or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by federal or state authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section 6.14 the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 6.14, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section 6.14. -52- Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of an Authenticating Agent shall be the successor Authenticating Agent hereunder, provided such corporation shall be otherwise eligible under this Section 6.14, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 6.14, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall give notice of such appointment in the manner provided in Section 1.6 to all Holders. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provision of this Section 6.14. The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section 6.14. If an appointment is made pursuant to this Section 6.14, the Debentures may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: This is one of the Debentures referred to in the within mentioned Indenture. Dated: WILMINGTON TRUST COMPANY -------------------------------------- As Trustee By: __________________________________ As Authenticating Agent By: __________________________________ As Authorized Officer -53- ARTICLE VII HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 7.1. Company to Furnish Trustee Names and Addresses of Holders. The Company shall furnish or cause to be furnished to the Trustee: (a) semi-annually, not more than 15 days after January 15 and July 15 in each year, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such January 1 and July 1, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished, excluding from any such list names and addresses received by the Trustee in its capacity as Debenture Registrar. SECTION 7.2. Preservation of Information, Communications to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.1 and the names and addresses of Holders received by the Trustee in its capacity as Debenture Registrar. The Trustee may destroy any list furnished to it as provided in Section 7.1 upon receipt of a new list so furnished. (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Debentures, and the corresponding rights and privileges of the Trustee, shall be as provided in the Trust Indenture Act. (c) Every Holder of Debentures, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of information as to the names and addresses of the Holders made pursuant to the Trust Indenture Act. SECTION 7.3. Reports by Trustee. (a) The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. If required by Section 313(a) of the Trust Indenture Act, the Trustee shall, within 60 days after each May 15 following the date of -54- this Indenture deliver to Holders a brief report, dated as of such May 15, which complies with the provisions of such Section 313(a). (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Debentures are listed and with the Commission. The Company will promptly notify the Trustee when any Debentures are listed on any stock exchange. SECTION 7.4. Reports by Company. The Company shall file all annual and quarterly reports and the information, documents and other reports that the Company is required to file with the Commission pursuant to Section 13(a) or Section 15(d) of the Exchange Act ("SEC Reports") with the Trustee and the Property Trustee within 15 days after the same is filed with the Commission. Notwithstanding that the Company may not be required or shall cease to be required to remain subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act, the Company shall continue to file the SEC Reports with the Commission, unless the Commission shall not accept such a filing. The Company shall, for so long as any Debentures or Preferred Securities are outstanding, (i) furnish copies of the SEC Reports to Holders of the Preferred Securities and Debentures, respectively, at the time the Company is required to make such information available to the Trustee and the Property Trustee and to prospective investors who request it in writing, whether or not required by the Exchange Act to file SEC Reports with the Commission and (ii) furnish to the Holders and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 8.1. Company May Consolidate, etc., Only on Certain Terms. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and no Person shall consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless: (1) in case the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation, partnership or trust organized and existing under the laws of the United States of -55- America or any State or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of, premium, if any, and interest (including any Additional Interest) on all the Debentures and the performance of every covenant of this Indenture on the part of the Company to be performed or observed; (2) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default, shall have happened and be continuing; (3) in the case of Debentures held by the Trust, such consolidation, merger, conveyance, transfer or lease is permitted under the Trust Agreement and Guarantee and does not give rise to any breach or violation of the Trust Agreement or Guarantee; and (4) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and any such supplemental indenture complies with this Article VIII and that all conditions precedent herein provided for relating to such transaction have been complied with; and the Trustee, subject to Section 6.1, may rely upon such Officers' Certificate and Opinion of Counsel as conclusive evidence that such transaction complies with this Section 8.1. SECTION 8.2. Successor Corporation Substituted. Upon any consolidation or merger by the Company with or into any other Person, or any conveyance, transfer or lease by the Company of its properties and assets substantially as an entirety to any Person in accordance with Section 8.1, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; and in the event of any such conveyance, transfer or lease the Company shall be discharged from all obligations and covenants under the Indenture and the Debentures and may be dissolved and liquidated. Such successor Person may cause to be signed, and may issue either in its own name or in the name of the Company, any or all of the Debentures issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the written order of such successor Person instead of the Company and subject to all the terms, conditions and limitations prescribed herein, the Trustee shall authenticate and shall make available for delivery any Debentures which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication pursuant to such provisions and any Debentures which such successor Person thereafter shall cause to be signed -56- and delivered to the Trustee on its behalf for the purpose pursuant to such provisions. All the Debentures so issued shall in all respects have the same legal rank and benefit under this Indenture as the Debentures theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Debentures had been issued at the date of the execution hereof. ARTICLE IX SUPPLEMENTAL INDENTURES SECTION 9.1. Supplemental Indentures without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form reasonably satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company, and the assumption by any such successor of the covenants of the Company contained herein and in the Debentures; (2) to convey, transfer, assign, mortgage or pledge any property to or with the Trustee or to surrender any right or power herein conferred upon the Company; (3) to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company; (4) to add any additional Events of Default; (5) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only when there is no Outstanding Debenture created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; (6) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided that such action pursuant to this clause (6) shall not adversely affect the interest of the Holders in any material respect or, in the case of the Debentures issued to the Trust and for so long as any of the corresponding Preferred Securities issued by the Trust shall remain outstanding, the holders of such Preferred Securities; -57- (7) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trust hereunder by more than one Trustee, pursuant to the requirements of Section 6.11(b); (8) to comply with the requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act; (9) to provide for the right of Holders to require the Company to repurchase Debentures in accordance with Section XII of this Indenture upon a Change of Control; or (10) to provide for the issuance of Debentures to Holders of Preferred Securities in connection with the liquidation of the Trust permitted by the Trust Agreement. SECTION 9.2. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Debentures, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Debenture affected thereby, (1) except to the extent permitted by Section 3.11 or as otherwise specified as contemplated by Section 2.1 with respect to the deferral of the payment of interest on the Debentures, change the Stated Maturity of the principal of, or any installment of interest (including any Additional Interest) on, any Debenture, or reduce the principal amount thereof or the rate of interest thereon or reduce any premium payable upon the redemption thereof, or change the place of payment where, or the coin or currency in which, any Debenture or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date); (2) reduce the percentage in principal amount of the Outstanding Debentures, the consent of the Holders of which is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture; (3) modify any of the provisions of this Section 9.2, Section 5.13 or Section 10.5, except to increase any such percentage or to provide that certain other provi- -58- sions of this Indenture cannot be modified or waived without the consent of the Holder of each Debenture affected thereby; or (4) modify the provisions in Article XIV with respect to the subordination of Outstanding Debentures in a manner adverse to the Holders; provided, further, that, in the case of Debentures issued to the Trust, so long as any of the Preferred Securities issued by the Trust remains outstanding, (i) no such amendment shall be made that adversely affects the holders of such Preferred Securities in any material respect, and no termination of this Indenture shall occur, and no waiver of any Event of Default or compliance with any covenant under this Indenture shall be effective, without the prior consent of the holders of at least a majority of the aggregate Liquidation Amount of the Preferred Securities then outstanding unless and until the principal of, premium, if any, and all accrued and, subject to Section 3.7, unpaid interest (including any Additional Interest) on the Debentures have been paid in full, and (ii) no amendment shall be made to Section 5.8 that would impair the rights of the holders of Preferred Securities provided therein without the prior consent of the holders of each Preferred Security then outstanding unless and until the principal of, premium, if any, and all accrued and (subject to Section 3.7) unpaid interest (including any Additional Interest) on the Debentures have been paid in full. It shall not be necessary for any Act of Holders under this Section 9.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 9.3. Execution of Supplemental Indentures. In executing or accepting the additional trusts created by any supplemental indenture permitted by this Article IX or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture, and that all conditions precedent have been complied with. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.4. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article IX, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Debentures theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. -59- SECTION 9.5. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article IX shall conform to the requirements of the Trust Indenture Act as then in effect. SECTION 9.6. Reference in Debentures to Supplemental Indentures. Debentures authenticated and delivered after the execution of any supplemental indenture pursuant to this Article IX may, and shall if required by the Company, bear a notation in form approved by the Company as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Debentures so modified as to conform, in the opinion of the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Debentures. ARTICLE X COVENANTS SECTION 10.1. Payment of Principal, Premium and Interest. The Company covenants and agrees for the benefit of the Holders that it shall duly and punctually pay the principal of, premium, if any, and interest (including Additional Interest) on the Debentures in accordance with the terms of the Debentures and this Indenture. SECTION 10.2. Maintenance of Office or Agency. The Company shall maintain in each Place of Payment for the Debentures an office or agency where Debentures may be presented or surrendered for payment and an office or agency where Debentures may be surrendered for registration of transfer, conversion or exchange and where notices and demands to or upon the Company in respect of the Debentures and this Indenture may be served. The Company initially appoints the Trustee, acting through its Corporate Trust Office, as its agent for said purposes. The Company shall give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Company shall fail to maintain such office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies where the Debentures may be presented or surrendered for any or all of such purposes, and may from time to time rescind such designations; provided, however, that no such -60- designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for Debentures for such purposes. The Company shall give prompt written notice to the Trustee of any such designation and any change in the location of any such office or agency. SECTION 10.3. Money for Debenture Payments to be Held in Trust. If the Company shall at any time act as its own Paying Agent, it shall, on or before each due date of the principal of, premium, if any, or interest on any of the Debentures, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal, premium, if any, or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and shall promptly notify the Trustee of its failure so to act. Whenever the Company shall have one or more Paying Agents, it shall, prior to 10:00 a.m. New York City time on each due date of the principal of or interest on any Debentures, deposit with a Paying Agent a sum sufficient to pay the principal, premium, if any, or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium, if any, or interest, and (unless such Paying Agent is the Trustee) the Company shall promptly notify the Trustee of its failure so to act. The Company shall cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section 10.3, that such Paying Agent shall: (1) hold all sums held by it for the payment of the principal of, premium, if any, or interest (including Additional Interest) on Debentures in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Debentures) in the making of any payment of principal, premium, if any, or interest (including Additional Interest); (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent; and (4) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such -61- sums were held by the Company or such Paying Agent; and, upon such payment by the Company or any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. 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, if any, or interest (including Additional Interest) on any Debenture and remaining unclaimed for two years after such principal, premium, if any, or interest has become due and payable shall (unless otherwise required by mandatory provision of applicable escheat or abandoned or unclaimed property law) be paid on Company Request to the Company, or (if then held by the Company) shall (unless otherwise required by mandatory provision of applicable escheat or abandoned or unclaimed property law) be discharged from such trust; and the Holder of such Debenture 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 a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, 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 publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 10.4. Statement as to Compliance. The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate, one of the signatories of which shall be the principal executive, principal financial or principal accounting officer of the Company, covering the preceding fiscal year, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance, observance or fulfillment of or compliance with any of the terms, provisions, covenants and conditions of this Indenture, and if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. For the purpose of this Section 10.4, compliance shall be determined without regard to any grace period or requirement of notice provided pursuant to the terms of this Indenture. SECTION 10.5. Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any covenant or condition provided pursuant to Section 9.1(3) or 9.1(4), if before or after the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Debentures shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such -62- waiver shall become effective, the obligations of the Company in respect of any such covenant or condition shall remain in full force and effect. SECTION 10.6. Payment of Trust Costs and Expenses. Since the Trust is being formed solely to facilitate an investment in the Debentures, the Company, in its capacity as the issuer of the Debentures, hereby covenants to pay all debts and obligations (other than with respect to the Preferred Securities and Common Securities) and all costs and expenses of the Trust (including all costs and expenses relating to the organization of the Trust, the fees and expenses of the Trustees and all costs and expenses relating to the operation of the Trust) and to pay any and all taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed on the Trust by the United States or any other taxing authority, so that the net amounts received and retained by the Trust and the Property Trustee after paying such expenses shall be equal to the amounts the Trust and the Property Trustee would have received had no such costs or expenses been incurred by or imposed on the Trust. The obligations of the Company to pay all debts, obligations, costs and expenses of the Trust (other than with respect to the Preferred Securities and Common Securities) shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture. SECTION 10.7. Additional Covenants. The Company covenants and agrees with each Holder of Debentures that it shall not, and it shall not permit any Subsidiary of the Company to, (i) declare or pay any dividends or distributions on, or redeem purchase, acquire or make a liquidation payment with respect to, any shares of the Company's capital stock, (ii) make any payment of principal of, premium, if any, or interest on or repay, repurchase or redeem any debt securities of the Company that rank pari passu with or junior in interest to the Debentures or (iii) make any guarantee payments with respect to any guarantee by the Company of debt securities of any subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to the Debentures (other than (a) dividends or distributions in the Company's capital stock, (b) any declaration of a dividend in connection with the implementation of a Rights Plan or the redemption or repurchase of any rights distributed pursuant to a Rights Plan, (c) payments under the Guarantee and (d) purchases of Common Stock related to the issuance of Common Stock or rights under any of the Company's benefit plans for its directors, officers or employees, related to the issuance of Common Stock or rights under a dividend reinvestment and stock purchase plan, or related to the issuance of Common Stock (or securities convertible or exchangeable for Common Stock) as consideration in an acquisition transaction that was entered into prior to the commencement of such Extension Period) if at such time (x) there shall have occurred any event of which the Company has actual knowledge that (A) with the giving of notice or the lapse of time or both, would constitute an Event of Default with respect to the Debentures and (B) in respect of which the Company shall not have taken reasonable steps to cure, (y) if the Debentures are held by the Trust, the Company shall be in default with respect to its payment of any obligations under the Guarantee or (z) the Company shall have given -63- notice of its election to begin an Extension Period with respect to the Debentures as provided herein and shall not have rescinded such notice, or such Extension Period or any extension thereof shall be continuing. The Company also covenants: (i) to maintain directly or indirectly 100% ownership of the Common Securities; provided, however, that any permitted successor of the Company hereunder may succeed to the Company's ownership of the Common Securities; (ii) not to voluntarily terminate, wind-up or liquidate the Trust, except (a) in connection with a distribution of the Debentures to the holders of the Trust Securities in a liquidation of the Trust permitted by the Trust Agreement or (b) in connection with certain mergers, consolidations or amalgamations permitted by the Trust Agreement; and (iii) to use its reasonable efforts, consistent with the terms and provisions of the Trust Agreement, to cause the Trust to remain classified as a grantor trust and not an association taxable as a corporation for United States federal income tax purposes. ARTICLE XI REDEMPTION OF SECURITIES AT THE OPTION OF THE COMPANY SECTION 11.1. Applicability of Article. Redemption of Debentures as permitted or required by any form of Debenture issued pursuant to this Indenture shall be made in accordance with such form of Debenture and this Article XI; provided, however, that if any provision of any such form of Debenture shall conflict with any provision of this Article XI, the provision of such form of Debenture shall govern. Except as otherwise set forth in the form of Debenture, each Debenture shall be subject to partial redemption only in the amount of $50 or integral multiples thereof. SECTION 11.2. Election to Redeem; Notice to Trustee. The Company's election to redeem any Debentures shall be evidenced by or pursuant to a Board Resolution. In case of any redemption of the Debentures at the election of the Company, the Company shall, not less than 45 nor more than 60 days prior to the Redemption Date (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such date and of the principal amount of Debentures to be redeemed. In the case of any redemption of Debentures prior to the expiration of any restriction on such redemption provided in the terms of such Debentures, the Company shall furnish the Trustee with an Officers' Certificate and an Opinion of Counsel evidencing compliance with such restriction. SECTION 11.3. Selection of Debentures to be Redeemed. If less than all the Debentures are to be redeemed, the particular Debentures to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the -64- Trustee, from the Outstanding Debentures not previously called for redemption, pro rata or by such other method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of a portion of the principal amount of any Debenture, provided that the unredeemed portion of the principal amount of any Debenture shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Debenture. If less than all the Debentures are to be redeemed, the particular Debentures to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Debentures of such specified tenor not previously called for redemption in accordance with the preceding sentence. The Trustee shall promptly notify the Company in writing of the Debentures selected for partial redemption and the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Debentures shall relate, in the case of any Debenture redeemed or to be redeemed only in part, to the portion of the principal amount of such Debenture which has been or is to be redeemed. If the Company shall so direct, Debentures registered in the name of the Company, any Affiliate or any Subsidiary thereof shall not be included in the Debentures selected for redemption. SECTION 11.4. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not later than the 30th day, and not earlier than the 60th day, prior to the Redemption Date, to each Holder of Debentures to be redeemed, at the address of such Holder as it appears in the Debenture Register. Each notice of redemption shall identify the Debentures to be redeemed and shall state: (a) the Redemption Date; (b) the Redemption Price; (c) if less than all Outstanding Debentures are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the particular Debentures to be redeemed; (d) that on the Redemption Date, the Redemption Price shall become due and payable upon each such Debenture or portion thereof, and that interest thereon shall cease to accrue on and after said date; and (e) the place or places where such Debentures are to be surrendered for payment of the Redemption Price. -65- Notice of redemption of Debentures to be redeemed at the election of the Company, shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company and shall not be irrevocable. The notice if mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holder receives such notice. In any case, a failure to give such notice by mail or any defect in the notice to the Holder of any Debenture designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Debenture. SECTION 11.5. Deposit of Redemption Price. Prior to 10:00 a.m. New York City time on the Redemption Date specified in the notice of redemption given as provided in Section 11.4, the Company shall deposit with the Trustee or with one or more Paying Agents (or if the Company is acting as its own Paying Agent, the Company will segregate and hold in trust as provided in Section 10.3) an amount of money sufficient to pay the Redemption Price of, and any accrued interest (including Additional Interest) on, all the Debentures which are to be redeemed on that date. SECTION 11.6. Payment of Debentures Called for Redemption. If any notice of redemption has been given as provided in Section 11.4, the Debentures or portion of Debentures with respect to which such notice has been given shall become due and payable on the date and at the place or places stated in such notice at the applicable Redemption Price. On presentation and surrender of such Debentures at a Place of Payment specified in such notice, such Debentures or the specified portions thereof shall be paid and redeemed by the Company at the applicable Redemption Price, together with accrued interest (including any Additional Interest) to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Debentures, or one or more Predecessor Debentures, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.7. Upon presentation of any Debenture redeemed in part only, the Company shall execute and the Trustee shall authenticate and make available for delivery to the Holder thereof, at the expense of the Company, a new Debenture or Debentures, of authorized denominations, in aggregate principal amount equal to the unredeemed portion of the Debenture so presented and having the same Original Issue Date, Stated Maturity and terms. If a Global Debenture is so surrendered, such new Debenture shall also be a new Global Debenture. If any Debenture called for redemption shall not be so paid upon surrender thereof for redemption, the principal of and premium, if any, on such Debenture shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Debenture. -66- SECTION 11.7. Right of Redemption of Debentures. The Company, at its option, may redeem the Debentures, in whole or in part, (i) on or after March 15, 2001 at the redemption prices specified in the form of the Debenture herein before set forth, together with accrued and unpaid interest, including Additional Interest, if any, to the Redemption Date, or (ii) upon the occurrence and during the continuation of a Tax Event, at any time within 90 days following the occurrence of such Tax Event in respect of the Trust, at a redemption price equal to 100% of the principal amount thereof, plus any accrued and unpaid interest, including Additional Interest, if any, to the Redemption Date; provided that, in either case, if a partial redemption of the Debentures would result in the delisting of the Preferred Securities or Debentures from any securities exchange on which the Preferred Securities or Debentures are then listed, the Company may redeem the Debentures only in whole. ARTICLE XII MANDATORY REDEMPTION SECTION 12.1. Mandatory Redemption. In the event that the Trust shall be required to repurchase Preferred Securities pursuant to Article X of the Trust Agreement, the Company shall be required to redeem a Like Amount of Debentures on a pro rata basis at a Redemption Price per $50 principal amount of Debentures equal to the Trust Securities Repurchase Price. SECTION 12.2. Notice of Redemption. The Company shall give notice of its obligation to redeem Debentures pursuant to this Article XII, which notice shall specify the Redemption Date (but need not specify the principal amount to be redeemed at such time), to the Trustee no later than the date on which the Trust is required to give notice to the Property Trustee of a Change of Control and the right of Holders to require repurchase of Preferred Securities pursuant to Article X of the Trust Agreement. SECTION 12.3. Deposit of Repurchase Price. On or prior to the Repurchase Date, the Company shall notify the Trustee of the principal amount of Debentures to be redeemed on the Redemption Date and the Company shall redeem Debentures equal in aggregate principal amount to the Liquidation Amount of Preferred Securities to be repurchased on the Repurchase Date and cause to be deposited with the Property Trustee or with a Paying Agent an amount of money in same day funds sufficient to pay the redemption price therefor. -67- SECTION 12.4. Right to Require Repurchase of Debentures. In the event Debentures are distributed to Holders of Preferred Securities upon a liquidation of the Trust permitted by the Trust Agreement, the Company and the Trustee shall cause this Indenture to be amended (which amendment shall not require the consent of Holders of Debentures) to provide Holders of Debentures with a right to require the Company to repurchase Debentures upon a Change of Control substantially similar to the right of Holders of Preferred Securities to require such a repurchase of Preferred Securities pursuant to Article X of the Trust Agreement. SECTION 12.5. Definitions. For purposes of this Section: (a) A "Change in Control" shall occur when : (a) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, or all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, (b) the adoption of a plan relating to the liquidation or dissolution of the Company, (c) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" or "group" (as such terms are used in Section 13(d)(3) of the Exchange Act) becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly through one or more intermediaries, of more than 50% of the voting power of the outstanding voting stock of the Company, (d) the Company consolidates with, or merges with or into, any person, or any person consolidates with, or merges with or into, the Company, other than any such transaction where the beneficial owners of the outstanding common stock of the Company immediately prior to such transaction beneficially own a majority of the outstanding shares of voting stock of the surviving person immediately after such transaction, or (e) the first day on which more than a majority of the members of the Board of Directors of the Company are not Continuing Directors; provided, however, that a Change of Control shall not be deemed to have occurred if the last reported sale price per share of the Common Stock for any ten Trading Days (as defined) within the period of twenty consecutive Trading Days (x) ending immediately after the later of the Change of Control and the public announcement of the Change in Control (in the case of a Change in Control under clause (a), (b), (c) or (e) above) or (y) ending immediately before the Change in Control (in the case of a Change in Control under clause (d) above) shall equal or exceed 105% of the Conversion Price in effect on each such Trading Day. If not earlier made, the Company shall make a public announcement of a Change of Control within five Business Days of the occurrence of such Change of Control. (b) "Continuing Directors" means as of any date of determination, any member of the board of directors of the Company who (a) was a member of the board of direc- -68- tors on the date of original issuance of the Debentures or (b) was nominated for election to the board of directors with the approval of, or whose election was ratified by, at least two-thirds of the Continuing Directors who were members of the board of directors at the time of such nomination or election. ARTICLE XIII CONVERSION OF SECURITIES SECTION 13.1. Conversion Rights. Subject to and upon compliance with the provisions of this Article XIII, the Debentures are convertible, at the option of the Holder, and on or before 5:00 p.m. (New York City time) on the second Business Day immediately preceding the date of repayment of such Debentures, whether at maturity or upon redemption, into fully paid and nonassessable shares of Common Stock at an initial conversion premium of 17.5% above the average closing price of the Common Stock during the ten (10) Trading Days after the Company's first earnings announcement after the Split-off, as adjusted pursuant to Section 13.3 hereof (as so adjusted, the "Conversion Price"). A Holder of Debentures may convert any portion of the principal amount of the Debentures into that number of fully paid and nonassessable shares of Common Stock (calculated as to each conversion to the nearest 1/100th of a share) obtained by dividing the principal amount of the Debentures to be converted by the Conversion Price. In case a Debenture or portion thereof is called for redemption, such conversion right in respect of the Debenture or portion so called shall expire at 5:00 p.m. (New York City time) on the second Business Day immediately preceding the corresponding Redemption Date, unless the Company defaults in making the payment due upon redemption. Notwithstanding the foregoing, no holder of Debentures that is subject to the restrictions of Section 4 of the Bank Holding Company Act of 1956, as amended (the "BHCA") (a "BHCA Person"), shall have the right to convert any Debentures if, after giving effect to such conversion, the BHCA Person, its affiliates and transferees would own or be deemed to own shares of Common Stock in excess of either the maximum number of shares of Common Stock which the BHCA Person is permitted to own under the BHCA and the regulations of the Board of Governors of the Federal Reserve thereunder or such lower number as the relevant BHCA Person may have requested in writing to the Conversion Agent. No BHCA Person shall have the right to assign or transfer its Debentures (other than to an affiliate) unless such Debentures are assigned or transferred (i) to the public in an offering registered under the Securities Act, (ii) in a transaction pursuant to Rule 144 or 144A under the Securities Act in which no person acquires Debentures convertible into more than 2% of the outstanding Common Stock, (iii) in a single transaction to a third party who acquires a majority of the Common Stock without regard to the conversion of any Debentures so transferred or (iv) in any other manner permitted under the BHCA. The Conversion Agent may rely on the -69- representation of the relevant BHCA Person that a transfer has been made in the foregoing manner. SECTION 13.2. Conversion Procedures. (a) To convert all or a portion of the Debentures, the Holder thereof shall deliver to the Conversion Agent an irrevocable Conversion Request setting forth the principal amount of Debentures to be converted, together with the name or names, if other than the Holder, in which the shares of Common Stock should be issued upon conversion and, if such Debentures are definitive Debentures, surrender to the Conversion Agent the Debentures to be converted, duly endorsed or assigned to the Company or in blank. In addition, a holder of Preferred Securities may exercise its right under the Trust Agreement to exchange such Preferred Securities for Debentures which shall be converted into Common Stock by delivering to the Conversion Agent an irrevocable Conversion Request setting forth the information called for by the preceding sentence and directing the Conversion Agent (i) to exchange such Preferred Security for a portion of the Debentures held by the Trust (at an exchange rate of $50 principal amount of Debentures for each Preferred Security) and (ii) to immediately convert such Debentures, on behalf of such Holder, into Common Stock pursuant to this Article XIII and, if such Preferred Securities are in definitive form, surrendering such Preferred Securities, duly endorsed or assigned to the Company or in blank. So long as any Preferred Securities are outstanding, the Trust shall not convert any Debentures except pursuant to a Conversion Request delivered to the Conversion Agent by a holder of Preferred Securities. If a Conversion Request is delivered on or after the Regular Record Date and prior to the subsequent Interest Payment Date, the Holder shall be required to pay to the Company the interest payable to the Holder on the subsequent Interest Payment Date prior to receiving the shares of Common Stock, and shall be entitled to receive the interest payable on the subsequent Interest Payment Date, on the portion of Debentures to be converted notwithstanding the conversion thereof prior to such Interest Payment Date. Except as provided in the immediately preceding sentence, the Company shall not make, or be required to make, any payment, allowance or adjustment for accumulated and unpaid interest, whether or not in arrears, on converted Debentures; provided, however, that if, during an Extension Period, a notice of redemption of Debentures is mailed or otherwise given to Holders of Debentures pursuant to Section 11.6 of this Indenture and a Holder of Debentures converts any Debentures into Common Stock after the date on which such notice of redemption is mailed or otherwise given but prior to the relevant Redemption Date, all accrued but unpaid interest (including Additional Interest, if applicable) through the date of conversion shall be paid the Holder of such Debenture on the Redemption Date. Except as otherwise provided in the immediately preceding two sentences, in the case of any Debenture converted by a Holder of such Debenture, interest with a Stated Maturity which is after the date of conversion of such Debenture shall not be payable, and the Company shall not make nor be required to make any other payment, adjustment or allowance with respect to accrued but unpaid interest (including Additional Interest, if applicable) on the Debentures being converted, which shall be deemed to be paid in full. If any Debenture called for redemption is converted, any money deposited with -70- Trustee or with any Paying Agent or so segregated and held in trust for the redemption of such Debenture shall (subject to any right of the Holder of such Debenture or any Predecessor Debenture to receive interest as provided in the last paragraph of Section 3.7 of this Indenture and this paragraph) be paid to the Company upon Company Request, or if then held by the Company, shall be discharged from such trust. Each conversion shall be deemed to have been effected immediately prior to 5:00 p.m. (New York City time) on the day on which the Conversion Request was received (the "Conversion Date") by the Conversion Agent from the Holder or from a holder of the Preferred Securities effecting a conversion thereof pursuant to its conversion rights under the Trust Agreement, as the case may be. The Person or Persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as a record holder or holders of such Common Stock as of the Conversion Date. As promptly as practicable on or after the Conversion Date, the Company shall issue and deliver at the office of the Conversion Agent, unless otherwise directed by the Holder in the Conversion Request, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion, together with the cash payment, if any, in lieu of any fraction of any share to the Person or Persons entitled to receive the same. The Conversion Agent shall deliver such certificate or certificates to each Person or Persons. (b) Subject to any right of the Holder of such Debenture or any Predecessor Debenture to receive interest as provided in Section 13.2(a), the Company's delivery upon conversion of the fixed number of shares of Common Stock into which the Debentures are convertible (together with the cash payment, if any, in lieu of fractional shares) shall be deemed to satisfy the Company's obligation to pay the principal amount at maturity of the portion of Debentures so converted and any unpaid interest (including Additional Interest, if any) accrued on such Debentures at the time of such conversion and any interest payments which would have otherwise accrued after such conversion. (c) No fractional shares of Common Stock shall be issued as a result of conversion, but in lieu thereof, the Company shall pay to the Conversion Agent a cash adjustment in an amount equal to the same fraction of the last reported sale price of such fractional interest on the date on which the Debentures or Preferred Securities, as the case may be, were duly surrendered to the Conversion Agent for conversion, or, if such day is not a Trading Day, on the next Trading Day, and the Conversion Agent in turn shall make such payment, if any, to the Holder of the Debentures or the holder of the Preferred Securities so converted. (d) In the event of the conversion of any Debenture in part only, a new Debenture or Debentures for the unconverted portion thereof will be issued in the name of the Holder thereof upon the cancellation thereof in accordance with Section 3.6. (e) In effecting the conversion transactions described in this Section 13.2, the Conversion Agent is acting as agent of the holders of Preferred Securities (in the exchange of Preferred Securities for Debentures) and as agent of the Holders of Debentures (in the conver- -71- sion of Debentures into Common Stock), as the case may be, directing it to effect such conversion transactions. The Conversion Agent is hereby authorized (i) to exchange Preferred Securities for Debentures held by the Trust from time to time in connection with the conversion of such Preferred Securities in accordance with this Article XIII and (ii) to convert all or a portion of the Debentures into Common Stock and thereupon to deliver such shares of Common Stock in accordance with the provisions of this Article XIII and to deliver to the Trust a new Debenture or Debentures for any resulting unconverted principal amount. SECTION 13.3. Conversion Price Adjustments. The Conversion Price shall be subject to adjustment (without duplication) from time to time as follows: (a) If the Company shall (i) pay a dividend or make a distribution with respect to the Common Stock in shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock, (iii) combine the outstanding shares of Common Stock into a smaller number of shares or (iv) issue by reclassification of the shares of Common Stock any shares of capital stock of the Company, then the Conversion Price in effect immediately prior to such action shall be adjusted so that the Holder of any Debentures thereafter surrendered for conversion shall be entitled to receive the number of shares of capital stock of the Company which he would have owned immediately following such action had such Debentures been converted immediately prior thereto. An adjustment made pursuant to this Section 13.3(a) shall become effective immediately after the record date in the case of a dividend or other distribution and shall become effective immediately after the effective date in case of a subdivision, combination or reclassification (or immediately after the record date if a record date shall have been established for such event). If, as a result of an adjustment made pursuant to this Section 13.3(a), the Holder of any Debenture thereafter surrendered for conversion shall become entitled to receive shares of two or more classes or series of capital stock of the Company, the Board of Directors (whose determination shall be conclusive and shall be described in a Board Resolution filed with the Trustee) shall determine the allocation of the adjusted Conversion Price between or among shares of such classes or series of capital stock. (b) Other than in connection with a Rights Plan, if the Company shall issue rights or warrants to all holders of the Common Stock entitling them (for a period expiring within 45 days after the record date mentioned in this Section 13.3) to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price per share of Common Stock on such record date, then the Conversion Price for the Debentures shall be adjusted to equal the price determined by multiplying the Conversion Price in effect immediately prior to the date of issuance of such rights or warrants by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so -72- offered for subscription or purchase would purchase at such Current Market Price, and the denominator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase. Such adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights or warrants. For the purposes of this Section 13.3(b), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company. The Company shall not issue any rights or warrants in respect of the shares of Common Stock held in the treasury of the Company. In case any rights or warrants referred to in this Section 13.3(b) in respect of which an adjustment shall have been made shall expire unexercised within 45 days after the same shall have been distributed or issued by the Company, the Conversion Price shall be readjusted at the time of such expiration to the Conversion Price that would have been in effect if no adjustment had been made on account of the distribution or issuance of such expired rights or warrants. (c) Subject to the last sentence of this Section 13.3(c), if the Company shall, by dividend or otherwise, distribute to all holders of Common Stock evidences of its indebtedness, shares of any class or series of capital stock, cash or assets (including securities, but excluding any rights or warrants referred to in Section 13.3(b), any dividend or distribution paid exclusively in cash that may be declared by the Board of Directors and any dividend or distribution referred to in Section 13.3(a)), then the Conversion Price shall be reduced to the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by Section 13.3(c) by a fraction, the numerator of which shall be the Current Market Price per share of the Common Stock on the date fixed for the payment of such distribution (the "Reference Date") less the fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution), on the Reference Date, of the portion of the evidences of indebtedness, shares of capital stock, cash and assets so distributed applicable to one share of Common Stock and the denominator of which shall be such Current Market Price per share of Common Stock, such reduction to become effective immediately prior to the opening of business on the day following the Reference Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not occurred. If the Board of Directors determines the fair market value of any distribution for purposes of this Section 13.3(c) by reference to the actual or when issued trading market for any securities comprising such distribution, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price per share of Common Stock. For purposes of this Section 13.3(c), any dividend or distribution that includes shares of Common Stock or rights or warrants to subscribe for or purchase shares of Common Stock shall be deemed instead to be (1) a dividend or distribution of the evidences of -73- indebtedness, shares of capital stock, cash or assets other than such shares of Common Stock or such rights or warrants (making any Conversion Price reduction required by this Section 13.3(c)) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (making any further Conversion Price reduction required by Section 13.3(a) or 13.3(b)), except (A) the Reference Date of such dividend or distribution as defined in this Section 13.3(c) shall be substituted as (a) "the record date in the case of a dividend or other distribution," and (b) "the record date for the determination of stockholders entitled to receive such rights or warrants" and (c) "the date fixed for such determination" within the meaning of Sections 13.3(a) and 13.3(b), and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed outstanding for purposes of computing any adjustment of the Conversion Price in Section 13.3(a). (d) If the Company shall pay or make a dividend or other distribution on the Common Stock exclusively in cash (excluding all cash dividends paid out of the retained earnings of the Company), then the Conversion Price shall be reduced to equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this Section 13.3(d) by a fraction, the numerator of which shall be the Current Market Price per share of Common Stock on the date fixed for the payment of such distribution less the amount of cash so distributed (and not excluded as provided in the above parenthetical phrase) applicable to one share of Common Stock and the denominator of which shall be such Current Market Price per share of the Common Stock, such reduction to become effective immediately prior to the opening of business on the day following the date fixed for the payment of such distribution; provided, however, that in the event the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price per share of the Common Stock on the record date mentioned above, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder of Debentures shall have the right to receive upon conversion the amount of cash such Holder would have received had such Holder converted each Debenture immediately prior to the record date for the distribution of the cash. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such record date had not been fixed. (e) If the Company or any of its subsidiaries shall make a tender or exchange offer (other than an odd-lot offer) for all or any portion of the Common Stock and such tender or exchange offer shall involve the payment by the Company or such subsidiary of consideration per share of Common Stock having a fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) at the last time (the "Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer that exceeds 110% of the Current Market Price per share of Common Stock on the Trading Day next succeeding the Expiration Time, then the Conversion Price shall be reduced to equal the -74- price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this Section 13.3(e) by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by the Current Market Price per share of Common Stock on the Trading Day next succeeding the Expiration Time and the denominator of which shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares"), and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the Current Market Price per share of Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Time. (f) For the purpose of any computation under Sections 13.3(b), (c), (d) or (e), the "Current Market Price" per share of Common Stock on any date in question shall be deemed to be the average of the daily Closing Prices for the five consecutive Trading Days selected by the Company commencing not more than 20 Trading Days before, and ending not later than the earlier of the day in question or, if applicable, the day before the "ex" date with respect to the issuance or distribution requiring such computation; provided, however, that if another event occurs that would require an adjustment pursuant to Sections 13.3(a) through (e), inclusive, the Board of Directors may make such adjustments to the Closing Prices during such five Trading Day period as it deems appropriate to effectuate the intent of the adjustments in this Section 13.3, in which case any such determination by the Board of Directors shall be set forth in a Board Resolution and shall be conclusive. For purposes of this Section 13.3(f), the term "ex" date, (i) when used with respect to any issuance or distribution, means the first date on which the Common Stock is quoted on the NASDAQ National Market or on such successor securities exchange as the Common Stock may be listed or in the relevant market from which the Closing Prices were obtained without the right to receive such issuance or distribution, and (ii) when used with respect to any tender or exchange offer, means the first date on which the Common Stock trades regular way on such securities exchange or in such market after the Expiration Time of such offer. (g) The Company may make such reductions in the Conversion Price, in addition to those required by Sections 13(a) through (e), as it considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. The Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least 20 days, the reduction is irrevocable during the period, and -75- the Board of Directors shall have made a determination that such reduction would be in the best interest of the Company, which determination shall be conclusive. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to Holders a notice of the reduction at least 15 days prior to the date the reduced Conversion Price takes effect. Such notice shall state the reduced Conversion Price and the period it shall be in effect. (h) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Conversion Price; provided, however, that any adjustments which by reason of this Section 13.3(h) are not required to be made shall be carried forward and taken into account in determining whether any subsequent adjustment shall be required. (i) If any action would require adjustment of the Conversion Price pursuant to more than one of the provisions described above, only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value to the Holder of the Debentures. SECTION 13.4. Reclassification, Consolidation, Merger or Sale of Assets. In the event that the Company shall be a party to any transaction involving (a) any recapitalization or reclassification of the Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination of the Common Stock), (b) any consolidation of the Company with or merger of the Company into any other Person, any merger of another Person into the Company (other than a merger which does not result in a reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock), (c) any sale, transfer or lease of all or substantially all of the assets of the Company or (d) any compulsory share exchange, in each case pursuant to which the Common Stock is converted into the right to receive other securities, cash or other property, then lawful provision shall be made as part of the terms of such transaction whereby the Holder of each Outstanding Debenture shall have the right thereafter to convert each Debenture only into the kind and amount of securities, cash or other property receivable upon consummation of such transaction by a holder of the number of shares of Common Stock into which such Debenture could have been converted immediately prior to such transaction. The Company or the Person formed by such consolidation or resulting from such merger or which acquired such assets or which acquires the shares of the Company, as the case may be, shall make provision in its certificate or articles of incorporation or other constituent document to establish such right. Such certificate or articles of incorporation or other constituent document shall provide for adjustments which, for events subsequent to the effective date of such certificate or articles of incorporation or other constituent document, -76- shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article XIII. SECTION 13.5. Notice of Adjustments of Conversion Price. Whenever the Conversion Price is adjusted as herein provided: (a) the Company shall compute the adjusted Conversion Price and shall prepare a certificate signed by the Chairman of the Board, President or a Vice President of the Company and by its Treasurer or an Assistant Treasurer of the Company setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed with the Trustee, the Conversion Agent, the Debenture Registrar and the registrar for the Preferred Securities; and (b) notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall as soon as practicable be mailed by the Company to all record holders of Preferred Securities and Holders of Debentures at their last addresses as they appear upon the Debenture Registrar and the securities register for the Trust Securities. SECTION 13.6. Prior Notice of Certain Events. In case: (a) the Company shall (i) declare any dividend (or any other distribution) on the Common Stock, other than (A) a dividend payable in shares of Common Stock or (B) a dividend payable in cash that would not require an adjustment pursuant to Section 13.3(c) or (d), or (ii) authorize a tender or exchange offer that would require an adjustment pursuant to Section 13.3(e); (b) the Company shall authorize the granting to all holders of Common Stock of rights or warrants to subscribe for or purchase any shares of stock of any class or series or of any other rights or warrants; (c) of any reclassification of Common Stock (other than a subdivision or combination of the outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company shall be required, or the sale or transfer of all or substantially all of the assets of the Company or of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or other property; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; -77- then the Company shall (1) if any Preferred Securities are outstanding, cause to be filed with the transfer agent for the Preferred Securities, and shall cause to be mailed to the holders of record of the Preferred Securities, at their last addresses as they shall appear upon the securities register of the Trust or (2) cause to be mailed to all Holders at their last addresses as they shall appear in the Debenture Register, at least 15 days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record (if any) is to be taken for the purpose of such dividend, distribution, rights or warrants or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up (but no failure to mail such notice or any defect therein or in the mailing thereof shall affect the validity of the corporate action required to be specified in such notice). SECTION 13.7. Certain Defined Terms. The following definitions shall apply to terms used in this Article XIII: (a) "Closing Prices" of any security on any day means the last reported sale price for such security, regular way, on such day or, if no sale takes place on such day, the average of the reported closing bid and asked prices on such day, regular way, of such security, in either case as reported on the NYSE Composite Tape or, if the security is not listed or admitted to trading on the NYSE, on the principal national securities exchange on which such security is listed or admitted to trading, or, if not listed or admitted to trading on a national securities exchange, on the National Market System of the National Association of Securities Dealers, Inc., or, if such security is not quoted or admitted to trading on such quotation system, on the principal quotation system on which such security is listed or admitted to trading or quoted, or, if not listed or admitted to trading or quoted on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security in the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or, if not so available in such manner, as furnished by any NYSE member firm selected from time to time by the Board of Directors for that purpose or, if not so available in such manner, as otherwise determined in good faith by the Board of Directors. (b) "Trading Day" means a day on which securities are traded on the national securities exchange or quotation system used to determine the Closing Price. -78- SECTION 13.8. Dividend or Interest Reinvestment Plans. Notwithstanding the foregoing provisions, the issuance of any shares of Common Stock pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Company and the investment of additional optional amounts in shares of Common Stock under any such plan, and the issuance of any shares of Common Stock or options or rights to purchase such shares pursuant to any employee benefit plan or program of the Company pursuant to any option, warrant, right or exercisable, exchangeable or convertible security outstanding as of the date the Debentures were first issued, shall not be deemed to constitute an issuance of Common Stock or exercisable, exchangeable or convertible securities by the Company to which any of the adjustment provisions described above shall apply. There also shall be no adjustment of the Conversion Price in case of the issuance of any stock (or securities convertible into or exchangeable for stock) of the Company except as specifically described in this Article XIII. SECTION 13.9. Certain Additional Rights. In case the Company shall, by dividend or otherwise, declare or make a distribution on the Common Stock referred to in Section 13.3(c) or (d) (including dividends or distributions referred to in the last sentence of Section 13.3(c)), then the Holders, upon the conversion thereof subsequent to 5:00 p.m. (New York City time) on the date fixed for the determination of stockholders entitled to receive such distribution and prior to the effectiveness of the Conversion Price adjustment in respect of such distribution, also shall be entitled to receive for each share of Common Stock into which the Debentures are converted, the portion of the shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash and assets so distributed applicable to one share of Common Stock; provided, however, that, at the election of the Company (whose election shall be evidenced by a Board Resolution) with respect to all Holders so converting, the Company may, in lieu of distributing to such Holders any portion of such distribution not consisting of cash or securities of the Company, pay such Holders an amount in cash equal to the fair market value thereof (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution). If any conversion of Debentures described in the immediately preceding sentence occurs prior to the payment date for a distribution to holders of Common Stock which the Holder so converted is entitled to receive in accordance with the immediately preceding sentence, the Company may elect (such election to be evidenced by a Board Resolution) to distribute to such Holder a due bill for the shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash or assets to which such Holder is so entitled, provided that such due bill (i) meets any applicable requirements of the principal national securities exchange or other market on which the Common Stock is then traded and (ii) requires payment or delivery of such shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash or assets no later than the date of payment or delivery thereof to holders of shares of Common Stock receiving such distribution. -79- SECTION 13.10. Trustee Not Responsible for Determining Conversion Price or Adjustments. Neither the Trustee nor any Conversion Agent shall at any time be under any duty or responsibility to any Holder to determine whether any facts exist which may require any adjustment of the Conversion Price, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. Neither the Trustee nor any Conversion Agent shall be accountable with respect to the validity or value (or the kind of account) of any shares of Common Stock or of any securities or property, which may at any time be issued or delivered upon the conversion of any Debenture; and neither the Trustee nor any Conversion Agent makes any representation with respect thereto. Neither the Trustee nor any Conversion Agent shall be responsible for any failure of the Company to make any cash payment or to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property upon the surrender of any Debenture for the purpose of conversion, or, except as expressly herein provided, to comply with any of the covenants of the Company contained in Article X or this Article XIII. ARTICLE XIV SUBORDINATION OF SECURITIES SECTION 14.1. Debentures Subordinate to Senior Indebtedness. The Company covenants and agrees, and each Holder of a Debenture, by its acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article XIV, the payment of the principal of, premium, if any, and interest (including any Additional Interest) on each and all of the Debentures are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness. SECTION 14.2. Payment Over of Proceeds Upon Dissolution, etc. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company (a "Proceeding"), then the holders of Senior Indebtedness shall be entitled to receive payment in full of all amounts due or to become due on such Senior Indebtedness, or provision shall be made for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Indebtedness, before the Holders are entitled to receive or retain any payment or distribution of any kind or character, whether in cash, property or securities (including any payment or distribution which may be payable or deliverable by reason of the payment of any other indebtedness or obligations of the Company subor- -80- dinated to the payment of the Debentures, such payment or distribution being hereinafter referred to as a "Junior Subordinated Payment"), on account of principal of, premium, if any, or interest (including any Additional Interest) on the Debentures or on account of the purchase or other acquisition of Debentures by the Company or any Subsidiary and to that end the holders of Senior Indebtedness shall be entitled to receive, for application to the payment thereof, any payment or distribution of any kind or character, whether in cash, property or securities, including any Junior Subordinated Payment, which may be payable or deliverable in respect of the Debentures in any such Proceeding. In the event that, notwithstanding the foregoing provisions of this Section 14.2, the Trustee or the Holder of any Debenture shall have received any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, including any Junior Subordinated Payment, before all amounts due or to become due on all Senior Indebtedness are paid in full or payment thereof is provided for in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Indebtedness, and if such fact shall, at or prior to the time of such payment or distribution, have been made known to the Trustee or such Holder, then and in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all amounts due or to become due on all Senior Indebtedness remaining unpaid, to the extent necessary to pay all amounts due or to become due on all Senior Indebtedness in full, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the sale of all or substantially all of its properties and assets as an entirety to another Person upon the terms and conditions set forth in Article VIII shall not be deemed a Proceeding for the purposes of this Section 14.2 if the Person formed by such consolidation or into which the Company is merged or the Person which acquires by sale such properties and assets as an entirety, as the case may be, shall, as a part of such consolidation, merger, or sale comply with the conditions set forth in Article VIII. SECTION 14.3. Prior Payment to Senior Indebtedness Upon Acceleration of Debentures. In the event that any Debentures are declared due and payable before their Stated Maturity, then and in such event the holders of the Senior Indebtedness outstanding at the time such Debentures so become due and payable shall be entitled to receive payment in full of all amounts due on or in respect of such Senior Indebtedness (including any amounts due upon acceleration), or provision shall be made for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Indebtedness, before the Holders of the Debentures are entitled to receive any payment or distribution of any kind or character, whether in cash, properties or securities (including any Junior Subordinated Pay- -81- ment) by the Company on account of the principal of, premium, if any, or interest (including any Additional Interest) on the Debentures or on account of the purchase or other acquisition of Debentures by the Company or any Subsidiary. In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Debenture prohibited by the foregoing provisions of this Section 14.3, as the case may be, such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Company. The provisions of this Section 14.3 shall not apply to any payment with respect to which Section 14.2 would be applicable. SECTION 14.4. No Payment when Senior Indebtedness in Default. In the event and during the continuation of any default in the payment of principal of, premium, if any, or interest on any Senior Indebtedness, or in the event that any event of default with respect to any Senior Indebtedness shall have occurred and be continuing and shall have resulted in such Senior Indebtedness becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, unless and until such event of default shall have been cured or waived or shall have ceased to exist and such acceleration shall have been rescinded or annulled, or (b) in the event any judicial proceeding shall be pending with respect to any such default in payment or such event or default, then no payment or distribution of any kind or character, whether in cash, properties or securities (including any Junior Subordinated Payment) shall be made by the Company on account of principal of, premium, if any, or interest (including any Additional Interest), if any, on the Debentures or on account of the purchase or other acquisition of Debentures by the Company or any Subsidiary, in each case unless and until all amounts due or to become due on such Senior Indebtedness are paid in full. In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Debenture prohibited by the foregoing provisions of this Section 14.4, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Company. The provisions of this Section 14.4 shall not apply to any payment with respect to which Section 14.2 would be applicable. SECTION 14.5. Payment Permitted if No Default. Nothing contained in this Article XIV or elsewhere in this Indenture or in any of the Debentures shall prevent (a) the Company, at any time except during the pendency of any Proceeding referred to in Section 14.2 or under the conditions described in Sections 14.3 and 14.4, from making payments at any time of principal of, premium, if any, or interest -82- (including Additional Interest) on the Debentures or (b) the application by the Trustee , at any time except during the pendency of any proceeding referred to in Section 14.2 or under the conditions described in Section 14.3 and 14.4, of any money deposited with it hereunder to the payment of or on account of the principal of, premium, if any, or interest (including any Additional Interest) on the Debentures or the retention of such payment by the Holders, if, at the time of such application by the Trustee. SECTION 14.6. Subrogation to Rights of Holders of Senior Indebtedness. Subject to the payment in full of all amounts due or to become due on all Senior Indebtedness, or the provision for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Indebtedness, the Holders shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Article XIV (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinated to Senior Indebtedness of the Company to substantially the same extent as the Debentures are subordinated to the Senior Indebtedness and is entitled to like rights of subrogation by reason of any payments or distributions made to holders of such Senior Indebtedness) to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of, premium, if any, and interest on the Debentures shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holders or the Trustee would be entitled except for the provisions of this Article XIV, and no payments over pursuant to the provisions of this Article XIV to the holders of Senior Indebtedness by Holders or the Trustee, shall, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness. SECTION 14.7. Provisions Solely to Define Relative Rights. The provisions of this Article XIV are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of Senior Indebtedness, on the other hand. Nothing contained in this Article XIV or elsewhere in this Indenture or in the Debentures is intended to or shall (a) impair, as between the Company and the Holders, the obligations of the Company, which are absolute and unconditional, to pay to the Holders the principal of, premium, if any, and interest (including any Additional Interest) on the Debentures as and when the same shall become due and payable in accordance with their terms, (b) affect the relative rights against the Company of the Holders and creditors of the Company other than their rights in relation to the holders of Senior Indebtedness or (c) prevent the Trustee or the Holder of any Debenture from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, including filing and voting claims in any Proceeding, subject to the rights, if any, under this Article XIV of the holders of -83- Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder. SECTION 14.8. Trustee to Effectuate Subordination. Each Holder of a Debenture by his or her acceptance thereof authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination provided in this Article XIV and appoints the Trustee his or her attorney-in-fact for any and all such purposes. SECTION 14.9. No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or be otherwise charged with. Without in any way limiting the generality of the immediately preceding paragraph, the holders of Senior Indebtedness may, at any time and from to time, without the consent of or notice to the Trustee or the Holders, without incurring responsibility to the Holders and without impairing or releasing the subordination provided in this Article XIV or the obligations hereunder of the Holders to the holders of Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any Person liable in any manner for the collection of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. SECTION 14.10. Notice to Trustee. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Debentures. Notwithstanding the provisions of this Article XIV or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Debentures, unless and until the Trustee shall have received written notice thereof from the Company or a holder of Senior Indebtedness or from any trustee, agent or representative therefor; provided, however, that if the Trustee shall not have received the notice provided for in this Section 14.10 at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including the payment of the princi- -84- pal of, premium, if any, or interest (including any Additional Interest) on any Debenture), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which it was received and shall not be affected by any notice to the contrary which may be received by it within two Business Days prior to such date. Subject to the provisions of Section 6.1, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a trustee therefor) to establish that such notice has been given by a holder of Senior Indebtedness (or a trustee therefor). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article XIV, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article XIV, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 14.11. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article XIV, the Trustee, subject to the provisions of Section 6.1, and the Holders shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XIV. SECTION 14.12. Trustee Not Fiduciary for Holders of Senior Indebtedness. The Trustee, in its capacity as trustee under this Indenture, shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders or to the Company or to any other Person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article XIV or otherwise. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants or obligations as are specifically set forth in this Article XIV and no implied -85- covenants or obligations with respect to holders of Senior Indebtedness shall be read into this Indenture against the Trustee. SECTION 14.13. Rights of Trustee as Holder of Senior Indebtedness. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article XIV with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article XIV shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.7. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article XIV shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article XIV in addition to or in place of the Trustee. SECTION 14.14. Article Applicable to Paying Agents. If at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article XIV shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article XIV in addition or in place of the Trustee. SECTION 14.15. Certain Conversions or Exchanges Deemed Payment. For the purposes of this Article XIV only, (a) the issuance and delivery of Common Stock of the Company upon conversion of Debentures in accordance with their terms shall not be deemed to constitute a payment or distribution on account of the principal of, premium, if any, or interest (including any Additional Interest) on Debentures or on account of the purchase or other acquisition of Debentures, and (b) the payment, issuance or delivery of cash, property or securities (other than as provided in clause (a) of this sentence) upon conversion or exchange of a Debenture shall be deemed to constitute payment on account of the principal of such security. SECTION 14.16. Trust Funds Not Subordinated. Notwithstanding anything contained herein to the contrary, payments from funds held in trust under Article IV by the Trustee for the payment of principal of, premium, if any, and interest on the Debentures shall not be subordinated to the prior payment of any Senior Indebtedness of the Company or subject to the restrictions set forth in this Article XIV -86- and no Holder shall be obligated to pay over any such funds to the Company or any holder of Senior Indebtedness of the Company or any other creditor of the Company. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. -87- IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the day and year first above written. GENTIVA HEALTH SERVICES, INC. By: __________________________________ Name: Title: WILMINGTON TRUST COMPANY, as Trustee By: __________________________________ Name: Title: -88- EX-10.5 5 1999 STOCK INCENTIVE PLAN GENTIVA HEALTH SERVICES, INC. 1999 STOCK INCENTIVE PLAN 1. Purpose. The purpose of the Gentiva Health Services, Inc. 1999 Stock Incentive Plan (the "Plan"), is to enable Gentiva Health Services, Inc. (the "Company") and Related Companies (as defined below) to attract and retain employees, Directors (as defined below) and Consultants (as defined below) who contribute to the Company's success by their ability, ingenuity and industry, and to enable such employees, Directors and Consultants to participate in the long-term success and growth of the Company by giving them an equity interest in the Company. For purposes of the Plan, a "Related Company" means any corporation, partnership, joint venture or other entity in which the Company owns, directly or indirectly, at least a 20% beneficial ownership interest. 2. Types of Awards. Awards under the Plan may be in the form of (i) incentive stock options ("Incentive Stock Options") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (hereinafter, including applicable regulations thereunder, the "Code") or any successor provisions thereto, and (ii) options that do not qualify as Incentive Stock Options ("Non-Qualified Stock Options") (collectively, "Stock Options"). 3. Administration. 3.1 The Plan shall be administered by a committee (the "Committee") of the Company's Board of Directors (the "Board") consisting of not less than two "non-employee directors" (as such term is defined in Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act") or any successor rule) who, to the extent required to satisfy the exception for performance-based compensation under Section 162(m) of the Code, are also "outside directors" (within the meaning of Section 162(m) of the Code). The members of the Committee shall serve at the pleasure of the Board. 3.2 The Committee shall have the authority to grant awards to eligible employees, Directors and Consultants under the Plan; to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall deem advisable; to interpret the terms and provisions of the Plan and any award granted under the Plan; and to otherwise supervise the administration of the Plan. Subject to the terms of the Plan, the Committee's authority shall include, but not be limited to, the authority: (a) to determine whether and to what extent any award will be granted hereunder; (b) to select the employees, Directors and Consultants to whom awards will be granted; (c) to determine the number of shares of the common stock, par value $.10 per share of the Company (the "Common Stock") to be covered by each award granted hereunder; provided, however, that no more than 300,000 shares (subject to adjustment as provided in Section 4.3 herein) may be awarded under the Plan to any employee, Director or Consultant in any calendar year; (d) to determine the form and the terms and conditions of any award granted hereunder, including, but not limited to, any restrictions based on performance and such other factors as the Committee may determine, and to determine whether the terms and conditions of the award are satisfied; (e) to determine pursuant to a formula or otherwise the fair market value of the Common Stock on a given date; provided, however, that if the Committee fails to make such a determination, fair market value shall mean the closing sale price of the Common Stock on the principal stock exchange or stock market on which the Common Stock may be listed or admitted to trading on a given date; (f) to amend the terms of any award, prospectively or retroactively; provided, however, that no amendment shall impair the rights of the award holder without his or her consent; and (g) to substitute new Stock Options for previously granted Stock Options, or for options granted under other plans, in each case including previously granted options having higher option prices. 3.3 All determinations made by the Committee pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and Plan participants. 3.4 The Committee may delegate to officers or managers of the Company or any Related Company the authority, subject to such terms as the Committee shall determine, to perform administrative functions and, with respect to awards granted to persons not subject to Section 16 of the Exchange Act, to perform such other functions (including making awards hereunder) as the Committee may determine, to the extent permitted under Rule 16b-3 of the Exchange Act (if applicable) and applicable law. Without limiting the foregoing, unless otherwise determined by the Committee, the Company's Chief Executive Officer, in consultation with the head of the Company's Human Resources Department, may make awards of Stock Options to newly hired employees and recently promoted employees who, in either case, are not subject to Section 16 of the Exchange Act; provided, however, that the maximum number of shares of Common Stock subject to any such Stock Option shall be 10,000 shares (subject to adjustment as provided in Section 4.3 below). -2- 4. Stock Subject to Plan. 4.1 The total number of shares of Common Stock reserved and available for distribution under the Plan shall be 5,000,000 (subject to adjustment as provided in Section 4.3 below). Such shares may consist of authorized but unissued shares or treasury shares. 4.2 To the extent an option terminates without having been exercised, the shares subject to such award shall again be available for distribution in connection with future awards under the Plan. 4.3 In the event of any merger, reorganization, consolidation, sale of substantially all assets, recapitalization, Common Stock dividend, Common Stock split, spin-off, split-up, split-off, distribution of assets or other change in corporation structure affecting the Common Stock, a substitution or adjustment, as may be determined to be appropriate by the Committee in its sole discretion, shall be made in the aggregate number of shares reserved for issuance under the Plan, the number of shares available for any individual awards, the number and kind of shares, other securities or other consideration subject to outstanding awards and the exercise price to be paid by employees, Directors and Consultants with respect to outstanding awards; provided, however, that no such adjustment shall increase the aggregate value of any outstanding award. 5. Eligibility. Officers and other employees of the Company or a Related Company, members of the Board who are not employees of the Company or a Related Company ("Directors"), and Consultants to the Company or a Related Company are eligible to be granted awards under the Plan; provided, however, that, to the extent required under Section 422 of the Code, Incentive Stock Options may be granted only to officers and other employees of the Company or any subsidiary corporation in which the Company owns, directly or indirectly, stock having 50% or more of the total combined voting power of all classes of stock, within the meaning of Section 424(f) of the Code. For purposes hereof, "Consultant" means an individual who furnishes services to the Company or a Related Company and (i) is neither an employee of the Company or any Related Company nor a Director and (ii) in the determination of the Committee, has made a significant contribution to the growth and development of the Company. The participants under the Plan shall be selected from time to time by the Committee, in its sole discretion, from among those eligible. 6. Terms of Stock Options. 6.1 Option Price. The option price per share of Common Stock purchasable under a Stock Option shall be determined by the Committee; provided, however, that the option price of Non-Qualified Stock Options shall not be less than 85%, and the -3- option price of Incentive Stock Options shall not be less than 100%, of the fair market value of the Common Stock on the date of award of each such Stock Option. 6.2 Option Term. The term of each Stock Option shall be ten years from the date of grant thereof, unless a shorter term is provided for by the Committee at the time of grant, subject to earlier termination as provided in Sections 6.7 and 6.8 hereof. 6.3 Exercisability. Except as otherwise provided by the Committee at the time of grant, or as provided in Section 9 hereof, (i) Stock Options granted to employees of the Company or a Related Company shall vest and be first exercisable in annual installments of 25% of the shares originally subject thereto, commencing on the first anniversary of the date of grant of the Stock Option, and an additional 25% of such shares each year thereafter, (ii) Stock Options granted to Directors shall vest and become first exercisable one year after the date of grant, and (iii) Stock Options granted to Consultants of the Company or a Related Company shall vest and become first exercisable no earlier than six months nor later than five years from the date of grant, as determined by the Committee. The Committee may accelerate an exercise date of any Stock Option or otherwise waive the installment exercise provisions at any time (including at time of grant) in whole or in part. Except as provided in Section 6.7 and 6.8 or otherwise determined by the Committee at any time (including at the time of grant), a Stock Option shall not be exercisable unless the optionee is an employee of the Company or a Related Company, or is a Director of the Company or Consultant to the Company or a Related Company, at the time of exercise. 6.4 Method of Exercise. Stock Options may be exercised in whole or in part at any time during the option term by giving written notice of exercise to the Company specifying the number of shares to be purchased, accompanied by payment of the option price. Payment of the option price shall be made in cash or cash equivalents or, if permitted by the Committee (either in the option agreement or at the time of exercise), by delivery of shares of Common Stock already owned by the optionee or withholding of shares subject to awards hereunder (in each case, such shares having a fair market value on the date of exercise equal to the aggregate option price), or in any other manner permitted by law and as determined by the Committee, or any combination of the foregoing. 6.5 No Shareholder Rights. An optionee shall have neither rights to dividends or other rights of a shareholder with respect to shares subject to a Stock Option until the optionee has given written notice of exercise and has paid for such shares. 6.6 Non-transferability. Except as otherwise determined by the Committee, (i) no Stock Option shall be transferable by the optionee other than by will or by the laws of descent and distribution, and (ii) during the optionee's lifetime, all Stock Options shall be exercisable only by the optionee. -4- 6.7 Effect of Termination of Employment Under Certain Circumstances. If an optionee who is an employee of the Company or a Related Company ceases to be so employed, for any reason other than death, retirement, or permanent disability, any Stock Option held by such optionee under the Plan shall terminate 90 days after termination of employment. If any such optionee ceases to be an employee of the Company or a Related Company, by reason of retirement (at age 55 or later with ten or more years of service, at age 62 or later with five or more years of service, at age 65 or later, or at such other age as the Committee may determine) or permanent disability, any Stock Option held by such optionee may be exercised, to the extent exercisable on the day preceding the date of such cessation of employment, at any time within one year after such cessation of employment, at the end of which period the Stock Option shall terminate. Notwithstanding the foregoing, the Committee in its sole discretion may provide, at the time of grant or otherwise, for different rules to apply to the exercisability of Stock Options held by an optionee at the time of each optionee's cessation of employment. In no event shall a Stock Option be exercised after the expiration of the term thereof. 6.8 Death of Employee Optionees. If an optionee dies while an employee of the Company or a Related Company, or within one year after the optionee has ceased to be an employee by reason of retirement, or by reason of such optionee's permanent disability, such Stock Option may be exercised, to the extent exercisable on the day preceding the date such optionee ceases to be an employee by the estate of such deceased optionee, or by a person or persons who acquire the right to exercise such option by bequest or inheritance or by reason of the death of such optionee, at any time within one year after such optionee's death, or within such shorter period of time as shall be prescribed in the option agreement, at the end of which period such Stock Option shall terminate. In no event shall a Stock Option be exercised after the expiration of the term thereof. 6.9 Termination of Director and Consultant Options. Unless otherwise provided by the Committee at the time of grant or otherwise, Stock Options granted to Directors and Consultants shall be subject to the following events of termination: (a) in the event a Director is removed from the Board, all unexercised Stock Options held by such Director on the date of such removal (whether or not vested) shall expire immediately; (b) in the event a Director ceases to be a member of the Board, other than by reason of removal, all unexercised Stock Options held by such Director at the time the Director ceases to be a member of the Board shall expire, unless vested, and if vested must be exercised within one year of the Director's last day as a member of the Board; and (c) in the event a Consultant no longer furnishes services to the Company or a Related Company, all unexercised Stock Options held by such Consultant at the -5- time such Consultant ceases to furnish such services shall expire, unless vested, and if vested must be exercised within ninety (90) days of the time such Consultant so ceases to furnish services to the Company. Notwithstanding the foregoing, in no event shall a Stock Option be exercised after the expiration of the term thereof. 7. Tax Withholding. 7.1 Each optionee shall, no later than the date as of which the value of an award first becomes includible in the optionee's gross income for applicable tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of, any federal, state, local or other taxes of any kind required by law to be withheld with respect to the award. The obligations of the Company under the Plan shall be conditional on such payment or arrangements, and the Company (and, where applicable, any Related Company), shall to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the optionee. 7.2 To the extent permitted by the Committee, and subject to such terms and conditions as the Committee may provide, an optionee may elect to have the withholding tax obligation, or any additional tax obligation with respect to any awards hereunder, satisfied by (i) having the Company withhold shares of Common Stock (at its fair market value) otherwise deliverable to the optionee with respect to the award, or (ii) delivering to the Company shares of Common Stock (at its fair market value) already owned by the optionee. 8. Amendments and Termination. The Plan shall terminate on November 11, 2009, and no Stock Option shall be awarded under the Plan on or after such date. The Board may discontinue the Plan at any time and may amend it from time to time. No amendment or discontinuation of the Plan shall adversely affect any award previously granted without the written consent of the employee, non-employee director or Consultant. Amendments may be made without shareholder approval except as required to satisfy Section 162(m) of the Code or, with respect to Incentive Stock Options, Section 422 of the Code. 9. Change of Control. 9.1 In the event of a Change of Control, unless otherwise determined by the Committee at the time of grant or by amendment (with the holder's consent) of such grant, all outstanding Stock Options awarded under the Plan shall become fully exercisable and vested. 9.2 A "Change of Control" shall be deemed to occur on the date that any of the following events occur: -6- (a) any person or persons acting together which would constitute a "group" for purposes of Section 13(d) of the Exchange Act (other than the Company or any subsidiary and other than Permitted Holders) shall beneficially own (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, at least 25% of the total voting power of all classes of capital stock of the Company entitled to vote generally in the election of the Board; (b) either (i) Current Directors (as herein defined) shall cease for any reason to constitute at least a majority of the members of the Board (for these purposes, a "Current Director" shall mean any member of the Board as of the effective date of the Plan, and any successor of a Current Director whose election, or nomination for election by the Company's shareholders, was approved by at least two-thirds of the Current Directors then on the Board) or (ii) at any meeting of the shareholders of the Company called for the purpose of electing directors, a majority of the persons nominated by the Board for election as directors shall fail to be elected; (c) consummation of (i) a plan of complete liquidation of the Company, or (ii) a merger or consolidation of the Company (A) in which the Company is not the continuing or surviving corporation (other than a consolidation or merger with a wholly owned subsidiary of the Company in which all shares of Common Stock outstanding immediately prior to the effectiveness thereof are changed into or exchanged for common stock of the subsidiary) or (B) pursuant to which the Common Stock is converted into cash, securities or other property, except a consolidation or merger of the Company in which the holders of the Common Stock immediately prior to the consolidation or merger have, directly or indirectly, at least a majority of the common stock of the continuing or surviving corporation immediately after such consolidation or merger or in which the Board immediately prior to the merger or consolidation would, immediately after the merger or consolidation, constitute a majority of the board of directors of the continuing or surviving corporation; or (d) consummation of a sale or other disposition (in one transaction or a series of transactions) of all or substantially all of the assets of the Company. 9.3 For purposes of this Section 9 under the Plan, "Permitted Holders" shall mean Miriam Olsten, Stuart Olsten, and Cheryl Olsten, and each of their spouses, their lineal descendants and their estates and their Affiliates or Associates (as defined in Rule 12b-2 of the Exchange Act) (collectively the "Olsten Stockholders"), so long as the Olsten Stockholders beneficially own 20% or less of the voting power of all classes of capital stock of the Company entitled to vote generally in the election of the Board; provided, however, such percentage shall be increased on a percentage basis (rounded to the nearest whole percent) to the extent the Olsten Stockholders acquire any such capital stock on conversion of the convertible trust preferred securities which they hold on March 15, 2000. -7- 10. General Provisions. 10.1 Each award under the Plan shall be subject to the requirement that, if at any time the Committee shall determine that (i) the listing, registration or qualification of the Common Stock subject or related thereto upon any securities exchange or under any state or federal law, or (ii) the consent or approval of any government regulatory body or (iii) an agreement by the recipient of an award with respect to the disposition of Common Stock is necessary or desirable (in connection with any requirement or interpretation of any federal or state securities law, rule or regulation) as a condition of, or in connection with, the granting of such award or the issuance, purchase or delivery of Common Stock thereunder, such award shall not be granted or exercised, in whole or in part, unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee. 10.2 Nothing set forth in this Plan shall prevent the Board from adopting other or additional compensation arrangements. Neither the adoption of the Plan nor any award hereunder shall confer upon: (i) any employee of the Company, or of a Related Company, any right to continued employment; (ii) any Director of the Company any right to continued service on the Board; or (iii) any Consultant to the Company or a Related Company any right to continued service as a consultant. 10.3 Determinations by the Committee under the Plan relating to the form, amount and terms and conditions of awards need not be uniform, and may be made selectively among persons, who receive or are eligible to receive awards under the Plan, whether or not such persons are similarly situated. 10.4 With respect to persons subject to Section 16 of the Exchange Act, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successor under the Exchange Act. To the extent that any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. 10.5 No member of the Board or the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination or interpretation taken or made with respect to the Plan, and all members of the Board or the Committee and all officers or employees of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation. 11. Effective Date of Plan. The Plan was originally adopted by the Board on November 11, 1999. -8- EX-10.6 6 STOCK & DEFERRED COMPENSATION PLAN GENTIVA HEALTH SERVICES, INC. STOCK & DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS (As Amended and Restated as of April 1, 2000) SECTION 1. Introduction. The Gentiva Health Services, Inc. Stock & Deferred Compensation Plan for Non-Employee Directors (the "Plan") provides for the payment of annual retainer fees of non-employee directors of Gentiva Health Services, Inc. in the form of Shares or, at the election of a non-employee director, in up to 50% in cash and the remainder in the form of Shares. It also provides an opportunity for the non-employee directors to defer the portion of their annual retainer fees payable in Shares and have them deemed invested in Shares. The Plan is intended to encourage qualified individuals to accept nominations as directors of Gentiva Health Services, Inc. and to strengthen the mutuality of interest between the non-employee directors and Gentiva Health Services, Inc.'s other shareholders. SECTION 2. Definitions. For purposes of the Plan, the following terms shall be defined as set forth below: (a) "Board" means the Board of Directors of the Company. (b) "Code" means the Internal Revenue Code of 1986, as amended from time to time. References to any provision of the Code shall be deemed to include successor provisions thereto and regulations thereunder. (c) "Company" means Gentiva Health Services, Inc., a corporation organized under the laws of Delaware, or any successor corporation. (d) "Director" means a member of the Board who is not employed by the Company or any of its subsidiaries. (e) "Plan" means this Stock & Deferred Compensation Plan for Non-Employee Directors. -2- (f) "Plan Benefits" means the benefits payable in Shares described in Sections 5 and 6 hereof. (g) "Plan Year" means a period of approximately twelve months beginning on the date of the Company's annual general meeting of shareholders for a year and ending on the day immediately preceding the Company's annual general meeting of shareholders for the following year; provided, however, that the first Plan Year shall begin on the Effective Date and end on the day immediately preceding the Company's annual general meeting of shareholders during calendar year 2001. (h) "Shares" means Common Stock, $0.10 par value per share, of the Company. SECTION 3. Administration. The Plan shall be administered by the Board. The Board shall have full authority to construe and interpret the Plan, and any action of the Board with respect to the Plan shall be final, conclusive, and binding on all persons. Subject to adjustment as provided in Section 7(g) hereof, the total number of Shares reserved for issuance under the Plan shall be 150,000. SECTION 4. Annual Retainer. (a) On and after the Effective Date of this Plan, each Director's annual retainer fee for a Plan Year shall, subject to any deferral election made pursuant to Section 5 below and subject to any election to be paid currently in cash under Section 4(c) below, be the number of Shares (rounded to the nearest 100 Shares) determined by dividing $25,000 by the average closing price of Shares on the principal stock exchange or stock market on which the Shares may be listed or admitted to trading for the ten trading days immediately preceding the date of the Company's annual general meeting of shareholders on the first day of the Plan Year at which Directors are elected or reelected. Such annual retainer fee shall be payable on an annual basis 30 days following such annual general meeting of shareholders. The annual retainer fee payable to a person who becomes a Director other than at an annual general meeting of shareholders shall, subject to any deferral election made pursuant to Section 5 below and subject to any election to be paid currently in cash under Section 4(c) below, be the number of Shares (rounded up to the nearest Share) determined by multiplying the number of Shares determined pursuant to the first sentence of this Section 4(a) for the Plan Year during which such person becomes a Director by a fraction, the numerator of which is 365 minus the number of days elapsed since the last annual general meeting of shareholders and the denominator of which is 365. Such Shares shall be payable on the 30th day following the day on which the person becomes a Director. -3- (b) Shares distributed to a Director shall be vested in full at the time of distribution. (c) Each Director may make an irrevocable election on or before the December 31 immediately preceding the beginning of a Plan Year by written notice to the Company to receive payment in cash of up to 50% (in increments of 5%) of the compensation otherwise payable during the Plan Year as his or her annual retainer fee for service as a Director. Notwithstanding the foregoing, a Director may make such an election within ten days after the later of the Effective Date or first becoming eligible to participate in the Plan, with respect to compensation payable after the effective date of the election. An election under this Section 4(c) shall continue in effect until the Director notifies the Company in writing, on or prior to the December 31 immediately preceding the commencement of any Plan Year, that the Director wishes to change his or her election hereunder for compensation payable during such Plan Year and succeeding periods. All compensation which a Director elects to be paid in cash pursuant to this Section 4(c) shall be payable quarterly in advance. If a Director elects to receive a portion of his or her annual retainer fee in cash hereunder, the remainder of the annual retainer fee shall be payable, subject to any deferral election made pursuant to Section 5 below, in Shares in accordance with Section 4(a) above, with the number of such Shares determined and set forth in Section 4(a) above but substituting the amount of the annual retainer fee not payable in cash for $25,000 therein. SECTION 5. Share Unit Accounts. The Company shall maintain a Share unit account (an "Account") for each Director. Share units will be credited to each such Account as follows: (a) Each Director may make an irrevocable election on or before the December 31 immediately preceding the beginning of a Plan Year by written notice to the Company, to defer payment of all of the compensation otherwise payable in the form of Shares pursuant to Section 4 above during the Plan Year as his or her annual retainer fee for service as a Director. Notwithstanding the foregoing, a Director may make such an election within 10 days after the later of the Effective Date or first becoming eligible to participate in the Plan, with respect to compensation payable after the effective date of the election. All compensation which a Director elects to defer pursuant to this Section 5(a) shall be credited in the form of Share units to the Director's Account. The number of units so credited will be equal to the number of Shares deferred by the Director in his or her deferral election. Deferrals of compensation hereunder shall continue until the Director notifies the Company in writing, on or prior to the December 31 immediately preceding the commencement of any Plan Year, that the Director wishes his or her compensation payable during such Plan Year and succeeding periods to be distributed as Shares or, in part, cash on a current basis, as provided above. -4- (b) If any dividends are payable on Shares during the deferral period, dividend equivalents equal to the dividend that would have been payable on the units credited to a Director's Account if such units had constituted Shares shall be paid to the Director in cash at the time the corresponding dividends are paid on Shares. SECTION 6. Plan Benefits. (a) Form. The Plan Benefit of a Director shall consist of Shares equal in number to the Share units in the Director's Account. Such Share units shall be fully vested at all times. Any fractional Share unit shall be paid in cash. (b) Distribution. (i) The Plan Benefit of a Director shall be distributed either (x) in single lump sum at the time of termination of the Director's service on the Board or (y) in up to three annual installments beginning at the time of termination of the Director's service on the Board. Each Director may elect the form of distribution, and such election must be made in the form designated by the Company from time to time, must be made within 10 days after the Director first becomes eligible to participate in the Plan, and shall be irrevocable once filed with the Company; provided, however, that Director may file a new election as to the form of distribution if such election is filed at least one year in advance of termination of service on the Board. In the absence of a timely election by a Director hereunder, the Director shall be deemed to have elected to have his or her Plan Benefit distributed in a single lump sum at the time of termination of the Director's service on the Board. (ii) In the case of the death of a Director, the Director's Plan Benefit shall be distributed, within a reasonable time as determined by the Company, after the Director's death to the Director's beneficiary or beneficiaries, as specified by the Director on a form furnished by and filed with the Secretary of the Company. If no beneficiary has been designated by the Director or if no beneficiary survives the Director, the undistributed balance of his or her Plan Benefit shall be distributed to the Director's surviving spouse as beneficiary if such spouse is still living or, if not living, in equal shares to the then living children of the Director as beneficiaries or, if none, to the Director's estate as beneficiary. SECTION 7. General. (a) Nontransferability. Except as provided in Section 6(b)(ii), no payment of any Plan Benefit of a Director shall be anticipated, assigned, attached, garnished, optioned, transferred or made subject to any creditor's process, whether voluntarily or involuntarily or by operation of law. Any act in violation of this subsection shall be void. -5- (b) Compliance with Legal and Trading Requirements. The Plan shall be subject to all applicable laws, rules and regulations, including, but not limited to, federal and state laws, rules and regulations, and to such approvals by any regulatory or governmental agency as may be required. No provision of the Plan shall be interpreted or construed to obligate the Company to register any Shares under federal or state securities laws. The transfer by a Director of Shares distributed pursuant to the Plan will be subject to such restrictions as the Company deems necessary or desirable in connection with federal or state securities laws, and Share certificates will bear a legend setting forth any such restriction. (c) Taxes. The Company is authorized to withhold from any payment made under this Plan any amounts of withholding and other taxes due in connection therewith, and to take such other action as the Company may deem advisable to enable the Company and a Director to satisfy obligations for the payment of any withholding taxes and other tax obligations relating thereto. (d) Amendment. The Board may amend, alter, suspend, discontinue, or terminate the Plan (including, without limitation, amending the dollar amount set forth in Section 4(a) hereof) without the consent of shareholders of the Company or individual Directors; provided, however, that, without the consent of an affected Director, no amendment, alteration, suspension, discontinuation, or termination of the Plan may materially impair the rights or, in any other manner, materially and adversely affect the rights of such Director hereunder. (e) Unfunded Status of Awards. This Plan (other than Section 4 hereof) is intended to constitute an "unfunded" plan of deferred compensation. With respect to any payments not yet made to a Director, nothing contained in the Plan shall give any such Director any rights that are greater than those of a general creditor of the Company; provided, however, that the Company may authorize the creation of trusts or make other arrangements to meet the Company's obligations under the Plan to deliver Shares, or other property pursuant to any award, which trusts or other arrangements shall be consistent with the "unfunded" status of the Plan unless the Company otherwise determines with the consent of each affected Director. (f) Nonexclusivity of the Plan. The adoption of the Plan by the Board shall not be construed as creating any limitations on the power of the Board to adopt such other compensation arrangements as it may deem desirable, including, without limitation, the granting of options on Shares and other awards otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. (g) Adjustments. In the event that subsequent to the Effective Date any dividend in Shares, recapitalization, Share split, reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other such change, affects the Shares such that they are increased or decreased or changed into or exchanged for a different number or kind of Shares, other securities of the Company or of another corporation or other -6- consideration, then in order to maintain the proportionate interest of the Directors and preserve the value of the Directors' Share units and to maintain the value of the Plan, there shall automatically be substituted (i) for each Share unit a new unit and (ii) for the number of Shares set forth in Section 3 above a number of Shares or other consideration, in the case of (i) and (ii) above, representing the number and kind of Shares, other securities or other consideration into which each outstanding Share shall be changed or for which each such Share shall be exchanged. The substituted units shall be subject to the same terms and conditions as the original Share units. (h) No Right to Remain on the Board. Neither the Plan nor the crediting of Share units under the Plan shall be deemed to give any individual a right to remain a director of the Company or create any obligation on the part of the Board to nominate any Director for reelection by the shareholders of the Company. (i) Governing Law. The validity, construction, and effect of the Plan shall be determined in accordance with the laws of the State of New York, without giving effect to principles of conflict of laws thereof. (j) Effective Date. The Plan shall become effective on April 1, 2000 (the "Effective Date"). (k) Titles and Headings. The titles and headings of the Sections in the Plan are for convenience of reference only. In the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. EX-10.9 7 LOAN AND SECURITY AGREEMENT -------------------------------------------------- GENTIVA HEALTH SERVICES, INC. OLSTEN HEALTH SERVICES HOLDING CORP., AND EACH OF THE SUBSIDIARY BORROWING CORPORATIONS LISTED ON THE SIGNATURE PAGES HERETO, as Borrower, THE LENDING INSTITUTIONS LISTED IN ANNEX I ATTACHED HERETO, and FLEET CAPITAL CORPORATION, as Administrative Agent and FleetBoston Robertson Stephens Inc., as Arranger ================================================== LOAN AND SECURITY AGREEMENT Dated: March ___, 2000 Amount: $150,000,000.00 ================================================== LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT, is made this day of March, 2000, by and among the lending institutions listed in Annex I attached hereto and incorporated herein by reference (each a "Lender", and collectively, "Lenders"), Fleet Capital Corporation , a Rhode Island corporation with an office at 200 Glastonbury Boulevard, Glastonbury, CT 06033, as administrative agent for the Lenders ("Agent"), and Gentiva Health Services, Inc., a Delaware corporation with its chief executive office at 175 Broad Hollow Road, Melville, NY 11747 (the "Company"), Olsten Health Services Holding Corp., a Delaware corporation with its chief executive office at 175 Broad Hollow Road, Melville, NY 11747 ("OHS")and each of the Subsidiary Borrowing Corporations listed on the signature pages hereto, each with a state of incorporation and chief executive office as listed on the exhibits hereto (each of the Company, OHS and each Subsidiary Borrowing Corporation is a "Borrower," and collectively, "Borrower"). Capitalized terms used in this Loan and Security Agreement ("Agreement") have the meanings assigned to them in Appendix A, General Definitions. Accounting terms not otherwise specifically defined herein shall be construed in accordance with GAAP, consistently applied. SECTION 1. CREDIT FACILITY Subject to the terms and conditions of, and in reliance upon the representations and warranties made in this Agreement and the other Loan Documents, Agent and Lenders agree to make credit facilities of up to One Hundred and Fifty Million Dollars ($150,000,000.00) ("Total Revolving Credit Facility") available upon Borrower's request therefor, as follows: 1.1 Revolving Credit Loans. 1.1.1 Loans and Reserves. Each Lender agrees, severally, for so long as no Default or Event of Default exists, to make Revolving Credit Loans to Borrower from time to time until the Revolving Credit Maturity Date, as requested by Borrower in the manner set forth in subsection 3.1.1 hereof, up to a maximum principal amount at any time outstanding equal to such Lender's Pro Rata Percentage multiplied by the sum of (i) the Borrowing Base at such time minus (ii) the sum of the LC Amount and reserves, if any, established pursuant to this subsection 1.1.1. No Lender's portion of the Revolving Credit Loans shall at any time exceed its respective Pro Rata Share. Agent shall have the right to establish reserves in such amounts and with respect to the following matters, as Agent shall deem necessary or appropriate against the amount of Revolving Credit Loans which Borrower may otherwise request under this subsection 1.1.1: (i) sums chargeable against Borrower's Loan Account as Revolving Credit Loans under any section of this Agreement; (ii) amounts owing by Borrower to any Person to the extent secured by a Lien on, or trust over, any Property of Borrower (except for amounts secured by Liens permitted under subsections 8.2.5 (d) and (e)); and (iii) such other matters, events, conditions or contingencies as to which Agent reasonably determines in accordance with Agent's customary practices reserves should be established from time to time hereunder. 2 1.2 Use of Proceeds. The Revolving Credit Loans shall be used solely for the following purposes: (i) certain costs incurred in connection with Borrower's divestiture from its parent, (ii) the Borrower's working capital needs, in a manner consistent with the provisions of this Agreement and all applicable laws, and (iii) Permitted Acquisitions. Notwithstanding the foregoing, the Revolving Credit Loans may be used for acquisitions other than Permitted Acquisitions if such acquisitions are approved in advance in writing by the Majority Lenders. 1.3 Letters of Credit; LC Guaranties. Each Lender agrees, severally, that a letter of credit subfacility shall be made available to Borrower as part of the Total Revolving Credit Facility as set forth in this section. In order to implement this letter of credit subline, Agent agrees, for so long as no Default or Event of Default exists, and if requested by Borrower, to: (i) issue its, or cause to be issued by its Affiliate, standby Letters of Credit for the account of Borrower or (ii) execute LC Guaranties by which Agent or its Affiliate shall guaranty the payment or performance by Borrower of its reimbursement obligations with respect to standby Letters of Credit and standby letters of credit issued for Borrower's account by other Persons in support of Borrower's obligations (other than obligations for the repayment of Money Borrowed), provided that the LC Amount at any time shall not exceed the lesser of (i) Thirty Million Dollars ($30,000,000.00) and (ii) the Borrowing Base minus the sum of outstanding Revolving Credit Loans and reserves permitted by subsection 1.1.1 hereof, if any. No Letter of Credit or LC Guaranty may have an expiration date that is after the last day of the Original Term except to the extent that Borrower provides Agent, for the ratable benefit of the Lenders, at the time of and as a condition to the issuance thereof with collateral acceptable to Agent in the face amount thereof. Any amounts paid by Agent or Issuer under any LC Guaranty or in connection with any Letter of Credit shall be treated as Revolving Credit Loans, shall be secured by all of the Collateral and shall bear interest and be payable at the same rate and in the same manner as Revolving Credit Loans. Each Lender shall be directly and unconditionally obligated to Agent, according to its Pro Rata Percentage, to reimburse Agent, without setoff or deduction of any kind of nature, for honoring any drawing under any Letter of Credit or making any payment under any LC Guaranty (without regard to the occurrence of a Default or an Event of Default including, without limitation, following the commencement of any bankruptcy, reorganization, insolvency, liquidation or dissolution proceeding). The amount of Agent's payment (and the respective reimbursements of the Lenders to Agent, as applicable) shall automatically constitute a Revolving Credit Loan without regard to any borrowing condition herein and without any request, consent or other action of Borrower. 3 SECTION 2. INTEREST, FEES AND CHARGES 2.1 Interest. 2.1.1 Revolving Credit Interest: (a) Rate Options. At the time of each Revolving Credit Loan under the Revolving Credit Facility, and thereafter from time to time, Borrower shall have the right, subject to the terms and conditions of this Agreement, and provided no Default or Event of Default has occurred and is continuing, to designate to Agent in writing that all or a portion of the Revolving Credit Loans shall bear interest at either the (i) Revolving Credit LIBOR Rate or (ii) Revolving Credit Base Rate. Interest on each portion thereof shall accrue and be paid at the time and rate applicable to the respective option selected by Borrower or otherwise governing under the terms of this Agreement. If for any reason the Revolving Credit LIBOR Rate option is unavailable, the Revolving Credit Base Rate shall apply. (i) Base Rate Option: If Borrower desires to have the Revolving Credit Base Rate apply to a Loan being requested under the facility established pursuant to Section 1.1 hereof, a request for a Revolving Credit Base Rate Loan may be made in the manner specified in subsection 3.1.1(a). The rate of interest on Revolving Credit Base Rate Loans shall increase or decrease by an amount equal to any increase or decrease in the Base Rate effective as of the opening of business on the day that any such change in the Base Rate occurs. There shall be no minimum amount applicable to requests for a Revolving Credit Base Rate Loan. (ii) Revolving Credit LIBOR Rate Option: (A) Requests. Provided no Default or Event of Default has occurred and is continuing, and subject to the provisions of this subsection 2.1.1(a)(ii) hereof, if Borrower desires to have the Revolving Credit LIBOR Rate apply to all or a portion of the Revolving Credit Loans, Borrower shall give Agent a written irrevocable request no later than 11:00 A.M. Eastern time on the second (2nd) London Business Day prior to the requested borrowing date specifying (i) the date the Revolving Credit LIBOR Rate shall apply (which shall be a London Business Day), (ii) the LIBOR Interest Period, and (iii) the amount to be subject to the Revolving Credit LIBOR Rate provided that such amount shall be an integral multiple of One Million Dollars ($1,000,000.00). In no event may Borrower have outstanding at any time LIBOR Rate Loans with more than five (5) different LIBOR Interest Periods. (B) LIBOR Interest Periods. Revolving Credit LIBOR Rate Loans shall be selected by Borrower for a LIBOR Interest Period during 4 which the Revolving Credit LIBOR Rate is applicable; provided, however, that if the LIBOR Interest Period would otherwise end on a day which is not a London Business Day, such LIBOR Interest Period shall be extended to the next succeeding London Business Day as is the Bank's custom in the market to which such Revolving Credit LIBOR Rate Loan relates. All accrued and unpaid interest on a Revolving Credit LIBOR Rate Loan shall be paid in accordance with Section 3.2.2. No LIBOR Interest Period with respect to the Revolving Credit LIBOR Rate Loans may end after the Revolving Credit Maturity Date. Subject to all of the terms and conditions applicable to a request to convert all or a portion of the Revolving Credit Loans to a Revolving Credit LIBOR Rate Loan, Borrower may extend a Revolving Credit LIBOR Rate Loan as of the last day of the LIBOR Interest Period to a new Revolving Credit LIBOR Rate Loan. If Borrower fails to notify Agent of the LIBOR Interest Period for a subsequent Revolving Credit LIBOR Rate Loan at least two (2) London Business Days prior to the last day of the then current LIBOR Interest Period of an outstanding Revolving Credit LIBOR Rate Loan, or if an Event of Default has occurred and is outstanding two (2) London Business Days prior to the last day of the then current LIBOR Interest Period of any outstanding Revolving Credit LIBOR Rate Loan, then such outstanding Revolving Credit LIBOR Rate Loan shall, at the end of the applicable LIBOR Interest Period, accrue interest as a Revolving Credit Base Rate Loan as provided in subsection 2.1.1(i) hereof. (C) Adjustments. The Adjusted LIBOR Rate may be automatically adjusted by Agent on a prospective basis to take into account the additional or increased cost to any Lender of maintaining any necessary reserves for Eurodollar deposits or increased costs due to changes in applicable United States law or regulation or the interpretation thereof occurring subsequent to the commencement of the then applicable LIBOR Interest Period, including but not limited to changes in tax laws (except changes of general applicability in corporate income tax laws) and changes in the reserve requirements imposed by the Board of Governors of the Federal Reserve System (or any successor or other applicable governing body), that increase the cost to any Lender of funding the Revolving Credit LIBOR Rate Loan. Agent shall promptly give Borrower notice of such a determination and adjustment, which determination shall be prima facie evidence of the correctness of the fact and the amount of such adjustment. (D) Unavailability. If Borrower shall have requested the rate based on the Adjusted LIBOR Rate in accordance with this subsection 2.1.1(a)(ii) and Agent shall have determined, in good faith, that Eurodollar deposits equal to the amount of the principal of the requested Revolving Credit LIBOR Rate Loan and for the LIBOR Interest Period specified are unavailable, or that the rate based on the Adjusted LIBOR Rate will not adequately and fairly reflect the cost of the Adjusted LIBOR Rate applicable to the specified LIBOR Interest Period, of making or maintaining the principal amount of the requested Revolving Credit LIBOR Rate Loan during the LIBOR Interest Period specified, 5 or that by reason of circumstances affecting Eurodollar markets, adequate means do not exist for ascertaining the rate based on the Adjusted LIBOR Rate applicable to the specified LIBOR Interest Period, Agent shall promptly give notice of such determination to Borrower that the rate based on the Adjusted LIBOR Rate is not available. A determination, in good faith, by Agent hereunder shall be prima facie evidence of the correctness of the fact and amount of such additional costs or unavailability. Upon such a determination, (i) the obligation to convert to, or maintain a Revolving Credit LIBOR Rate Loan at the rate based on the Adjusted LIBOR Rate shall be suspended until Agent shall have notified Borrower that such conditions shall have ceased to exist, and (ii) the portion of the Revolving Credit Loans subject to the request or requested conversion shall accrue interest at the Revolving Credit Base Rate. 2.1.2 Default Rate of Interest. Upon the occurrence and during the continuation of an Event of Default (i) the principal amount of all Loans shall bear interest at a rate per annum equal to two (2) percentage points above the interest rate otherwise applicable thereto (the "Default Rate") and (ii) the Letters of Credit and LC Guaranty Fee referred to in Section 2.4 hereof shall automatically increase to three percent (3%) per annum. 2.1.3 Maximum Interest. In no event whatsoever shall the aggregate of all amounts deemed interest hereunder or under any of the other Loan Documents and charged or collected pursuant to the terms of this Agreement or pursuant to any of the other Loan Documents exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. If any provisions of this Agreement or any of the other Loan Documents are in contravention of any such law, such provisions shall be deemed amended to conform thereto. 2.2 Computation of Interest and Fees. Interest and Letter of Credit fees and unused Line Fees, termination charges and collection charges hereunder shall be calculated daily and shall be computed on the actual number of days elapsed over a year of 360 days. For the purpose of computing interest hereunder, all items of payment received by Agent shall be deemed applied by Agent on account of the Obligations (subject to final payment of such items) on the Business Day of receipt by Agent (determined in accordance with Section 3.4 hereof) of fully collected funds, including fully collected funds received from the Dominion Account. 2.3 Commitment Fee. Borrower shall pay to Agent the commitment fee provided for in the Fee Letter dated January 19, 2000 among Agent, the Company and OHS, which shall be fully earned and non-refundable and payable on the Closing Date. 2.4 Letter of Credit and LC Guaranty Fees. Borrower shall pay to Agent, for the ratable benefit of Lenders, for standby Letters of Credit and LC Guaranties, a fee equal to 2.25% per annum of the aggregate face amount of such Letters of Credit and LC Guaranties outstanding from time to time during the term of this Agreement, plus all normal and customary fees and charges associated with the issuance, amendment, extension, cancellation and administration thereof, for the account of Agent, which all such fees and charges shall be deemed fully earned 6 upon issuance of each such Letter of Credit or LC Guaranty. The fee paid to Agent for the ratable benefit of the Lenders shall be due and payable in full upon the issuance of such Letter of Credit or execution of such LC Guaranty and, all other fees and charges associated with such Letter of Credit or LC guaranty shall be due and payable as required, first on the date of issuance or execution and thereafter on the first Business Day of each month. The fees and charges under this Section shall not be subject to rebate or proration upon the termination of this Agreement for any reason. 2.5 Unused Line Fee. Borrower shall pay to Agent, for the ratable benefit of Lenders, a fee equal to .375% per annum of the average daily difference during any calendar month between (i) the Total Revolving Credit Facility and (ii) the sum of the principal balance of all outstanding Revolving Credit Loans and the LC Amount. The Unused Line Fee shall be payable quarterly in arrears on the first (1st) day of each quarter. 2.6 Administrative Agent Fee. Borrower shall pay Agent the annual Administrative Agent Fee provided for in the fee letter dated January 19, 2000 among Agent, the Company and OHS, which fee shall be earned and nonrefundable and payable on the Closing Date and on each anniversary thereof. 2.7 Inspection, Audit, Examination and Appraisal Expenses. Borrower shall pay to Agent, upon demand, in connection with all inspections, audits, examinations and appraisals of Borrower's books and records and such other matters as Agent shall deem reasonably appropriate (including matters set forth under subsection 8.1.1), all fees, costs and expenses reasonably incurred by Agent in connection with such inspections, audits, examinations and appraisals based upon standard rates (as determined by Agent and disclosed to Borrower). Absent the occurrence of an Event of Default, such fees shall not exceed $75,000 per annum. 2.8 Reimbursement of Expenses. If, at any time or times regardless of whether or not an Event of Default then exists, Agent incurs legal expenses or any other costs or out-of-pocket expenses in connection with (i) the negotiation and preparation of this Agreement or any of the other Loan Documents, or any amendment of or modification of this Agreement or any of the other Loan Documents, (ii) the administration of this Agreement or any of the other Loan Documents and the transactions contemplated hereby and thereby; (iii) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Agent, Borrower or other Person) in any way relating to the Collateral, this Agreement or any of the other Loan Documents or Borrower's affairs; (iv) any attempt to enforce any rights of Agent and/or any Lender against any Obligor or any other Person which may be obligated to Agent and/or any Lender by virtue of this Agreement or any of the other Loan Documents, including, without limitation, the Account Debtors; or (v) any attempt to inspect, verify, protect, preserve, restore, collect, sell, liquidate or otherwise dispose of or realize upon the Collateral; then all such reasonable legal expenses and other costs and out of pocket expenses of Agent shall be charged to Borrower. All amounts chargeable to Borrower under this Section 2.8 shall be Obligations secured by all of the Collateral, shall be payable on demand to Agent and shall bear interest from the date such demand is made until paid in full at the Revolving Credit Base Rate from time to time. Borrower 7 shall also reimburse Agent for expenses incurred by Agent in its administration of the Collateral to the extent and in the manner provided in Section 6 hereof. 2.9 Bank Charges. Borrower shall pay to Agent, on demand, any and all fees, costs or expenses which Agent pays to a bank or other similar institution arising out of or in connection with (i) the forwarding to Borrower or any other Person on behalf of Borrower or by Agent of proceeds of Loans made by Agent and/or any Lender to Borrower pursuant to this Agreement and (ii) the depositing for collection, by Agent, of any check or item of payment received or delivered to Agent and/or any Lender on account of the Obligations. 2.10 Indemnity re: LIBOR. Borrower hereby indemnifies Agent and each Lender and holds Agent and each Lender harmless from and against any and all out-of-pocket losses or expenses that Agent and/or any Lender may sustain or incur as a consequence of any prepayment or any Default by Borrower in the payment of the principal of or interest on any LIBOR Rate Loan or failure by Borrower to complete a borrowing of, a prepayment of, or conversion of or to a LIBOR Rate Loan after notice thereof has been given by Borrower or such rate would otherwise be applicable pursuant to Section 2.1 hereof, including (but not limited to) any interest payable by Agent and/or any Lender to lenders of funds obtained by Agent and/or such Lenders in order to make or maintain the LIBOR Rate Loans hereunder, and any other out-of-pocket loss or expense incurred by Agent and/or any Lender by reason of the liquidation or reemployment of deposits or other funds acquired by Agent and/or such Lenders to make, continue, convert into or maintain, a LIBOR Rate Loan. SECTION 3. LOAN ADMINISTRATION. 3.1 Manner of Borrowing Revolving Credit Loans. Borrowings under the credit facility established pursuant to Section 1.1 hereof shall be as follows: 3.1.1 Loan Requests. (a) A request for a Revolving Credit Loan shall be made, or shall be deemed to be made, in the following manner: (i) Borrower, through any one or more of them, may give Agent notice of its intention to borrow, in which notice Borrower shall specify the amount of the proposed borrowing, the rate option and the proposed borrowing date, no later than 12:00 noon, Eastern time, on the proposed borrowing date for all Revolving Credit Base Rate Loans or, for a Revolving Credit LIBOR Rate Loan, no later than 11:00 A.M. Eastern time on the second (2nd) London Business Day prior to the requested borrowing date in accordance with subsection 2.1.1(a)(ii)(A), provided, however, that no such request may be made at a time when there exists an Event of Default; and (ii) the becoming due of any amount required to be paid under this Agreement or any of the other Loan Documents, whether as interest or for any other Obligation, shall be deemed irrevocably to be a request for a Revolving Credit Loan on the due date in the amount required to pay such interest or other Obligation. As an accommodation to Borrower, Agent may permit telephonic requests for Revolving Credit Loans and electronic transmittal of instructions, authorizations, agreements or reports to Agent by Borrower. Unless Borrower specifically directs Agent in writing not to accept or act upon telephonic or electronic 8 communications from Borrower, Agent shall have no liability to Borrower for any loss or damage suffered by Borrower as a result of Agent's honoring of any requests, execution of any instructions, authorizations or agreements or reliance on any reports communicated to it telephonically or electronically and purporting to have been sent to Agent by Borrower and Agent shall have no duty to verify the origin of any such communication or the authority of the person sending it, except to confirm the name of the Specified Officer. (b) Upon receiving a request for a Revolving Credit Loan in accordance with subsection 3.1.1(a)(i) above or upon Borrower being deemed to have made a request for a Revolving Credit Loan under subsection 3.1.1(a)(ii) above, by 12:00 noon, Eastern time, or as soon as is reasonably practicable thereafter, Agent shall notify all Lenders of the request. Each Lender shall advance its applicable Pro Rata Percentage of the requested Revolving Credit Loan to Agent by remitting immediately available federal funds to Agent pursuant to Agent's instructions prior to 2:00 P.M. Eastern time on the date of the applicable Revolving Credit Loan regardless of any failure by any other Lender to do so. Subject to the satisfaction of the terms and conditions hereof, and receipt by Agent of required funds from the other Lenders, Agent shall make the requested Revolving Credit Loan available to Borrower, in accordance with subsection 3.1.2 as soon as is reasonably practicable thereafter on the day the requested Revolving Credit Loan is to be made. In lieu of the foregoing, Agent may, in its discretion, fund the Pro Rata Percentage of such Revolving Credit Loan on behalf of any one or more Lenders (unconditionally and absolutely obligating such affected Lender to reimburse Agent in full on demand without deduction or setoffs for its portion of such Revolving Credit Loan, so long as Agent reasonably believed at the time such Revolving Credit Loan was made that it was made, in all material respects, in compliance with this Agreement) with a settlement of the Pro Rata Shares of Lenders on the following Business Day or under such other settlement procedures as Agent may establish from time to time. 3.1.2 Disbursement. Borrower hereby irrevocably authorizes Agent to disburse the proceeds of each Revolving Credit Loan requested, or deemed to be requested, pursuant to this subsection 3.1.2 as follows: (i) the proceeds of each Revolving Credit Loan requested under subsection 3.1.1(i) shall be disbursed by Agent in lawful money of the United States of America in immediately available funds, in the case of the initial borrowing, in accordance with the terms of the written disbursement letter from Borrower, and in the case of each subsequent borrowing, by wire transfer to such bank account as may be agreed upon by Borrower and Agent from time to time or elsewhere if pursuant to a written direction from Borrower; and (ii) the proceeds of each Revolving Credit Loan requested under subsection 3.1.1(ii) shall be disbursed by Agent by way of direct payment of the relevant interest or other Obligation. 3.1.3 Authorization. Borrower hereby irrevocably authorizes Agent, in Agent's sole discretion, to advance to Borrower, and to charge to Borrower's Loan Account hereunder as a Revolving Credit Loan, a sum sufficient to pay all interest accrued on the Obligations during the immediately preceding month and to pay all costs, fees and expenses at any time owed by Borrower to Agent and/or any Lender hereunder. 9 3.1.4 Specified Officer. All requests for a Revolving Credit Loan and elections of interest rate shall be made by Borrower through a Specified Officer, and Borrower agrees that any request so made by a Specified Officer shall be deemed made by Borrower. 3.2 Payments. Except where evidenced by notes or other instruments issued or made by Borrower to Lenders specifically containing payment provisions which are in conflict with this Section 3.2 (in which event the conflicting provisions of said notes or other instruments shall govern and control) the Obligations shall be payable as follows: 3.2.1 Principal. Principal payable on account of Revolving Credit Loans may be pre-paid at any time, subject to the requirements of Section 2.10, and shall be payable by Borrower to Lenders immediately upon the earliest of (i) except as otherwise provided in this Agreement, and provided that a Dominion Triggered Period is in effect, the receipt by Agent, any Lender or Borrower of any proceeds of any of the Collateral, to the extent of said proceeds, (ii) the occurrence of an Event of Default in consequence of which Agent elects to accelerate the maturity and payment of the Obligations, or (iii) termination of this Agreement pursuant to Section 4 hereof; provided, however, that if an Overadvance shall exist at any time, Borrower shall, on demand, repay the Overadvance. 3.2.2 Interest. Interest accrued on the Revolving Credit Loans shall be due and payable on the earliest of (i) the first calendar day of each month (for the immediately preceding month), computed through the last calendar day of the preceding month, (ii) the occurrence of an Event of Default in consequence of which Agent elects to accelerate the maturity and payment of the Obligations or (iii) termination of this Agreement pursuant to Section 4 hereof. 3.2.3 Costs, Fees and Charges. Costs, fees and charges payable pursuant to this Agreement shall be payable by Borrower as and when provided in Section 2 hereof or in the Fee Letter dated January 19, 2000 among Agent the Company and OHS, to Agent or to any other Person designated by Agent in writing. 3.2.4 Other Obligations. The balance of the Obligations requiring the payment of money, if any, shall be payable by Borrower to Agent and/or Lenders as and when provided in this Agreement, the Other Agreements or the Security Documents, or on demand, whichever is later. 3.3 Mandatory Prepayments. 3.3.1 Proceeds of Loss, Destruction or Condemnation of Collateral. If any of the Collateral is lost or destroyed or taken by condemnation, Borrower shall pay to Agent, unless otherwise agreed by Agent, as and when received by Borrower and as a mandatory prepayment of the Revolving Credit Loans in the sole discretion of Agent, a sum equal to the Net Available Proceeds received by Borrower from such loss, destruction or condemnation. 3.3.2 Intentionally Omitted. 10 3.3.3 LIBOR Rate Loans. Notwithstanding any other provision contained herein, no portion of the LIBOR Rate Loans may be repaid during a LIBOR Interest Period unless Borrower first satisfies in full its obligations under Section 2.10 arising from such repayment. 3.4 Application of Payments and Collections. All items of payment received by Agent by 12:00 noon, Eastern time, on any Business Day shall be deemed received on that Business Day. All items of payment received after 12:00 noon, Eastern time, on any Business Day shall be deemed received on the following Business Day. All amounts paid in accordance with subsections 3.1.1(a)(ii) and 3.1.2(ii) shall be deemed received prior to 12:00 noon, Eastern time, on the Business Day upon which such funds are disbursed by the Agent under subsection 3.1.2(ii). Borrower irrevocably waives the right to direct the application of any and all payments and collections at any time or times hereafter received by Agent from or on behalf of Borrower, and Borrower does hereby irrevocably agree that Agent shall have the continuing exclusive right to apply and reapply any and all such payments and collections received at any time or times hereafter by Agent or its agent against the Obligations, in such manner as Agent may deem advisable, notwithstanding any entry by Agent upon any of its books and records. If as the result of collections of Accounts as authorized by subsection 6.2.6 hereof a credit balance exists in the Loan Account, such credit balance shall not accrue interest in favor of Borrower, but shall be available to Borrower at any time or times for so long as no Default or Event of Default exists. Agent may, at its option, offset such credit balance against any of the Obligations upon and after the occurrence of an Event of Default. 3.5 All Loans to Constitute One Obligation. The Loans shall constitute one general Obligation of Borrower, and shall be secured by Agent's Lien, for the ratable benefit of Lenders, upon all of the Collateral. 3.6 Loan Account. Agent shall enter all Loans as debits to the Loan Account and shall also record in the Loan Account all payments made by Borrower on any Obligations and all proceeds of Collateral which are finally paid to Lenders, and may record therein, in accordance with customary accounting practice, other debits and credits, including interest and all charges and expenses properly chargeable to Borrower. 3.7 Statements of Account. Agent will account to Borrower monthly with a statement of Loans, charges and payments made pursuant to this Agreement, and such account rendered by Agent shall be deemed final, binding and conclusive upon Borrower unless Agent is notified by Borrower in writing to the contrary within sixty (60) days of the date each accounting is mailed to Borrower. Such notice shall only be deemed an objection to those items specifically objected to therein. SECTION 4. TERM AND TERMINATION 4.1 Term of Agreement. Subject to Lenders' right to cease making Loans to Borrower upon or after the occurrence of any Default or Event of Default, this Agreement shall 11 be in effect for a period through and including March 10, 2004 (the "Original Term"), unless terminated as provided in Section 4.2 hereof. 4.2 Termination. 4.2.1 Termination by Agent. This Agreement shall terminate as of the last day of the Original Term and Agent may terminate this Agreement upon or after the occurrence of an Event of Default according to the provisions of Section 10 hereof. 4.2.2 Termination by Borrower. Upon at least ten (10) days prior written notice to Agent (which shall state a termination date), Borrower may, at its option, terminate this Agreement; provided, however, no such termination shall be effective until Borrower has paid all of the Obligations in immediately available funds and all Letters of Credit and LC Guaranties have expired or have been collateralized to Agent's reasonable satisfaction. Any notice of termination given by Borrower shall be irrevocable unless all Lenders otherwise agree in writing, and neither Agent nor Lenders shall have any obligation to make any Loans or issue or procure any Letters of Credit or LC Guaranties on or after the termination date stated in such notice. Borrower may elect to terminate this Agreement in its entirety only. No section of this Agreement or type of Loan available hereunder may be terminated singly. 4.2.3 Termination Charges. At the effective date of termination of this Agreement for any reason, Borrower shall pay to Agent, for the ratable benefit of Lenders, in addition to the then outstanding principal, accrued interest and other charges owing under the terms of this Agreement and any of the other Loan Documents as liquidated damages for the loss of the bargain and not as a penalty, an amount equal to one percent (1%) of the Total Revolving Credit Facility if termination occurs during the first twelve (12) month period of the Original Term; and one half of one percent (1/2%) of the Total Revolving Credit Facility if termination occurs during the second twelve (12) month period of the Original Term. No amount shall be due under this subsection if the Total Revolving Credit Facility is terminated for any reason after the second twelve (12) month period of the Original Term. 4.2.4 Effect of Termination. All of the Obligations shall be immediately due and payable upon the termination date stated in any notice of termination of this Agreement. All undertakings, agreements, covenants, warranties and representations of Borrower contained in the Loan Documents shall survive any such termination and Agent shall retain its Liens, for the ratable benefit of Lenders, upon the Collateral and Agent and Lenders shall retain all of their rights and remedies under the Loan Documents notwithstanding such termination until Borrower has paid the Obligations, in full, in immediately available funds, together with the applicable liquidated damages pursuant to subsection 4.2.3, if any. Notwithstanding the payment in full of the Obligations, Agent shall not be required to terminate its Liens upon the Collateral unless, with respect to any loss or damage Agent may incur as a result of dishonored checks or other items of payment received by Agent and/or any Lender from Borrower or any Account Debtor and applied to the Obligations, Agent shall, at its option, (i) have received a written agreement, executed by Borrower and by any Person whose loans or other advances to Borrower are used in whole or in part to satisfy the Obligations, indemnifying Agent and Lenders from any such loss 12 or damage; or (ii) have retained such monetary reserves and Liens upon the Collateral for such period of time as Agent, in its reasonable discretion, may deem necessary to protect Agent and Lenders from any such loss or damage. SECTION 5. SECURITY INTERESTS 5.1 Security Interest in Collateral. To secure the prompt payment and performance to Lenders of the Obligations and satisfaction by Borrower of all covenants and undertakings contained in the Loan Documents, Borrower hereby grants to Agent, for the ratable benefit of Lenders, a continuing security interest in and Lien upon all of Borrower's Property (other than Equipment and fixtures and any General Intangibles or insurance proceeds to the extent related to Equipment and fixtures), whether now owned or existing or hereafter created, acquired or arising and wherever located, including: (i) Accounts; (ii) Inventory; (iii) Chattel Paper; (iv) Instruments; (v) Documents; (vi) General Intangibles; (vii) Deposit Accounts; (viii) Investment Property (provided that the pledge of and creation of a security interest in and Lien upon any capital stock issued by a corporation organized in a jurisdiction outside the United States shall be limited to Sixty-Five Percent (65%) of such capital stock); (ix) All monies and other Property (other than Equipment and fixtures and any General Intangibles or insurance proceeds to the extent related to Equipment and fixtures) of any kind now or at any time or times hereafter in the possession or under the control of Agent or any Lender or a bailee or Affiliate of Agent or any Lender; (x) All Commercial Lockboxes, all Government Lockboxes, all Concentration Account(s), all Dominion Accounts and other accounts into which any of the Collections are deposited, all funds received thereby or deposited therein, and any checks or instruments from time to time representing or evidencing the same; (xi) All Real Estate; 13 (xii) All accessions to, substitutions for and all replacements, products and cash and non-cash proceeds of (i) through (xi) above, including, without limitation, proceeds of and unearned premiums with respect to insurance policies insuring any of the Collateral; and (xiii) All books and records (including, without limitation, customer lists, credit files, computer programs, print-outs, and other computer materials and records) of Borrower pertaining to any of (i) through (xii) above. The security interest in and Lien upon the Collateral granted to Agent, for the ratable benefit of the Lenders under this Section, shall be prior to any other Lien or security interest in the Collateral, except to the extent any such Collateral is subject to a Purchase Money Lien, a Capitalized Lease Obligation or a Lien as shown on Schedule 8.2.5 hereof, in which case, the security interest and Lien granted to Agent, for the ratable benefit of the Lenders under this Section, in any such Property shall be junior only to such Purchase Money Lien, Lien in connection with a Capitalized Lease Obligation or existing scheduled Lien (and any extension, renewal or replacement thereof) and shall be senior to all other Liens on any such Property. Notwithstanding anything else in this Agreement, the security interest and Lien granted to Agent, for the ratable benefit of the Lenders under this Section, shall be limited to the extent that a grant of a security interest in and Lien on any Property of the Borrower would violate any applicable legal requirement, including any applicable patient confidentiality restrictions. 5.2 Lien Perfection; Further Assurances. Borrower, at Agent's request, shall execute such UCC-1 financing statements as are required by the Code and such other instruments, assignments or documents as are necessary to perfect Agent's Lien upon any of the Collateral and shall take such other action as may be required to perfect or to continue the perfection of Agent's Lien upon the Collateral. Notwithstanding the foregoing, (i) with respect to any Real Estate in which Borrower has a fee interest, whether now owned or hereafter acquired, Borrower, at Agent's request, shall execute any mortgages, instruments, assignments and documents and shall take any other actions as Agent may request in order to perfect Agent's Lien on any such Real Estate and (ii) with respect to any leasehold interest of Borrower, whether now owned or hereafter acquired, Borrower, at the reasonable request of the Majority Lenders, shall execute any mortgages, instruments, assignments and documents and shall take any other actions as Majority Lenders may request in order to perfect Agent's Lien on any such leasehold interest. Borrower shall give Agent at least thirty (30) days prior written notice before (i) acquiring any fee interest in any Real Estate or (ii) acquiring any leasehold interest in any Real Estate with annual payments due under the lease greater than Five Hundred Thousand Dollars ($500,000.00) and a lease term longer than five (5) years. Agent acknowledges that Agent's Lien in any Real Estate will not be perfected until such time as all mortgages, instruments, assignments, documents and/or other actions as may be required in the jurisdiction where the Real Estate is located are executed, recorded and/or taken. Unless prohibited by applicable law, Borrower hereby authorizes Agent to execute and file any such financing statement, instruments, assignments or documents on Borrower's behalf. The parties agree that a carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement and may be 14 filed in any appropriate office in lieu thereof. At Agent's request, Borrower shall also promptly execute or cause to be executed and shall deliver to Agent any and all documents, instruments and agreements deemed necessary by Agent to give effect to or carry out the terms or intent of the Loan Documents, including landlord's waivers as reasonably requested by Agent. SECTION 6. COLLATERAL ADMINISTRATION 6.1 General 6.1.1 Location of Inventory. All Inventory, other than Inventory in transit: (i) will at all times be kept by Borrower at one or more of the business locations set forth in Exhibit 6.1.1 hereto and at such new locations which Borrower may hereafter establish, provided that, Borrower shall provide Agent, not less than thirty (30) days prior to delivery of any Collateral to such new location, with written notice thereof and, provided further, that prior to delivery of any Collateral to such new location Borrower will take all actions relative to such location as Agent may reasonably require under Section 5.2 hereof, and (ii) shall not, without at least thirty (30) days prior written notice having been given to Agent, be otherwise moved from any such location set forth on Exhibit 6.1.1 or new location except, prior to an Event of Default and Agent's acceleration of the maturity of the Obligations in consequence thereof, for (A) sales or rental of Inventory in the ordinary course of business, and (B) removals in connection with returns thereof to vendors. Except as shown on Exhibit 6.1.1, no Inventory is stored with a bailee, warehouseman or similar party, nor is any Inventory consigned to any Person. Notwithstanding any of the forgoing, Borrower may (x) keep inventory at business locations not listed on Exhibits 6.1.1 and (y) store Inventory or maintain consignment Inventory with a third person at a site not listed on Exhibit 6.1.1 provided that the aggregate fair market value of the Inventory kept, stored or maintained at any such individual business location or site may not exceed Fifty Thousand Dollars ($50,000.00). 6.1.2 Insurance of Collateral. Borrower shall maintain and pay for insurance upon all Collateral wherever located and with respect to Borrower's business, covering casualty, hazard, public liability and such other risks in such amounts and with insurance companies and such deductibles as would be maintained by a prudent operator in the same business as Borrower and as are reasonably satisfactory to Agent. Borrower shall deliver certified copies of such policies to Agent with satisfactory lender's loss payable endorsements, naming Agent, for the ratable benefit of Lenders, as lender's loss payee, or assignee and naming Agent and each of the Lenders as additional insured or mortgagee, as appropriate. Each policy of insurance or endorsement shall contain a clause requiring the insurer to give not less than thirty (30) days prior written notice to Agent in the event of cancellation of the policy for any reason whatsoever and a clause specifying that the interests of Agent and the Lenders shall not be impaired or invalidated by any act or neglect of Borrower or the owner of the Collateral or by the occupation of the premises for purposes more hazardous than are permitted by said policy. If Borrower fails to provide and pay for such insurance, Agent may, at its option, but shall not be required to, procure the same and charge Borrower therefor. Borrower agrees to deliver to Agent, promptly as rendered, true copies of all reports made in any reporting forms to insurance companies. 15 6.1.3 Protection of Inventory. All expenses of protecting, storing, warehousing, insuring, handling, maintaining and shipping the Inventory, any and all excise, property, sales, and use taxes imposed by any state, federal, or local authority on any of the Inventory or in respect of the sale thereof shall be borne and paid by Borrower. If Borrower fails to promptly pay any portion thereof when due, Agent may, at its option, but shall not be required to, pay the same and charge Borrower therefor. Neither Agent nor any Lender shall be liable or responsible in any way for the safekeeping of any of the Inventory or for any loss or damage thereto (except for reasonable care in the custody thereof while any Inventory is in Agent's or any Lender's actual possession) or for any diminution in the value thereof, or for any act or default of any warehouseman, carrier, forwarding agency, or other person whomsoever, but the same shall be at Borrower's sole risk. 6.2 Administration of Accounts. 6.2.1 Records, Schedules and Assignments of Accounts. Borrower shall keep accurate and complete records of its Accounts and all payments and collections thereon and shall submit to Agent on such periodic basis as Agent shall reasonably request a sales and collections report for the preceding period, in form satisfactory to Agent. On or before the thirtieth (30th) day of each month from and after the date hereof, Borrower shall deliver to Agent, in form reasonably acceptable to Agent, a detailed aged trial balance of all Accounts existing as of the last day of the preceding month, specifying the names, addresses and book value for each Account Debtor obligated on an Account so listed ("Schedule of Accounts"), and, upon Agent's request therefor, copies of proof of delivery of inventory and the original copy of all documents, including, without limitation, repayment histories and present status reports relating to the Accounts so scheduled and such other matters and information relating to the status of then existing Accounts as Agent shall reasonably request. In addition, if at any time any Account with a book value in excess of Five Hundred Thousand Dollars ($500,000.00) that was represented as an Eligible Account on the immediately preceding Borrowing Base Certificate becomes ineligible because it falls within one of the specified categories of ineligibility set forth in the definition of Eligible Accounts, Borrower shall notify Agent of such occurrence no later than the third (3rd) Business Day following such occurrence and the Borrowing Base shall thereupon be adjusted to reflect such occurrence. If requested by Agent, Borrower shall execute and deliver to Agent, for the ratable benefit of Lenders, formal written assignments of all of its Accounts weekly or daily, which shall include all Accounts that have been created since the date of the last assignment, together with copies of invoices or invoice registers related thereto. 6.2.2 Discounts, Allowances, Disputes. If Borrower grants any discounts, allowances or credits that are not reflected in the book value for the Account involved, Borrower shall report such discounts, allowances or credits, as the case may be, to Agent as part of the next required Schedule of Accounts. If any amounts due and owing in excess of Two Hundred and Fifty Thousand Dollars ($250,000.00) become disputed between Borrower and any Account Debtor (other than refusals to pay based on technical discrepancies which are curable in the ordinary course of business), and such Account was represented as an Eligible Account on the immediately preceding Borrowing Base Certificate, Borrower shall provide Agent with written notice thereof at the time of submission of the next Schedule of Accounts, explaining in detail the reason for the dispute, 16 all claims related thereto and the amount in controversy. Upon and after the occurrence and during the continuance of an Event of Default, Agent shall have the right to settle or adjust all disputes and claims, other than disputes or claims arising solely on a technical basis in Borrower's ordinary course of business, directly with the Account Debtor and to compromise the amount or extend the time for payment of the Accounts upon such terms and conditions as Agent may deem advisable, and to charge the deficiencies, costs and expenses thereof, including attorney's fees, to Borrower. 6.2.3 Taxes. If an Account includes a charge for any tax payable to any governmental taxing authority, Agent is authorized, in its sole discretion, to pay the amount thereof to the proper taxing authority for the account of Borrower and to charge Borrower therefor, provided, however, that Agent shall not be liable for any taxes to any governmental taxing authority that may be due by Borrower. 6.2.4 Account Verification. Whether or not an Event of Default has occurred, any of Agent's officers, employees or agents shall have the right in the name of Agent, any designee of Agent or Borrower, to verify the validity, amount or any other matter relating to any Accounts by mail, telephone, telegraph or otherwise, during regular business hours and consistent with Agent's customary practices. Borrower shall cooperate fully with Agent in an effort to facilitate and promptly conclude any such verification process. 6.2.5 Maintenance of Dominion Account. Consistent with Medicare and Medicaid regulations, Borrower shall maintain Dominion Account(s) pursuant to arrangements reasonably acceptable to Agent with such bank(s) as may be selected by Borrower and be acceptable to Agent. If at any time, there exists less than Sixty Million Dollars ($60,000,000.00) in Availability and/or the principal balance of the Loans exceeds Thirty Five Million Dollars ($35,000,000.00) (a "Triggering Event"), Agent shall have the right, which right shall be exercised in accordance with Medicare and Medicaid regulations, to give notice (a "Trigger Effectiveness Notice") to any Concentration Bank(s) that the funds of the Borrower in any Concentration Account(s) shall thereafter be swept daily from such accounts into the Dominion Account(s). Borrower shall subject to and consistent with Medicare and Medicaid regulations issue to any Concentration Bank(s) an irrevocable letter of instruction directing such Concentration Bank(s) to act in accordance with such notice from Agent, and Borrower shall also issue to any bank at which the Dominion Account(s) is maintained an irrevocable letter of instruction directing such bank to deposit all payments or other remittances received by such bank to the Dominion Account(s) for application on account of the Obligations. All funds deposited in the Dominion Account shall automatically be applied to the Obligations as of the date good funds are deposited in the Dominion Account, provided that such good funds are deposited in the Dominion Account by 12:00 noon, Eastern time, or, if such good funds are deposited in the Dominion Account after 12:00 noon, Eastern time, on the following Business Day. Agent shall have this right upon both the initial and any subsequent occurrence of a Triggering Event. Except with respect to Government Accounts, all funds deposited in the Dominion Account shall immediately become the property of Agent, for the ratable benefit of Lenders, and Borrower shall obtain the agreement by such banks in favor of Agent to waive any offset rights against the funds so deposited. Agent assumes no responsibility for such arrangement, including, without limitation, any claim of accord and satisfaction or 17 release with respect to deposits accepted by any bank thereunder. If at any time after the occurrence of a Triggering Event, Availability of more than Sixty Million Dollars ($60,000,000.00) shall exist and the principal balance of the Loans shall be less than Thirty-Five Million Dollars ($35,000,000.00), and provided that no Event of Default has occurred and remains outstanding, Borrower may request that Agent issue instructions (a "Trigger Rescission Notice") to any Concentration Bank(s) to cease the daily sweep of Borrower's funds, and Agent shall issue such instructions to such Concentration Bank(s). The time period beginning on the date upon which Agent shall issue a Trigger Effectiveness Notice and ending on the date upon which Agent shall issue a Trigger Rescission Notice shall be known as a "Dominion Triggered Period." 6.2.6 Collection of Accounts, Proceeds of Collateral. To expedite collection, Borrower shall use commercially reasonable efforts to make collection of its Accounts. Borrower covenants that it shall direct all its Account Debtors to remit all payments with respect to any and all Accounts to the Commercial Lockboxes or the Government Lockboxes, as applicable, and that any and all remittances received by Borrower with respect to any and all Accounts shall be immediately deposited in kind in the Commercial Lockbox(es) and the Government Lockbox(es), as applicable. Borrower covenants that it shall cause all funds in all Lockbox Accounts to be transferred to Borrower's Concentration Account(s) on a daily basis, provided that any funds which are deposited into the Lockbox Accounts after the time of the daily transfer will be transferred into the Concentration Account as of the next Business Day. Agent shall have the right during any Dominion Triggered Period to issue notices ("Lockbox Trigger Notices") to the Lockbox Banks instructing such Lockbox Banks that until instructions to the contrary are received by the Lockbox Banks from Agent, all funds deposited in the Lockbox Accounts shall automatically be transferred by the Lockbox Banks to the Concentration Account(s) and Borrower shall have no direct access to the funds in such Lockbox Accounts subject to and consistent with Medicare and Medicaid regulations. Borrower shall cooperate with Agent in issuing such notices, which cooperation shall include, without limitation providing to Agent (upon Agent's request) a complete and correct list of all of Borrower's Lockbox Accounts and Lockbox Banks and executing or counter signing any Lockbox Trigger Notices in form reasonably acceptable to Borrower as Agent may request. Upon the ending of any Dominion Triggered Period, Borrower may request that Agent issue instructions to the Lockbox Banks canceling the instructions in the Lockbox Trigger Notices and Agent shall issue such instructions to the Lockbox Banks. At all times during which a Dominion Triggered Period is in effect, and to the extent consistent with Medicare and Medicaid regulations, all remittances received by Borrower with respect to Accounts, together with the proceeds of any other Collateral, shall be held as Lender's property by Borrower as trustee of an express trust for Lenders' ratable benefit and Borrower shall immediately deposit same in kind in the Commercial Lockboxes and the Government Lockboxes, as applicable. To the extent consistent with Medicare and Medicaid regulations, Agent retains the right at all times after the occurrence and during the continuance of an Event of Default to notify Account Debtors that Accounts have been assigned to Agent, for the ratable benefit of Lenders, and to collect Accounts directly in its own name and to charge the collection costs and expenses, including attorneys' fees, to Borrower. 18 6.3 Administration of Inventory. 6.31. Records and Reports of Inventory. Borrower shall keep accurate and complete records of its Inventory. Borrower shall furnish Agent with Inventory reports in form and detail reasonably satisfactory to Agent at such time as Agent may require. Borrower shall conduct a physical inventory no less frequently than annually and shall provide to Agent a report based on each such physical inventory promptly thereafter, together with such supporting information as Agent shall reasonably request. 6.3.2 Returns of Inventory. If at any time or times hereafter any Account Debtor returns any Inventory to Borrower the shipment of which generated an Account on which such Account Debtor is obligated in excess of One Hundred Thousand Dollars ($100,000.00), Borrower shall immediately notify Agent of the same, specifying the reason for such return and the location, condition and intended disposition of the returned Inventory 6.4 Administration of Equipment. 6.4.1 Records and Schedules of Equipment. Borrower shall keep accurate records itemizing and describing the kind, type, quantity and value of its Equipment and shall furnish Agent with a current schedule containing the foregoing information on an annual basis and, after the occurrence and during the continuance Event of Default, more often if reasonably requested by Agent. Immediately on request therefor by Agent, Borrower shall deliver to Agent appropriate evidence of ownership, if any, of any of the Equipment. 6.4.2 Intentionally Omitted. 6.5 Payment of Charges. All amounts chargeable to Borrower under Section 6 hereof shall be Obligations secured by all of the Collateral, shall be payable on demand and shall bear interest from the date such advance was made until paid in full at the Revolving Credit Base Rate. SECTION 7. REPRESENTATIONS AND WARRANTIES 7.1 General Representations and Warranties. To induce Agent and Lenders to enter into this Agreement and to make Loans hereunder, Borrower warrants, represents and covenants to Agent and Lenders that: 7.1.1 Organization and Qualification. Each of Borrower and each of its Subsidiaries is a corporation duly organized, validly existing and, except as noted on Exhibit 7.1.1, is in good standing under the laws of the jurisdiction of its incorporation. Each of Borrower and each of its Subsidiaries is duly qualified and is authorized to do business and, except as noted on Exhibit 7.1.1, is in good standing as a foreign corporation in each state or jurisdiction listed on Exhibit 7.1.1 hereto and in all other states and jurisdictions in which the failure of Borrower or any of its Subsidiaries to be so qualified would have a Material Adverse Effect. 19 7.1.2 Corporate Power and Authority. Each of Borrower and each of its Subsidiaries is duly authorized and empowered to enter into, execute, deliver and perform this Agreement and each of the other Loan Documents to which it is a party. The execution, delivery and performance of this Agreement and each of the other Loan Documents have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the shareholders of Borrower or any of its Subsidiaries; (ii) contravene Borrower's or any of its Subsidiaries' charter, articles or certificate of incorporation or by-laws; (iii) violate, or cause Borrower or any of its Subsidiaries to be in default under, any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award in effect having applicability to Borrower or any of its Subsidiaries; (iv) result in a breach of or constitute a default in any material respect under any indenture or loan or credit agreement or any other material agreement, lease or instrument to which Borrower or any of its Subsidiaries is a party or by which it or its Properties may be bound or affected; or (v) result in, or require, the creation or imposition of any Lien (other than Permitted Liens) upon or with respect to any of the Properties now owned or hereafter acquired by Borrower or any of its Subsidiaries. 7.1.3 Legally Enforceable Agreement. This Agreement is, and each of the other Loan Documents when delivered under this Agreement will be, a legal, valid and binding obligation of Borrower and each of its Subsidiaries, enforceable against Borrower and each of its Subsidiaries in accordance with its respective terms. 7.1.4 Capital Structure. Exhibit 7.1.4 hereto states (i) the correct name of each of the Subsidiaries of Borrower, its jurisdiction of incorporation and the percentage of its Voting Stock owned by the Borrower, (ii) the name of Borrower's corporate or joint venture Affiliates and the nature of the affiliation, (iii) the number, nature and holder of all outstanding Securities of Borrower and each Subsidiary and (iv) the number of authorized, issued and treasury shares of Borrower and each Subsidiary. Borrower has good title to all of the shares it purports to own of the stock of each of its Subsidiaries, free and clear in each case of any Lien other than Permitted Liens. All such shares have been duly issued and are fully paid and non-assessable. Except as set forth in Exhibit 7.1.4, there are no outstanding options to purchase, or any rights or warrants to subscribe for, or any commitments or agreements to issue or sell, or any Securities or obligations convertible into, or any powers of attorney relating to, shares of the capital stock of Borrower or any of its Subsidiaries. Except as set forth in Exhibit 7.1.4, there are no outstanding agreements or instruments binding upon any of Borrower's shareholders relating to the ownership of its shares of capital stock. 7.1.5 Corporate Names. Neither Borrower nor any of its Subsidiaries has been known as or used any corporate, fictitious or trade names since March 1, 1995, except those listed on Exhibit 7.1.5 hereto. Except as otherwise set forth on Exhibit 7.1.5 since March 1, 1995, neither Borrower nor any of its Subsidiaries has been the surviving corporation of a merger or consolidation or acquired all or substantially all of the assets of any Person. 7.1.6 Business Locations; Agent for Process. Borrower and its Subsidiaries' chief executive office and other places of business are as listed on Exhibit 7.1.6 hereto. During 20 the preceding one-year period, neither Borrower nor any of its Subsidiaries has had an office, place of business or agent for service of process other than as listed on Exhibit 7.1.6. 7.1.7 Title to Properties; Priority of Liens. Borrower and its Subsidiaries have good and marketable title to and fee simple ownership of, or valid and subsisting leasehold interests in, all of its Real Estate, and good title to all of the Collateral and all of its personal Property other than Collateral, including good leasehold title with respect to Property leased from others, in each case, free and clear of all Liens except Permitted Liens. Borrower has paid or discharged all lawful claims which, if unpaid, might become a Lien against Borrower's real and personal Property that is not a Permitted Lien. The Liens granted to Agent under Section 5 hereof, if properly perfected, are first priority Liens, subject only to Permitted Liens. 7.1.8 Accounts. Agent may rely, in determining which Accounts are Eligible Accounts, on all statements and representations made by Borrower with respect to any Account or Accounts. Unless otherwise indicated in writing to Agent, with respect to all Accounts: (i) the Accounts are genuine and in all respects what they purport to be, and are not evidenced by a judgment; (ii) the Accounts arise out of completed, bona fide sales and deliveries of goods or rendition of services by Borrower in the ordinary course of Borrower's business and in accordance with the terms and conditions of all purchase orders, contracts or other documents relating thereto and forming a part of the contract between Borrower and the respective Account Debtor; (iii) the Accounts are for liquidated amounts not in excess of any amount Borrower has agreed to accept pursuant to any contractual agreement with any Account Debtor or Obligor and maturing as stated in the respective invoices covering such sales or renditions of services, copies of which have been furnished or are available to Agent; (iv) Such Accounts, and Agent's security interest therein, are not, and will not (by voluntary act or omission of Borrower) be with the passage of time, subject to any offset, Lien, deduction, defense, dispute, counterclaim or any other adverse condition except for (a) disputes resulting in returned goods where the amount in controversy is deemed by Agent to be immaterial and (b) Permitted Liens, and the Accounts are absolutely owing to Borrower and are not contingent in any respect or for any reason; (v) Borrower has not made any agreement with any Account Debtor or Obligor thereunder for any extension, compromise, settlement or modification of any such Account or any deduction therefrom, except (i) discounts or allowances which are granted by Borrower in the ordinary course of its business for prompt payment and (ii) payment arrangements with respect to Accounts, provided that the aggregate amount of the portions of such Accounts subject to such payment arrangements at any given time do 21 not exceed One Million Dollars ($1,000,000.00), and such arrangements are reflected in the calculation of the net amount of each respective invoice related thereto and are reflected in the Schedules of Accounts submitted to Agent pursuant to subsection 6.2.1 hereof; (vi) To Borrower's knowledge, there are no facts, events or occurrences which in any way impair the validity or enforceability of any Accounts or (other than with respect to discounts or allowances granted by Borrower in the ordinary course of business) tend to reduce the amount payable thereunder from the face amount of the invoice and statements delivered to Agent with respect thereto; (vii) To Borrower's knowledge, each Account Debtor thereunder (A) had the capacity to contract at the time any contract or other document giving rise to the Account was executed and (B) each such Account Debtor is Solvent; and (viii) Except as set forth on Schedule 7.1.8, to Borrower's knowledge, there are no proceedings or actions which are threatened or pending against any Account Debtor thereunder which could reasonably be expected to result in any material adverse change in such Account Debtor's financial condition or the collectibility of such Account. 7.1.9 Equipment. To Borrower's knowledge, the Equipment is in good operating condition and repair in all material respects and all necessary replacements of and repairs thereto shall be made so that the value and operating efficiency of the Equipment shall be maintained and preserved, reasonable wear and tear excepted, provided, however, that the foregoing will not obligate Borrower or any of its Subsidiaries to repair any Equipment which in Borrower's or such Subsidiary's reasonable business judgment is obsolete or no longer used or useful by the Borrower in the ordinary course of its business. 7.1.10 Financial Statements; Fiscal Year. (a) The Consolidated balance sheets of Borrower and such other Persons described therein (including the accounts of all Subsidiaries of Borrower for the respective periods during which a Subsidiary relationship existed) as of January 3, 2000, and the related statements of income, changes in stockholder's equity, and changes in financial position for the periods ended on such dates, have been prepared in accordance with GAAP, and present fairly in all material respects the financial position(s) of Borrower and such Persons at such dates and the results of Borrower's operations for such periods. Since January 3, 2000, there has been no material adverse change in the condition, financial or otherwise, of Borrower and such other Persons as shown on the Consolidated balance sheet as of such date and no change in the aggregate value of Equipment and Real Estate owned by Borrower or such other Persons, except changes in the ordinary course of business, none of which individually or in the aggregate has been materially adverse. (b) The pro forma Consolidated opening balance sheet of the Borrower dated as of the Closing Date provided by Borrower to Agent has been prepared in 22 accordance with GAAP and fairly presents in all material respects the assets and liabilities of the Borrower based on the assumptions accompanying such projections which, while subject to changing conditions beyond Borrower's control are believed by Borrower to be reasonable based on historical results and in light of reasonably foreseeable business conditions. The fiscal year of the Borrower ends on the Sunday nearest to December 31 of each year. 7.1.11 Full Disclosure. The financial statements referred to in subsection 7.1.10 hereof do not, nor does this Agreement or any other written statement of Borrower to Agent and/or any Lender, contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained therein or herein not misleading. There is no fact known to Borrower which Borrower has failed to disclose to Agent in writing which materially affects adversely or, so far as Borrower can now reasonably foresee, will materially affect adversely the Properties, business, profits or condition (financial or otherwise) of the Borrower or the ability of Borrower or its Subsidiaries to perform their obligations as contained in this Agreement or the other Loan Documents. 7.1.12 Solvent Financial Condition. As of the Closing Date and the Funding Date, Borrower and each of its Subsidiaries is and, after giving effect to the Loans to be made and the Letters of Credit and LC Guaranties to be issued hereunder, will be, Solvent. At all times after the Funding Date, each Borrower is and will be Solvent. At all times after the Funding Date, Borrower and each of its Subsidiaries are and will be Solvent on a Consolidated basis. 7.1.13 Surety Obligations. Neither the Borrower nor any of its Subsidiaries is obligated as guarantor, surety or indemnitor under any surety or similar bond or other contract issued or entered into any agreement to assure payment, performance or completion of performance of any undertaking or obligation of any Person other than the obligations of Borrower to Olsten Corporation under the Separation Agreement dated September 17, 1999 among Olsten Corporation, Adecco SA and Aaronco Corp., as amended, and except as would be permitted on the date hereof under subsection 8.2.3. 7.1.14 Taxes. The federal tax identification number of Borrower and each of its Subsidiaries is shown on Exhibit 7.1.14 hereto. Borrower and its Subsidiaries has filed all federal, state and local tax returns and other reports it is required by law to file and has paid, or made provision for the payment of, all material taxes, assessments, fees, levies and other governmental charges upon it, its income and Properties as and when such taxes, assessments, fees, levies and charges that are due and payable, unless and to the extent any thereof are being actively contested in good faith and by appropriate proceedings and Borrower maintains reasonable reserves on its books therefor or would not individually or in the aggregate have a Material Adverse Effect. The provision for taxes on the books of Borrower and its Subsidiaries are adequate for all years not closed by applicable statutes, and for its current fiscal year. 7.1.15 Brokers. There are no claims against Borrower for brokerage commissions, finder's fees or investment banking fees in connection with the Divestiture or the establishment of the credit facility contemplated by this Agreement. 23 7.1.16 Patents, Trademarks, Copyrights and Licenses. Borrower and its Subsidiaries own or possess all the patents, trademarks, service marks, trade names, copyrights and licenses necessary for the present and planned future conduct of its business without any known conflict with the rights of others. All such patents, trademarks, service marks, tradenames, copyrights, licenses and other similar rights are listed on Exhibit 7.1.16 hereto. 7.1.16 Governmental Consents. Each of Borrower and its Subsidiaries has, and is in good standing with respect to, all governmental consents, approvals, licenses, authorizations, permits, certificates, inspections and franchises necessary to continue to conduct its business as heretofore or proposed to be conducted by it and to own or lease and operate its Properties as now owned or leased by it, except where the failure to have or be in good standing would not have a Material Adverse Effect. 7.1.18 Compliance with Laws. Borrower and its Subsidiaries and their respective Properties, business operations and leaseholds are in compliance with the provisions of all federal, state and local laws, rules and regulations applicable to it, its Properties or the conduct of its business except where the failure to be in compliance would not have a Material Adverse Effect, and there have been no citations, notices or orders of noncompliance issued to Borrower or any of its Subsidiaries under any such law, rule or regulation which have not been remedied except where noncompliance would not have a Material Adverse Effect. Borrower and its Subsidiaries have established and maintain an adequate monitoring system to insure that they remain in compliance with all federal, state and local laws, rules and regulations applicable to it. No Inventory has been produced by Borrower or any of its Subsidiaries in violation of the Fair Labor Standards Act (29 U.S.C. ss. 201 et seq.), as amended, except for any violation which would not have a Material Adverse Effect. 7.1.19 Restrictions. Neither the Borrower nor or any of its Subsidiaries is a party or subject to any contract, agreement, or charter or other corporate restriction, which materially and adversely affects its business or the use or ownership of any of its respective Properties. Neither the Borrower nor any of its Subsidiaries is a party or subject to any contract or agreement which restricts its right or ability to incur Indebtedness, other than as set forth on Exhibit 7.1.19 hereto, none of which prohibit the execution of or compliance with this Agreement or the other Loan Documents by Borrower or any of its Subsidiaries, as applicable. 7.1.20 Litigation. Except as set forth on Exhibit 7.1.20 hereto, there are no actions, suits or proceedings pending, or, to the knowledge of Borrower, threatened, nor, to the knowledge of Borrower, are there any investigations pending, against Borrower or any of its Subsidiaries, or the business, operations, Properties, prospects, profits or condition of Borrower or any of its Subsidiaries which, either individually or in the aggregate could have a Material Adverse Effect or could materially and adversely affect the rights of Agent and/or Lenders hereunder. Notwithstanding the foregoing, Exhibit 7.1.20 lists all such actions, suits, proceedings or investigations which have been instituted by any Government Authority in connection with healthcare-related laws, rules or regulations. Neither the Borrower nor any of its 24 Subsidiaries is in default with respect to any order, writ, injunction, judgment, decree or rule of any court, governmental authority or arbitration board or tribunal. 7.1.21 No Defaults. No event has occurred and no condition exists which would, upon or after the execution and delivery of this Agreement or Borrower's performance hereunder, constitute a Default or an Event of Default. Neither Borrower nor any of its Subsidiaries is in default, and no event has occurred and no condition exists which constitutes, or which with the passage of time or the giving of notice or both would constitute, a default in the payment of any Indebtedness to any Person for Money Borrowed. 7.1.22 Leases. Exhibit 7.1.22(a) hereto is a complete listing of all Capitalized Lease Obligations of Borrower and its Subsidiaries and Exhibit 7.1.22(b) hereto is a complete listing of all Operating Leases (except for any Operating Leases with annual payments due under the respective leases of less than Ten Thousand Dollars ($10,000.00) of Borrower and its Subsidiaries. Each Borrower and each Subsidiary is in full compliance in all material respects with all of the terms of each of its respective Capitalized Lease Obligations and Operating Leases listed in said exhibits. 7.1.23 Pension Plans. Except as disclosed on Exhibit 7.1.23 hereto, neither the Borrower nor any of its Subsidiaries has any Plan. Borrower and its Subsidiaries are in compliance with the requirements of ERISA and the regulations promulgated thereunder with respect to each Plan, except where the effect of such noncompliance would not have a Material Adverse Effect. No fact or situation that could result in a material adverse change in the financial condition of the Borrower exists in connection with any Plan. Neither Borrower nor its Subsidiaries has any withdrawal liability in connection with a Multiemployer Plan. 7.1.24 Trade Relations. There exists no actual or, to Borrower's knowledge, threatened termination, cancellation or limitation of, or any modification or adverse change in, the business relationship between Borrower or any of its Subsidiaries and any customer or any group of customers whose purchases individually or in the aggregate are material to the business of the Borrower, or with any material supplier, and there exists no present condition or state of facts or circumstances which would materially affect adversely the Borrower or prevent Borrower or any of its Subsidiaries from conducting such business after the consummation of the transaction contemplated by this Agreement in substantially the same manner in which it has heretofore been conducted. 7.1.25 Labor Relations. Except as described on Exhibit 7.1.25 hereto, neither the Borrower nor any of its Subsidiaries is a party to any collective bargaining agreement. Except as described on Exhibit 7.1.25 hereto, there are no material grievances, disputes or controversies with any union or any other organization of Borrower's or any of its Subsidiaries' employees, or, to Borrower's knowledge, threats of strikes, work stoppages or any asserted pending demands for collective bargaining by any union or organization. 25 7.1.26 Healthcare Representations and Warranties. (a) Borrower owns or leases and operates facilities to provide health care services and (i) maintains Medicare and Medicaid provider status and is the holder of the provider identification numbers identified on Exhibit 7.1.26(a) hereto, all of which are current and valid (except for any provider identification numbers which may have inadvertently and temporarily cease to be current or valid due to technical reasons (and not for cause) and which, individually or in the aggregate, would not have a Material Adverse Effect or materially and adversely affect any rights of Agent and/or Lenders hereunder, provided that Borrower, promptly upon learning of any such situation with respect to any provider identification number, shall correct all such technical problems and have any such provider identification number or similar substitute number reinstated or issued as current and valid) and, except as set forth on Exhibit 7.1.26(a) hereto, Borrower has not allowed, permitted, authorized or caused any other Person to use any such provider identification number; (ii) has obtained all material licenses, accreditations and approvals of governmental authorities and all other Persons necessary for Borrower to own its assets, to carry on its business, to execute, deliver and perform the Loan Documents, and to receive payments from the Obligors; and (iii) is in compliance except where the effect of such noncompliance would not result in a Material Adverse Effect with all laws, rules, regulations, orders, decrees and directions of any Governmental Authority (including, without limitation, the Medicare Act, the rules and regulations of HCFA under the Medicare Act, and the applicable Medicaid laws) applicable to the Accounts or any contracts relating thereto, or applicable to the Borrower's business and properties, a violation of which would or could materially and adversely affect the Borrower's ability to carry out its Obligations hereunder with respect to the Accounts. In addition, Borrower has not been notified by any such Governmental Authority or other person during the immediately preceding 24 month period that such party has rescinded or not renewed, or intends to rescind or not renew, any such license or approval. (b) The Medicaid and Medicare cost reports of each facility and of the home office of Borrower for all cost reporting periods have been submitted when and as required to (i) as to Medicaid, the state agency, or other HCFA-designated agent or agent of such state agency, charged with such responsibility or (ii) as to Medicare, the Medicare intermediary or other HCFA-designated agent charged with such responsibility. Borrower's cost reports do not indicate and no audit has resulted in any determination that Borrower was overpaid for Medicaid and Medicare in an aggregate amount of Two Million Dollars ($2,000,000.00) or more in any of the most recent three fiscal years covered by such audit. For the purposes of this subsection, the amounts of any overpayment for any particular matter which have been disclosed to Agent as of the Closing Date shall not be included in the calculation of the aggregate amount of overpayments; however, if a final determination is made at some time after the Closing Date that the total amount of the overpayment for any particular matter disclosed to Agent as of the Closing Date is greater than the amount which was disclosed as of the Closing Date, the excess of the amount as of the final determination over the amount disclosed to Agent as of the Closing Date shall be included in the calculation of the aggregate amount of overpayments under this subsection. 26 (c) With respect to all Accounts, as of the date each such Account is created and included as an Eligible Account by Agent, on behalf of and for the benefit of Lenders: (i) All documents and agreements relating to the Accounts requested by Agent have been delivered to Agent with respect to such Accounts and such documents are true and correct in all material respects; Borrower has timely and properly billed the applicable Obligors of the Accounts (except where supporting claim documents must be forwarded to any Obligor before a bill may be submitted in which case Borrower shall promptly complete documentation and billing of such Obligors), and Borrower has delivered or caused to be delivered to such Obligors all material Obligor requested supporting claim documents with respect to such Accounts including all material documentation required by the applicable Obligors for payment on the Accounts, and the statutory periods for issuing an explanation of benefits ("EOB") in connection with such Accounts have not expired; all information set forth in the bills and supporting claim documents submitted to Obligors with respect to the Accounts is true, complete and correct in all material respects, and, if additional information is requested by any Obligor in connection therewith, Borrower will promptly provide the same and, if necessary, will rebill or, if requested by the primary servicer (if other than Borrower) cooperate with such servicer(s) to rebill any such Account; (ii) The Accounts are exclusively owned by Borrower, and there is no security interest in or lien against the Accounts in favor of any third party other than Agent, except for Permitted Liens, nor is there any recording or filing against Borrower, as debtor, covering or purporting to cover any interest of any kind in the Accounts, except as has been or will be released or terminated by each party holding such adverse interest in the Accounts prior to or concurrently with the initial Loan made by Agent and Lenders to Borrower. Borrower shall defend the first priority security interest of Agent, on behalf of Lenders, in all Accounts against the claims of all persons claiming any interest adverse to Agent and Lenders. With respect to any Government Accounts the rights transferred to Agent in connection with this Agreement do not include the right to claim payment in Agent's name from the applicable Obligor or the right to direct such Obligor to remit payment directly to Agent except as permitted by applicable laws and regulations governing such Accounts; (iii) The Accounts (A) are payable in full by the Obligor identified by Borrower as being obligated with respect to such Account, (B) are denominated and payable only in lawful currency of the United States, and (C) are "accounts" within the meaning of the Uniform Commercial Code of the state in which the services or goods were provided or sold to the respective Patients or Obligors, as applicable, by Borrower and in which Borrower has its chief executive office, or are rights to payment under a policy of insurance or the proceeds thereof, and are not evidenced by an instrument or chattel paper; and there are no Obligors other than the applicable Obligors identified by Borrower as the Obligors primarily liable, on the Accounts; (iv) Borrower does not have any guaranty of, letter of credit providing credit support for, or collateral security for, the Accounts, other than any such 27 guaranty, letter of creditor or collateral security as has been assigned to Agent, and any such guaranty, letter of credit or collateral security is not subject to any Lien in favor of any other person; (v) To Borrower's knowledge and belief the goods or services provided and creating the Accounts were received by the respective Patient or Obligor, as applicable; (vi) Where required by applicable law or contract, the fees charged for the goods or services constituting the basis for the Accounts are (a) consistent with the usual, customary and reasonable fees charged by other similar medical service providers or providers of similar goods and services, as applicable, in Borrower's community or the community in which the respective Patient or Obligor, as applicable, resides or is located, whichever is less, of the same or similar service by Borrower or (b) pursuant to negotiated fee contracts, or imposed fee schedules, with or by the applicable Obligors; (vii) No action by Borrower other than the execution and delivery of this Agreement and the other Loan Documents, the issuance and delivery of any required Obligor notices (in a form approved by Agent) and the filing of UCC financing statements in the State(s) in which the Borrower's chief executive office is located, is required to perfect the first priority security interest of Agent in the Accounts, and all such actions have been or will be accomplished no later than the date of the initial Loan advance by Agent, on behalf of and for the ratable benefit of Lenders; (viii) The Accounts comply, in all material respects which would affect the timely collectibility of such Accounts, with all laws and regulations applicable thereto; (ix) Any insurance policy, contract or other instrument obligating any respective Obligor to make payment with respect to the Accounts, except with respect to Governmental Accounts, does not contain any provision prohibiting the transfer of such payment obligation from a Patient to Borrower; (x) Fees for services or goods which are subject to limitations imposed by worker's compensation regulations or by contracts for reimbursement from the related Obligor do not exceed the limitations imposed thereunder, and the Accounts for which the fees are so restricted has been clearly identified to Agent as being subject to such restriction; (xi) There are no Obligors, other than as designated by Borrower, that are primarily liable on the Accounts; (xii) Except as set forth on Exhibit 7.1.26(c), there are no proceedings or investigations in which Borrower is named as party or any other proceedings or investigation ending or threatened before any Government Authority or any arbitration or similar proceedings under any contract (a) asserting the invalidity of any of the Accounts or any contracts related thereto, (b) seeking the payment of any of the Accounts or any contract related thereto, or (c) seeking any determination or ruling that might materially and adversely affect the 28 validity or enforceability of any of the Accounts or any contracts related thereto which, either individually or in the aggregate could have a Material Adverse Effect or could materially and adversely affect the rights of Agent and/or Lenders hereunder. Notwithstanding the foregoing, Exhibit 7.1.26(c) lists all such proceedings or investigations which have been instituted by any Government Authority in connection with healthcare-related laws, rules or regulations; (xiii) None of the Accounts or contracts related thereto contravene in any material respect any federal, state or local law, rule or regulation applicable thereto (including, without limitation, the Medicare Act and the rules and regulations of HCFA under the Medicare Act and laws, rules and regulations relating to usury, consumer protection, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy), and no party to such related contract to Borrower's knowledge is in violation of any such law, rule or regulation in any material respect; and (xiv) All descriptions of the Accounts provided to Agent on behalf of Borrower remain true and correct and do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the descriptions of or statements made therein not misleading. If a breach of any of the representations or warranties contained herein relating to a Account may, in the reasonable opinion of Agent, have a material adverse effect upon the validity, legality or collectibility of such Account then, such Account shall no longer be deemed, an "Eligible Account", as defined in Appendix A herein. 7.1.27 Y2K Compliance. All computer applications used by Borrower and its Subsidiaries are able to effectively interpret, process and manipulate data and recognize and perform properly date-sensitive functions involving dates prior to, on and after December 31, 1999. 7.1.28 Operations and Accounts Receivable. Except for Gentiva Services Limited Canada, no direct or indirect Subsidiary of the Company conducts any business operations (except for the business of being a holding company) or owns any Property (except for the capital stock of another corporation, or, in the case of the Gentiva Trust, the convertible debentures of the Company) or generates or owns any Accounts other than those Subsidiaries which are a party to this Agreement as a Borrower or a Subsidiary Borrowing Corporation. 7.1.29 Cash Management. All funds and remittances received by Borrower with respect to any Accounts are received into or immediately deposited by Borrower into Borrower's Lockbox Accounts or Concentration Account(s), and all funds deposited in Borrower's Lockbox Accounts are transferred to Borrower's Concentration Account(s) on a daily basis, provided that any funds which are deposited into the Lockbox Accounts after the time of the daily transfer are transferred into the Concentration Account as of the next Business Day. 7.2 Continuous Nature of Representations and Warranties. Each representation and warranty contained in this Agreement and the other Loan Documents shall be continuous in nature and shall remain in all material respects accurate, complete and not misleading at all times 29 during the term of this Agreement, except for changes in the nature of Borrower's or its Subsidiaries' business or operations that would render the information in any exhibit attached hereto either inaccurate, incomplete or misleading, so long as Agent has consented to such changes or such changes are expressly permitted by this Agreement. 7.3 Survival of Representations and Warranties. All representations and warranties of Borrower contained in this Agreement or any of the other Loan Documents shall survive the execution, delivery and acceptance hereof and thereof by Agent and the parties hereto and thereto and the closing of the transactions described herein and therein, and related hereto and thereto. SECTION 8. COVENANTS AND CONTINUING AGREEMENTS 8.1 Affirmative Covenants. During the term of this Agreement, and thereafter for so long as there are any Obligations to Lenders, Borrower covenants that, unless otherwise consented to by the Majority Lenders, in writing, which consent shall not be unreasonably withheld, it shall: 8.1.1 Visits and Inspections. Permit representatives of Agent, from time to time, as often as may be reasonably requested, but only during normal business hours to visit and inspect the Properties of Borrower and each of its Subsidiaries, inspect, audit and make extracts from its books and records at Borrower's cost as provided in this Agreement, and discuss with its officers, its employees and its independent accountants, Borrower's and each of its Subsidiaries' businesses, assets, liabilities, financial condition, business prospects and results of operations. After the occurrence and during the continuance of an Event of Default, Agent shall give notice to the Lenders prior to conducting any such visits, inspections or audits, and, any Lender may, upon such Lender's request and at such Lender's expense, have a representative of such Lender accompany Agent on and participate in any such visits, inspections or audits. 8.1.2 Notices. Promptly notify Agent in writing of the occurrence of any event or the existence of any fact which renders any representation or warranty in this Agreement or any of the other Loan Documents inaccurate, incomplete or misleading in any material respect. 8.1.3 Financial Statements. Keep, and cause each Subsidiary to keep, adequate records and books of account with respect to its business activities in which proper entries are made in accordance with GAAP reflecting all its financial transactions, and cause to be prepared and furnished to Agent the following (all to be prepared in accordance with GAAP applied on a consistent basis, unless Borrower's certified public accountants concur in any change therein and such change is disclosed to Agent and is consistent with GAAP): (a) not later than ninety (90) days after the close of each fiscal year of Borrower, unqualified audited financial statements of the Borrower and its Subsidiaries as of the end of such year, on a Consolidated basis, certified as to such Consolidated financial statements of the Borrower, by a firm of independent certified public accountants of recognized standing selected by Borrower but reasonably acceptable to 30 Agent (except for a qualification for a change in accounting principles with which the accountant concurs); (b) not later than thirty (30) days after the end of each month hereafter, (or, in the case of each March, June, September or December, forty-five (45) days after the end of each such month), unaudited interim financial statements as of the end of such month and of the portion of the Borrower's fiscal year then elapsed, on a Consolidated basis, including a balance sheet, profit and loss statement and a statement of cash flows, certified by the principal financial officer of Borrower as prepared in accordance with GAAP and fairly presenting the Consolidated financial position and results of operations of the Borrower for such month and period subject only to changes from audit and year-end adjustments and except that such statements need not contain notes; (c) promptly upon request, deliver such other information concerning the Borrower as Agent may from time to time reasonably request, including Medicare and Medicaid cost reports and audits, annual reports, security law filings and reports to any security holders. To the extent Borrower believes that any information reasonably requested by Agent would require the disclosure of information subject to (i) any applicable privilege which would prohibit such disclosure, or which privilege would be destroyed by such disclosure or (ii) any applicable federal or state laws on patient confidentiality, Borrower shall notify Agent of the general nature of the information subject to the claimed privilege or applicable patient confidentiality laws, and of Borrower's reasons for believing that such disclosure would be prohibited, or would destroy the privilege, or would violate any applicable patient confidentiality laws, and Agent, in its reasonable discretion, will determine whether to require such information under the circumstances; (d) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports filed with any public agency which Borrower has made available to its shareholders and copies of any regular, periodic and special reports or registration statements which Borrower files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or any national securities exchange; (e) promptly after the filing thereof, copies of any annual report to be filed in accordance with ERISA in connection with each Plan; and (f) such other data and information (financial and otherwise) as Agent, from time to time, may reasonably request, bearing upon or related to the Collateral or Borrower's and/or any Subsidiaries' financial condition or results of operations. To the extent Borrower believes that any information reasonably requested by Agent would require the disclosure of information subject to (i) any applicable privilege which would prohibit such disclosure, or which privilege would be destroyed by such disclosure or (ii) any applicable federal or state laws on patient confidentiality, Borrower shall notify Agent of the general nature of the information subject to the claimed privilege or 31 applicable patient confidentiality laws, and of Borrower's reasons for believing that such disclosure would be prohibited, or would destroy the privilege, or would violate any applicable patient confidentiality laws, and Agent, in its reasonable discretion, will determine whether to require such information under the circumstances. Concurrently with the delivery of the financial statements described in clause (a) of this subsection 8.1.3, Borrower shall forward to Agent a copy of the accountants' letter to Borrower's management that is prepared in connection with such financial statements and also shall cause to be prepared and shall furnish to Agent a certificate of the aforesaid certified public accountants certifying to Agent that, based upon their examination of the financial statements of the Borrower performed in connection with their examination of said financial statements, they are not aware of any Default or Event of Default, or, if they are aware of such Default or Event of Default, specifying the nature thereof. Concurrently with the delivery of (i) the financial statements described in clauses (a) of this subsection 8.1.3 and (ii) the financial statements described in clause (b) of the subsection 8.1.3 for each month which is the last month in a fiscal quarter of Borrower (and not for any other months), or more frequently if requested by Agent, Borrower shall cause to be prepared and furnished to Agent a Compliance Certificate in the form of Exhibit B hereto executed by the Chief Financial Officer of Borrower, together with a work sheet reflecting all calculations made in completing the Compliance Certificate. Upon reasonable request by Agent, Borrower shall provide the financial statements described in clauses (a) or (b) on a Consolidated and Consolidating basis. 8.1.4 Landlord and Storage Agreements. Provide Agent with copies of all agreements between Borrower or any of its Subsidiaries and any landlord or warehouseman which owns any premises at which any Inventory may, from time to time, be kept, as Agent may reasonably request from time to time. 8.1.5 Year 2000 Compliance. Take all action necessary to assure that at all times the computer-based systems utilized by Borrower and each of its Subsidiaries are able to effectively interpret, process and manipulate data, including dates before, on and after December 31, 1999. At Agent's request, Borrower shall provide to Agent assurance reasonably satisfactory to Agent that the computer-based systems utilized by Borrower and each of its Subsidiaries are able to recognize and perform, without error, functions involving dates before, on and after December 31, 1999. 8.1.6 Projections. Prior to the end of each fiscal year of Borrower, deliver to Agent Projections of Borrower for the forthcoming fiscal year, month by month. 8.1.7 Borrowing Base Certificate. No later than thirty (30) calendar days after the last day of each calendar month, Borrower shall deliver to Agent a Borrowing Base Certificate in the form of Exhibit C hereto executed by the Chief Financial Officer of Borrower. 32 8.1.8 Healthcare Covenants. (a) Borrower will (i) not amend, waive or otherwise permit or agree to any material deviation from the terms or conditions (other than adjustments in the ordinary course of Borrower's business) of the Accounts without the express written consent of Agent; (ii) upon the request of Agent, use all commercially reasonable efforts to obtain all consents from patients which are required by law in order for Agent, or any servicing entity retained by Agent, to secure information needed to obtain payment from the respective Obligors on the Accounts; and (iii) promptly bill for all Accounts on the same basis and using the same policies and practices that it has used in the past unless Agent has been advised in writing of a change prior to the making of any Loans. (b) Agent or its designated agents and representatives from time to time may verify the Accounts, inspect, check, take copies of or extracts from the Borrower's books, records and files, consistent with the state and federal laws regarding patient confidentiality and Borrower will make the same available to Agent or such representatives at any reasonable time for such purposes, including records relating to the collection of Accounts, the application of collections (including misdirected payments) and other matters related thereto. (c) If deemed necessary by Agent and upon reasonable notice, Borrower agrees that Agent will be permitted to have at least one of its agents or representatives physically present in the Borrower's administrative offices during Borrower's normal business hours to monitor Borrower in performing its obligations under this Agreement. Upon request made by Agent, subject to state and federal laws, including without limitation laws regarding patient confidentiality, Borrower shall furnish, or cause to be furnished, to Agent all relevant records related to the Accounts in written and electronic form, including any file cabinets, storage containers or computers within which such records are kept. Borrower's grant to Agent, on behalf of and for the benefit of Lenders, of a security interest in such records and goods as set forth herein is subject to the confidentiality and other rights under applicable law and under rights and rules of the JCAHO. (d) Borrower shall promptly notify Agent in the event of any action(s), suit(s), proceeding(s), dispute(s), offset(s), deduction(s), defense(s) or counterclaim(s) that are or may be asserted by Obligor(s) with respect to any Account(s), if the aggregate amount of the portion(s) of the Account(s) subject to such actions, suits, etc. of which Borrower has gained knowledge since the date of the last Borrowing Base Certificate shall exceed One Million Dollars ($1,000,000.00) (except for denials of Government Accounts which shall be disclosed on a monthly basis by Borrower to Agent). This section does not require Borrower to provide a notice of denial to Agent in those cases where Borrower reasonably believes that an Obligor's notice of denial will be reversed upon the submission of supplemental information to the Obligor. (e) Borrower shall make all payments to the applicable Obligor necessary to prevent such Obligor from offsetting any earlier overpayment to Borrower against any amount the Obligor may owe on any Accounts if the aggregate amount of such offsets shall at any time exceed One Million Dollars ($1,000,000.00). 33 (f) Borrower shall comply in all material respects with all of the terms of each settlement agreement and corporate integrity agreement entered into by Borrower with the government. 8.2 Negative Covenants. During the term of this Agreement, and thereafter for so long as there are any Obligations to Lenders, Borrower covenants that, unless Majority Lenders have first consented thereto in writing, it will not: 8.2.1 Mergers; Consolidations; Acquisitions. Merge or consolidate, or permit any Subsidiary to merge or consolidate, with any Person, nor acquire, nor permit any of its Subsidiaries to acquire, all or any substantial part of the Properties of any Person. Notwithstanding any of the foregoing: (i) any Borrower may merge or consolidate with any other Borrower, and any Subsidiary Guarantor may merge or consolidate with any other Subsidiary Guarantor or any Borrower; (ii) any Subsidiary Guarantor may be liquidated or dissolved if the Borrower decides in the exercise of its reasonable business judgment that such liquidation or dissolution is desirable provided that (a) such dissolution shall not have a Material Adverse Effect and (b) upon such dissolution, any and all of the assets and Property of such Subsidiary Guarantor shall be distributed to the Borrower(s) or Subsidiary Guarantor(s) which own(s) the capital stock of such Subsidiary Guarantor; (iii) any Borrower may acquire a new Subsidiary, or merge or consolidate with another Person, as a part of any Permitted Acquisition transaction provided that (a) in the case of any Permitted Acquisition transaction which involves the purchase of the capital stock or equity interests of another Person but does not involve a merger or consolidation, the Borrower shall pledge the capital stock or equity interests of such acquired Person to the Agent for the ratable benefit of the Lenders pursuant to the Pledge Agreement and the acquired Person shall become a party to this Agreement as a Subsidiary Borrowing Corporation by executing a Joinder Agreement in the form of Exhibit D attached hereto or (b) in the case of any Permitted Acquisition transaction which involves a merger of the acquired Person with the respective Borrower, the Borrower shall be the surviving entity; and (iv) any Borrower may create a new Subsidiary provided that the Borrower shall pledge the capital stock or equity interests of such newly-created Subsidiary to the Agent for the ratable benefit of the Lenders pursuant to the Pledge Agreement and the newly-created Subsidiary shall become a party to this Agreement as a Subsidiary Borrowing Corporation by executing a Joinder Agreement. 34 Any Person which executes a Joinder Agreement pursuant to this subsection shall be deemed to be a "Borrower" under this Agreement, and every reference herein to "Borrower" shall be deemed to include that Person. 8.2.2Loans. Make, or permit any Subsidiary of Borrower to make, any loans or other advances of money (other than for salary, travel advances, advances against commissions and other similar advances in the ordinary course of business) to any Person, other than (a) loans to employees not to exceed Five Hundred Thousand Dollars ($500,000.00) at any time outstanding in the aggregate and (b) loans between or among a Borrower and any other Borrowers and/or any Subsidiary Guarantors. 8.2.3 Total Indebtedness for Money Borrowed. Create, incur, assume, or suffer to exist, or permit any Subsidiary of Borrower to create, incur or suffer to exist, any Indebtedness for Money Borrowed, except: (a) Obligations owing to Agent and/or Lenders under or in connection with the Loan Documents; (b) Indebtedness of a Borrower or any Subsidiary of Borrower to a Borrower or its Subsidiary as permitted in subsection 8.2.4; (c) the Subordinated Debt; (d) Permitted Purchase Money Indebtedness; (e) accounts payable to trade creditors and current operating expenses (other than for Money Borrowed) which are not more than ninety (90) days from the due date, and which are incurred in the ordinary course of business and paid within such time period, unless the same are being actively contested in good faith and by appropriate and lawful proceedings; provided that Borrower or Subsidiary (as applicable) shall have set aside such reserves, if any, with respect thereto as are required by GAAP and deemed adequate by Borrower or Subsidiary (as applicable) and its independent accountants; (f) Obligations to pay Rentals permitted by subsection 8.2.13 and Capitalized Lease Obligations permitted under subsection 8.2.8; (g) contingent liabilities arising out of endorsements of checks and other negotiable instruments for deposit or collection in the ordinary course of business; (h) guaranties of lease obligations or other similar obligations of Subsidiaries to the extent that such lease obligations or similar obligations are otherwise permitted by this Agreement; (i) bid bonds, performance bonds, surety bonds, letters of credit or similar obligations made in the ordinary course of business (including bonds to secure 35 payment of judgments) which do not, in the aggregate, exceed Twenty Million Dollars ($20,000,000.00) at any one time; and (j) other Indebtedness not to exceed an aggregate amount of Five Million Dollars ($5,000,000.00) outstanding at any one time. 8.2.4 Affiliate Transactions. Except as set forth in Exhibit 8.2.4 hereto, enter into, or be a party to, or permit any Subsidiary of Borrower to enter into or be a party to, any transaction with any Affiliate of Borrower, except in the ordinary course of and pursuant to the reasonable requirements of Borrower's or Subsidiary's business and upon fair and reasonable terms which are fully disclosed to Agent and are no less favorable to Borrower or Subsidiary than would obtain in a comparable arm's length transaction with a Person not an Affiliate of Borrower or its Subsidiary. Notwithstanding any of the foregoing, the Company may issue up to Ten Million Dollars ($10,000,000.00) of additional Convertible Debentures to the Gentiva Trust according to the terms of subsection 8.2.10. 8.2.5 Limitation on Liens. Create or suffer to exist, or permit any Subsidiary of Borrower to create or suffer to exist, any Lien upon any of its Property, income or profits, whether now owned or hereafter acquired, except: (a) Liens at any time granted in favor of Agent, for the ratable benefit of Lenders; (b) Liens for taxes, assessments or charges imposed by any Government Authority (excluding any Lien imposed pursuant to any of the provisions of ERISA) not yet due, or being contested in the manner described in subsection 7.1.14 hereto, but only if in Agent's reasonable judgment such Lien does not materially adversely affect Agent's rights or the priority of Agent's Lien, for the ratable benefit of Lenders, upon the Collateral; (c) Liens arising in the ordinary course of Borrower's or such Subsidiary's business by operation of law or regulation, such as carriers, warehouseman's landlords' and mechanics liens, but only if payment in respect of any such Liens are not at the time required and such Liens do not, in the aggregate, materially detract from the value of the Property of Borrower or any of its Subsidiaries or materially impair the use thereof in the operation of Borrower's or any of its Subsidiaries' business; (d) Purchase Money Liens securing Permitted Purchase Money Indebtedness; (e) such other Liens as appear on Exhibit 8.2.5 hereto; (f) pledges or deposits to secure workers' compensation, unemployment insurance and other social security legislation or the deposits securing obligations to insurance companies insuring such liabilities; 36 (g) pledges or deposits to secure the performance of bids, trade contracts (other than for Borrowed Money), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business (including bonds to secure payment of judgments), provided that such obligations do not, in the aggregate, exceed Twenty Million Dollars ($20,000,000.00) at any one time; (h) pledges or deposits to secure lease obligations of Borrower or any Subsidiaries to the extent such lease obligations are permitted by this Agreement; (i) Liens consisting of judgment or judicial attachment Liens (including prejudgment attachment) in existence less than forty-five (45) days after the entry thereof or the enforcement of which is effectively stayed or payment of which is covered in full (subject to a customary deductible) by insurance or which do not otherwise result in any Event of Default; (j) Liens securing obligations in respect of Capitalized Lease Obligations solely on property subject to such Capitalized Lease Obligations; (k) leases or subleases granted to third Persons not interfering in any material respect with Agent's right to the Collateral or the business of the Borrower or any Subsidiary; (l) liens arising from UCC financing statements regarding leases permitted by this Agreement; (m) any interest or title of a lessor or sublessor under any lease permitted by this Agreement; (n) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods so long as such liens attached only to the imported goods; (o) Liens existing on the Property of any Person at the time such Person becomes a Subsidiary of any Borrower or is merged or consolidated into a Borrower pursuant to a Permitted Acquisition transaction, and, in each case, not created in contemplation of or in connection with the Permitted Acquisition transaction, provided however, that such Liens do not extend to any of Property of any Borrower; (p) other Liens in an amount not to exceed Five Hundred Thousand Dollars ($500,000.00), provided that such Liens do not secure any Indebtedness for Money Borrowed; 37 (q) any extension, renewal or replacement of the foregoing; provided, however, that the Liens permitted by this subsection 8.2.5 shall not cover any additional Indebtedness or Property; and (r) such other Liens as the Majority Lenders may hereafter approve in writing. 8.2.6 Subordinated Debt. Either (i) make, or permit Borrower or any of its Subsidiaries to make, any payment (including, without limitation, any prepayment) of any part or all of any Subordinated Debt (other than in the context of a refinancing transaction as permitted under clause (iii) of the definition of Subordinated Debt), or otherwise repurchase, redeem or retire any instrument evidencing any such Subordinated Debt, provided that if, after taking any such payment into effect, no Event of Default shall have occurred and Availability shall be at least Forty Million Dollars ($40,000,000.00 ), then such a payment, repurchase, redemption or retirement with respect to the Quantum Debentures may take place, or (ii) enter into any agreement (oral or written) which could in any way be construed to amend, modify, alter or terminate any one or more instruments or agreements evidencing or relating to any Subordinated Debt except for amendments or modifications which are not adverse in any material respect towards Agent and/or Lenders and as permitted by the terms of the documents governing such Subordinated Debt. Notwithstanding any of the foregoing, so long as no Default or Event of Default has occurred and remains outstanding, Borrower may make regularly scheduled payments of interest in respect of any of the Subordinated Debt. 8.2.7 Distributions. Declare or make, or permit any Subsidiary of Borrower to declare or make, any Distributions. Notwithstanding the foregoing, (i) any Borrower or any Subsidiary Guarantor may declare and/or make Distributions to any Borrower and (ii) the Gentiva Trust may make regularly scheduled dividend payments (either in cash or in-kind) to the holders of the Convertible Trust Preferred Stock according to the terms of the documents governing the Convertible Trust Preferred Stock. 8.2.8 Capital Expenditures. Make Capital Expenditures (including, without limitation, by way of capitalized leases) which, in the aggregate, as to Borrower and its Subsidiaries, exceed (i) Twenty-Six Million Dollars ($26,000,000.00) in fiscal year 2000, (ii) Twenty-Seven Million Dollars ($27,000,000.00) in fiscal year 2001, and (iii) Thirty Million Dollars ($30,000,000.00) in each fiscal year thereafter. 8.2.9 Disposition of Assets. Sell, lease or otherwise dispose of any of, or permit any Subsidiary of Borrower to sell, lease or otherwise dispose any of, its Properties, including any disposition of Property as part of a sale and leaseback transaction, to or in favor of any Person, except: (i) sales of Inventory in the ordinary course of business, (ii) a transfer of Property by any Borrower or Subsidiary Guarantor to any Borrower, (iii) dispositions of Property (including dispositions of used, worn-out or surplus Property) by Borrower or any Subsidiary in the ordinary course of business with fair market value of less than One Million Dollars ($1,000,000.00), in the aggregate, in any given fiscal year (which disposition may include a disposition, whether or not in the ordinary course of business of all or substantially all of the 38 assets of a Borrower or a Subsidiary Guarantor, or all of the stock of any Borrower or Subsidiary Guarantor, provided that such disposition is within the $1,000,000.00 limitation) , (iv) leases or subleases of Property which shall not have a Material Adverse Effect, and (v) dispositions expressly authorized by this Agreement. 8.2.10 Stock of Subsidiaries. Permit any of its Subsidiaries to issue any additional shares of its capital stock except director's qualifying shares and shares. Notwithstanding any of the foregoing, (i) the Company may issue additional shares of its capital stock and (ii) the Gentiva Trust may issue additional shares of preferred stock either (i) for the purpose of making in-kind dividend payments as regularly scheduled to the holders of the Convertible Trust Preferred Stock according to the terms of the documents governing the Convertible Trust Preferred Stock or (ii) in connection with the issuance of additional Convertible Debentures to the Gentiva Trust by the Company after the Funding Date in an aggregate amount not to exceed Ten Million Dollars ($10,000,000.00) on terms no less favorable to the Lenders than those of the initial issuance of the Convertible Trust Preferred Stock at the time of the Closing. Nothing in this subsection shall be construed to prohibit the creation of new subsidiaries by any Borrower in accordance with the provisions of subsection 8.2.1. 8.2.11 Bill-and-Hold Sales, Etc. Make a sale to any customer on a bill-and-hold, guaranteed sale, sale and return, sale on approval or consignment basis, or any sale on a repurchase or return basis except for consignment sales which, in the aggregate, do not exceed One Million Dollars ($1,000,000.00). 8.2.12 Restricted Investment. Make or have, or permit any Subsidiary of Borrower to make or have, any Restricted Investment. 8.2.13 Leases. Become, or permit any Subsidiary of Borrower to become, a lessee under any Operating Lease (other than a lease under which Borrower or any of its Subsidiaries is lessor, which lease is otherwise permitted by the terms of this Agreement) of Property if the aggregate Rentals payable during any current or future period of twelve (12) consecutive months under such lease and all other leases under which Borrower or any of its Subsidiaries is then lessee would exceed Thirty-Seven Million Dollars ($37,000,000.00). The term "Rentals" means, as of the date of determination, all payments which the lessee is required to make by the terms of any such lease. 8.2.14 Tax Consolidation. File or consent to the filing of any consolidated income tax return with any Person other than a Subsidiary of Borrower. 8.2.15 Change of Corporate Name. Change or permit any Subsidiary of Borrower to change the name of the respective corporate legal entity as registered with the Secretary of State in the jurisdiction of its incorporation unless 30 days prior written notice of such change is given to the Agent. 39 8.3 Specific Financial Covenants. During the term of this Agreement, and thereafter for so long as there are any Obligations to Lenders, Borrower covenants that, Borrower shall, on a consolidated basis, maintain the financial covenants set forth on Schedule 8.3 hereto. SECTION 9. CONDITIONS PRECEDENT 9.1 Conditions Precedent to Effectiveness of Agreement. Notwithstanding any other provision of this Agreement or any of the other Loan Documents, and without affecting in any manner the rights of Agent and/or Lenders under the other sections of this Agreement the effectiveness of this Agreement is subject to satisfaction of each of the following conditions precedent: 9.1.1 Documentation. Agent shall have received, in form and substance reasonably satisfactory to Agent and its counsel, a duly executed copy of this Agreement, the Revolving Credit Notes and the other Loan Documents, together with such additional documents, instruments and certificates as Agent and its counsel shall require in connection therewith from time to time, all in form and substance reasonably satisfactory to Agent and its counsel, including, without limitation the following: (a) Certified copies of Borrower's casualty insurance policies, together with loss payable endorsements on Lender's standard form of lender's loss payee endorsements naming Lender as lender loss payee and certified copies of Borrower's liability insurance policies, together with endorsements naming Lender as additional insured; (b) Certified copies of (i) resolutions of Borrower's board of directors authorizing the execution and delivery of this Agreement and the Loan Documents and the performance of all transactions contemplated hereby and thereby, (ii) Borrower's by-laws and any amendments thereto, and (iii) an incumbency certificate of Borrower; (c) A copy of the Articles or Certificate of Incorporation of Borrower, and all amendments thereto, certified by the Secretary of State or other appropriate official of its jurisdiction of incorporation; (d) Good standing certificates for Borrower, issued by the Secretary of State or other appropriate official of Borrower's jurisdiction of incorporation and each jurisdiction where the conduct of Borrower's business activities or the ownership of its Properties necessitates qualification; (e) A closing certificate signed by the Chief Financial Officer of the Company dated as of the date hereof, stating that (i) the representations and warranties set forth in Section 7 hereof are true and correct in all material respects on and as of such date, (ii) Borrower is on such date in compliance in all material respects with all the terms and provisions set forth in this Agreement and (iii) on such date no Default or Event of Default has occurred or is continuing; 40 (f) The Security Documents duly executed, accepted and acknowledged by or on behalf of each of the signatories thereto; (g) The favorable, written opinion of Borrower's counsel as to the transactions contemplated by this Agreement and any of the other Loan Documents; (h) the Subsidiary Guaranty duly executed and delivered by each Subsidiary Guarantor; (i) Duly executed agreement establishing a Dominion Account at a bank selected by Borrower, but acceptable to Agent in its reasonable discretion for the collection or servicing of the Accounts; and (j) Such other documents, instruments and agreements as Lender shall reasonably request in connection with the foregoing matters. 9.1.2 No Default. No Default or Event of Default shall exist. 9.2. Conditions Precedent to Funding. Notwithstanding the effectiveness of this Agreement, any other provision of this Agreement or any of the other Loan Documents, and without affecting in any manner the rights of Agent and/or Lenders under the other sections of this Agreement, Agent and/or Lenders shall have no obligations to make any Loans or to arrange for the issuance of any Letters of Credit or LC Guaranties under the Revolving Credit Facility until the following conditions precedent have been satisfied: 9.2.1 Other Loan Documents. Each of the conditions precedent set forth in the other Loan Documents shall have been satisfied. 9.2.2 Availability. Agent shall have determined that immediately after Lenders have made the initial Loans and issued the initial Letters of Credit and LC Guaranties contemplated hereby, and paid all closing costs incurred in connection with the transactions contemplated hereby, Aggregate Adjusted Availability on the Funding Date shall not be less than One Hundred Million Dollars ($100,000,000.00). 9.2.3 Borrowing Base Certificate and Disbursement Instructions. Borrower shall have delivered to Agent an initial Borrowing Base Certificate dated as of the Funding Date and written instructions from the Company on behalf of all Borrowers directing the application of the initial Loans made pursuant to this Agreement. 9.2.4 Delivery of Opinion of Special Healthcare Counsel. Borrower shall have delivered to Agent the favorable, written opinion of Borrower's special healthcare counsel as to certain matters relating to the creation and perfection of Agent's security interest in certain Accounts of Borrower. 9.2.5 Payment of Fees. Borrower shall have paid all fees and expenses owing hereunder. 41 9.2.6 Convertible Debentures and Convertible Trust Preferred Stock. The issuance of the Convertible Debentures and the Convertible Trust Preferred Stock shall have been completed and closed and the proceeds thereof (which shall not be less than Twenty Million Dollars ($20,000,000.00) shall have been received by the Company and the Company shall have delivered to Agent copies of the documents relating to the issuance of the Convertible Debentures and the Convertible Trust Preferred Stock, certified as complete and correct by the Company 9.2.7 No Litigation. No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain or prohibit, or to obtain damages in respect of, or which is related to or arises out of this Agreement or the consummation of the transactions contemplated hereby. 9.2.8 Divestiture. The shareholders of Olsten Corporation shall have approved the merger of Olsten Corporation with a wholly-owned subsidiary of Adecco SA, which merger transactions shall include as an integral component the Divestiture of Borrower, and such Divestiture of Borrower from Olsten Corporation shall have been consummated according to the terms of the Merger Agreement between Olsten Corporation and Adecco, SA dated August 17, 1999, as amended, the Separation Agreement and all related agreements and documents. In addition, Borrower shall have obtained any and all federal, state and local regulatory approvals, and have completed any and all federal, state and local regulatory notifications, which may be required in connection with the Divestiture transactions, and have delivered to Agent copies of all of the Divestiture Documents, certified as complete and correct by the Borrower. 9.2.9 No Default. No Default or Event of Default shall exist. 9.2.10 Funding Certificate. A certificate signed by the Chief Financial Officer of the Company dated as of the Funding Date, stating that (i) the representations and warranties set forth in Section 7 hereof are true and correct in all material respects on and as of the Funding Date, (ii) Borrower is on the Funding Date in compliance with all the terms and provisions set forth in this Agreement, and (iii) on the Funding Date no Default or Event of Default has occurred or is continuing. 9.3 Funding Date. If the Funding Date has not occurred by the end of the day on March 24, 2000, this Agreement and all other Loan Documents shall become null and void and of no further force and effect and all obligations, if any, of Agent and/or Lenders to make Loans and/or arrange for the issuance of Letters of Credit shall terminate.- SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT 10.1 Events of Default. The occurrence of one or more of the following events shall constitute an "Event of Default": 42 10.1.1 Payment of Obligations. Borrower shall fail to pay any of the Obligations on the due date thereof (whether at scheduled due date, at stated maturity, on demand, upon acceleration, upon termination of this Agreement or otherwise). 10.1.2 Misrepresentations. Any representation, warranty or other statement made or furnished to Agent or any Lender by or on behalf of Borrower or any Subsidiary of Borrower in this Agreement, any of the other Loan Documents or any instrument, certificate or financial statement furnished in compliance with or in reference thereto proves to have been false or misleading in any material respect when made or furnished or when reaffirmed pursuant to Section 7.2 hereof. 10.1.3 Breach of Specific Covenants. Borrower shall fail or neglect to perform, keep or observe any covenant contained in Sections 5.2, 6.1.1, 6.2, 8.1.1, 8.1.2, 8.1.8, 8.2 or 8.3 of this Agreement on the date that Borrower is required to perform, keep or observe such covenant. 10.1.4 Breach of Other Covenants. Any Borrower shall fail or neglect to perform, keep or observe any covenant contained in this Agreement (other than a covenant which is dealt with specifically elsewhere in this Section 10.1) and the breach of such other covenant is not cured to Agent's satisfaction within twenty (20) days after the sooner to occur of the Borrower's receipt of notice of such breach from Agent or the date on which such failure or neglect first becomes known to any officer of Borrower except that, in the case of any such failure or neglect with respect to subsection 8.1.3 hereof, such grace period shall be ten (10) days.. 10.1.5 Default Under Security Documents/Other Agreements. Any event of default shall occur under, or Borrower shall default in any material respect in the performance or observance of any material term, covenant, condition or agreement contained in, any of the Security Documents or the Other Agreements and such default shall continue beyond any applicable grace period. 10.1.6 Other Defaults. There shall occur any default or event of default on the part of Borrower under any agreement, document or instrument to which Borrower is a party or by which Borrower or any of its Property is bound, creating or relating to any Indebtedness (other than the Obligations) which singly or in the aggregate with any other such Indebtedness equals or exceeds Two Million Dollars ($2,000,000.00) if the holder of such Indebtedness would be entitled to accelerate such Indebtedness as a consequence of such default or event of default. 10.1.7 Uninsured Losses. Any loss, theft, damage or destruction of any material portion of the Collateral not fully covered (subject to such deductibles as Agent shall have permitted) by insurance. 10.1.8 Adverse Changes. There shall occur any event or condition which results in a material adverse change in the financial condition, or business operations of the Borrower which impairs Borrower's ability to perform its Obligations or brings into question the validity or enforceability of any of the Loan Documents. 43 10.1.9 Insolvency and Related Proceedings. Any Borrower shall cease to be Solvent or shall suffer the appointment of a receiver, trustee, custodian or similar fiduciary, or shall make an assignment for the benefit of creditors, or any petition for an order for relief shall be filed by or against Borrower under the Bankruptcy Code (if against Borrower, the continuation of such proceeding for more than 60 days, provided that Lenders are not obligated to make Loans or arrange for the issuance of Letters of Credit or LC Guaranties during any such proceeding and may seek any relief that they or Agent deems appropriate in such proceedings) or any Borrower shall make any offer of settlement, extension or composition to their respective unsecured creditors generally. 10.1.10 Business Disruption; Condemnation. There shall occur a cessation of a substantial part of the business of Borrower or any of its Subsidiaries for a period which would have a Material Adverse Effect; Borrower or any of its Subsidiaries shall suffer the loss or revocation of any license or permit now held or hereafter acquired by Borrower or such Subsidiary which is necessary to the continued or lawful operation of its business and which loss or revocation has a Material Adverse Effect; or Borrower or any of its Subsidiaries shall be enjoined, restrained or in any way prevented by court, governmental or administrative order from conducting all or any material part of its business affairs and such enjoining, restraint or prevention has a Material Adverse Effect; or any material lease or agreement pursuant to which Borrower or any of its Subsidiaries leases, uses or occupies any Property shall be canceled or terminated prior to the expiration of its stated term and which loss or termination has a Material Adverse Effect. 10.1.11 Change of Control. The occurrence of a Change of Control. 10.1.12 ERISA. A Reportable Event shall occur which Agent, in its sole discretion, shall determine in good faith constitutes grounds for the termination by the Pension Benefit Guaranty Corporation of any Plan or for the appointment by the appropriate United States district court of a trustee for any Plan, or if any Plan shall be terminated or any such trustee shall be requested or appointed, or if Borrower or any of its Subsidiaries is in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan resulting from Borrower's or Subsidiary's complete or partial withdrawal from such Plan. 10.1.13 Challenge to Agreement. Borrower or any of its Subsidiaries, or any Affiliate of any of them, shall challenge or contest in any action, suit or proceeding the validity or enforceability of this Agreement, or any of the other Loan Documents, the legality or enforceability of any of the Obligations or the perfection or priority of any Lien granted to Agent, for the ratable benefit of Lenders. 10.1.14 Repudiation of or Default Under Guaranty Agreement. Any Guarantor shall revoke or attempt to revoke any guaranty and surety agreement signed by such Guarantor, or shall repudiate such Guarantor's liability thereunder or shall be in default under the terms thereof. 44 10.1.15 Criminal Forfeiture. Borrower or any of its Subsidiaries shall be criminally convicted or any judicial or administrative proceeding results in a forfeiture of any material Property of Borrower or any of its Subsidiaries. 10.1.16 Judgments. Borrower or any of its Subsidiaries shall suffer any final judgment or judgments for the payment of money (in excess of insurance coverage) in excess of Two Million Dollars ($2,000,000.00) in the aggregate and the same shall not be discharged, satisfied or stayed within a period of forty-five (45) days. Notwithstanding the foregoing, for the purposes of this subsection only, no judgment amount shall be included in the calculation of the aggregate amount of judgments to the extent that such respective Borrower or Subsidiary shall obtain a bond covering the liability. 10.2 Acceleration of the Obligations. Without in any way limiting the right of Agent to demand payment of any portion of the Obligations payable on demand in accordance with Section 3.2 hereof, upon or at any time after the occurrence of an Event of Default, all or any portion of the Obligations shall, at the option of Agent (or by Agent at the written direction of the Majority Lenders) and without presentment, demand, protest or further notice by Agent, become at once due and payable and Borrower shall forthwith pay to Lenders, the full amount of such Obligations, provided that, upon the occurrence of an Event of Default specified in subsection 10.1.9 hereof (other than an Event of Default based solely on Borrower's ceasing to be Solvent), all of the Obligations shall become automatically due and payable without declaration, notice or demand by Agent. 10.3 Other Remedies. Upon the occurrence and during the continuance of an Event of Default, Agent may (or, at the written direction of Majority Lenders, shall) exercise from time to time the following rights and remedies to the extent permitted by local law: 10.3.1 The right to cease making Loans. 10.3.2 Subject to all applicable laws and regulations governing payment of Medicare and Medicaid receivables, the right to "take possession" of the Collateral, and notify all Obligors of the Agent's security interest, on behalf of and for the benefit of Lenders, in the Collateral and require payment under the Accounts to be made directly to Agent, on behalf of Lenders, and Agent may, in its own name or in the name of the Borrower, exercise all rights of a secured party with respect to the Collateral and collect, sue for and receive payment on all Accounts, and settle, compromise and adjust the same on any terms as may be satisfactory to Agent and Lenders in their sole and absolute discretion for any reason or without reason and Agent and Lenders may do all of the foregoing with or without judicial process (including without limitation notifying the United States postal authorities to redirect mail addressed to Borrower, or any of them, to an address designated by Agent). With respect to any Government Accounts, the rights transferred to Agent in connection with this Agreement do not include the right to claim payment in Agent's name from the applicable Obligor or the right to direct such Obligor to remit payment directly to Agent, except as permitted by applicable laws and regulations governing such Accounts. 45 10.3.3 All of the rights and remedies of a secured party under the Code or under other applicable law, and all other legal and equitable rights to which Agent or any Lender may be entitled, all of which rights and remedies shall be cumulative and shall be in addition to any other rights or remedies contained in this Agreement or any of the other Loan Documents, and none of which shall be exclusive. 10.3.4 The right to take immediate possession of the Collateral, and to (i) require Borrower to assemble the Collateral, at Borrower's expense, and make it available to Agent at a place designated by Agent which is reasonably convenient to both parties, and (ii) enter any premises where any of the Collateral shall be located and to keep and store the Collateral on said premises until sold (and if said premises be the Property of Borrower, Borrower agrees not to charge Agent or any Lender for storage thereof). 10.3.5 The right to sell or otherwise dispose of all or any Collateral in its then condition, or after any further manufacturing or processing thereof, at public or private sale or sales, with such notice as may be required by law, in lots or in bulk, for cash or on credit, all as Agent, in its sole discretion, may deem advisable. Borrower agrees that ten (10) days written notice to Borrower of any public or private sale or other disposition of Collateral shall be reasonable notice thereof, and such sale shall be at such locations as Agent may designate in said notice. Agent shall have the right to conduct such sales on Borrower's premises, without charge therefor, and such sales may be adjourned from time to time in accordance with applicable law. Agent shall have the right to sell, lease or otherwise dispose of the Collateral, or any part thereof, for cash, credit or any combination thereof, and Agent or any Lender may purchase all or any part of the Collateral at public or, if permitted by law, private sale and, in lieu of actual payment of such purchase price, may set off the amount of such price against the Obligations. The proceeds realized from the sale of any Collateral may be applied, first to the costs, expenses and attorneys' fees incurred by Agent or any Lender in collecting the Obligations, in enforcing the rights of Agent or any Lender under the Loan Documents and in collecting, retaking, completing, protecting, removing, storing, advertising for sale, selling and delivering any Collateral, second to the interest due upon any of the Obligations; and third, to the principal of the Obligations. If any deficiency shall arise, Borrower shall remain jointly and severally liable to Agent and Lenders therefor. 10.3.6 Agent is hereby granted a license or other right to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, tradenames, trademarks and advertising matter, or any Property of a similar nature, as it pertains to the Collateral, in advertising for sale and selling any Collateral, and Borrower's rights under all licenses and all franchise agreements shall inure to Agent's benefit to the extent permitted under such agreements. 10.3.7 Agent may, at its option, require Borrower to deposit with Agent funds equal to the LC Amount and, if Borrower fails to promptly make such deposit, Agent may advance such amount as a Revolving Credit Loan (whether or not an Overadvance is created thereby). Any such deposit or advance shall be held by Agent, for the ratable benefit of Lenders, as a reserve to fund future payments on such LC Guaranties and future drawings against such 46 Letters of Credit. At such time as all LC Guaranties have been paid or terminated and all Letters of Credit have been drawn upon or expired, any amounts remaining in such reserve shall be applied against any outstanding Obligations, or, if all Obligations have been indefeasibly paid in full, returned to Borrower. 10.4 Remedies Cumulative; No Waiver. All covenants, conditions, provisions, warranties, guaranties, indemnities, and other undertakings of Borrower contained in this Agreement and the other Loan Documents, or in any document referred to herein or contained in any agreement supplementary hereto or in any schedule or in any guaranty and surety agreement given to Agent and/or any Lender or contained in any other agreement among Agent, or any Lender and Borrower, heretofore, concurrently, or hereafter entered into, shall be deemed cumulative to and not in derogation or substitution of any of the terms, covenants, conditions, or agreements of Borrower herein contained. The failure or delay of Agent or any Lender to require strict performance by Borrower of any provision of this Agreement or to exercise or enforce any rights, Liens, powers, or remedies hereunder or under any of the aforesaid agreements or other documents or security or Collateral shall not operate as a waiver of such performance, Liens, rights, powers and remedies, but all such requirements, Liens, rights, powers, and remedies shall continue in full force and effect until all Loans and all other Obligations owing or to become owing from Borrower to Agent and Lenders shall have been fully satisfied. None of the undertakings, agreements, warranties, covenants and representations of Borrower contained in this Agreement or any of the other Loan Documents and no Event of Default under this Agreement or any other Loan Documents shall be deemed to have been suspended or waived by Agent or any Lender, unless such suspension or waiver is by an instrument in writing specifying such suspension or waiver and is signed by a duly authorized representative of Agent and directed to Borrower. 47 SECTION 11. AGENT As between Agent and Lenders, Agent and each Lender, who are now or shall become parties to this Agreement, agree as follows (and the Borrower hereby consents to, and approves, such agreement): 11.1 Appointment and Authorization. Each Lender (and each subsequent holder of any of the Notes by its acceptance thereof) hereby irrevocably appoints and authorizes Agent to take such action on its behalf and to exercise such powers under this Agreement as are delegated to Agent by the terms hereof, together with such powers as are reasonably incidental thereto. Subject to the provisions of this Agreement, Agent will handle all transactions relating to the Loans and all other Obligations, including, without limitation, all transactions with respect to Letters of Credit, LC Guaranties, this Agreement, the other Loan Documents and all related documents in accordance with its usual practices. The rights, privileges and remedies accorded to the Agent hereunder shall be exercised by Agent on behalf of and for the ratable benefit of all Lenders. 11.2 General Immunity. In performing its duties as Agent hereunder, Agent will take the same care as it takes in connection with loans in which it alone is interested. However, neither Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them hereunder or in connection herewith except as such action or omission is caused solely from its or their own gross negligence or willful misconduct unless such action was taken or omitted by Agent at the direction of Majority Lenders, so long as Agent acted or omitted to act in full compliance with such directions. 11.3 Consultation with Counsel. Agent may consult with legal counsel and any other professional advisors or consultants deemed necessary or appropriate and selected by Agent and shall not be liable for any action taken or suffered in good faith by it in accordance with the advice of such counsel or advisors. 11.4 Documents. Agent shall not be under a duty to examine into or pass upon the effectiveness, genuineness or validity of this Agreement or any of the Notes or any other Loan Document furnished pursuant hereto or in connection herewith, and Agent shall be entitled to assume that the same are valid, effective and genuine and what they purport to be. In addition, Agent shall not be liable for failing to make any inquiry concerning the accuracy, performance or observance of any of the terms, provisions or conditions of such instrument or document. 11.5 Rights as a Lender. With respect to its applicable Pro Rata Shares in each of the Loans, Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include Agent in its individual capacity. Subject to the provisions of this Agreement, Agent may lend money to and generally engage in any kind of business with Borrower and its Subsidiaries and Affiliates as if it were not Agent. Upon the occurrence and during the continuation of an Event of Default, Agent shall, upon the written 48 request of any Lender, disclose to Lenders any business transactions or arrangements then existing between Agent and Borrower (but only to the extent that such disclosure would not violate the terms of any confidentiality agreement between Agent and Borrower). 11.6 Responsibility of Agent. It is expressly understood and agreed that the obligations of Agent hereunder are only those expressly set forth in this Agreement and that Agent shall be entitled to assume that no Default or Event of Default, has occurred and is continuing, unless Agent has actual knowledge of such fact. Except to the extent Agent is required by Lenders pursuant to the express terms hereof to take a specific action, Agent shall be entitled to use its discretion with respect to exercising or refraining from exercising any rights which may be vested in it by, or with respect to taking or refraining from taking any action or actions that it may be able to take under or in respect of, this Agreement and the Loan Documents. Agent shall incur no liability under or in respect of this Agreement and the Loan Documents by acting upon any notice, consent, certificate, warranty or other paper or instrument believed by it to be genuine or authentic or to be signed by the proper party or parties, or with respect to anything that it may do or refrain from doing in the reasonable exercise of its judgment, or that may seem to it to be necessary or desirable under the circumstances. Agent shall have no responsibility to carry out audits or otherwise examine the books and records or properties of Borrower, except as Agent in its reasonable discretion deems appropriate. The relationship between Agent and each Lender is and shall be limited to that of agent and principal and nothing herein shall be construed to constitute Agent a joint venturer with any Lender, a trustee or fiduciary for any Lender or for the holder of a participation, nor impose upon Agent duties and obligations other than those set forth herein. 11.7 Collections and Disbursements. 11.7.1 Agent will have the right to collect and receive all payments of the Obligations, and to collect and receive all reimbursements for draws or payments made under the Letters of Credit or LC Guaranties respectively, together with all fees, charges or other amounts due under this Agreement and the other Loan Documents, and Agent will remit to each Lender, according to its applicable Pro Rata Percentage, all such payments actually received by Agent (subject to any required clearance procedures) in accordance with the settlement procedures established from time to time. Settlements (including adjustments of the proportionate shares among the Lenders) shall occur on such dates as Agent may elect in its sole discretion but which shall be no less frequently than weekly. Between settlement dates, all collections and payments shall be applied at Agent's discretion. 11.7.2 If any such payment received by Agent or Issuer is rescinded or otherwise required to be returned for any reason at any time, whether before or after termination of this Agreement and the other Loan Documents (unless such rescission or return occurs before the amount of such payment has been applied to the Obligations or otherwise reflected in a settlement as provided for in subsection 11.7.1 above), each Lender will, upon written notice from Agent, promptly pay over to Agent its Pro Rata Percentage of the amount so rescinded or returned (together with interest and other fees thereon if also required to be rescinded or returned). 49 11.7.3 All payments by Agent and Lenders to each other hereunder shall be in immediately available funds. Agent will at all times maintain proper books of account and records reflecting the interest of each Lender in the Loans, in a manner customary to Agent's keeping of such records, which books and records shall be available for inspection by each Lender at reasonable times during normal business hours, at such Lender's sole expense. Agent may treat the payees of any Note as the holder thereof until written notice of the transfer thereof shall have been received by Agent in accordance with Section 11.16. In the event that any Lender shall receive any payments in reduction of the Loans in an amount greater than its applicable Pro Rata Percentage in respect of Obligations to Lenders evidenced hereby (including, without limitation amounts obtained by reason of setoffs), such Lender shall hold such excess in trust for Agent (on behalf of all other Lenders) and shall promptly remit to Agent such excess amount so that the amounts received by each Lender hereunder shall at all times be in accordance with its applicable Pro Rata Percentage. To the extent necessary for each Lender's actual percentage of all outstanding Loans to equal its applicable Pro Rata Percentage, the Lender having a greater share of any payment(s) than its applicable Pro Rata Percentage shall acquire a participation in the applicable Pro Rata Share of the other Lenders as determined by Agent. 11.8 Indemnification. To the extent not indemnified by Borrower, Lenders hereby each indemnify Agent and Issuer ratably according to the respective amounts of each Lender's Pro Rata Percentage, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by or asserted against Agent (or its Affiliate, as the case may be) in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted by Agent (or its Affiliate, as the case may be) under or related to this Agreement or the Loans, provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from Agent's (or its Affiliate's, as the case may be) gross negligence or willful misconduct unless such action was taken or omitted by Agent (or its Affiliate, as the case may be) at the direction of Majority Lenders, so long as Agent acted or omitted to act in full compliance with such directions. Agent shall have the right to deduct, from any amounts to be paid by Agent to any Lender hereunder, any amounts owing to Agent (or its Affiliate, as the case may be) by such Lender by virtue of this Section. 11.9 Expenses. (a) All out-of-pocket costs and out-of-pocket expenses incurred by Agent and not reimbursed on demand by Borrower, in connection with the analysis, negotiation, preparation, consummation, creation, amendment, administration, termination, work-out, forbearance and enforcement of the Loans (including, without limitation, audit expenses, counsel, consultant and expert fees and expenditures to protect, preserve and defend Agent's and each Lender's rights and interest under this Agreement and under the other Loan Documents) shall be shared and paid on demand by Lenders pro rata based on their applicable Pro Rata Percentage. 50 (b) Agent shall have the right to deduct, from amounts to be paid by Agent to any Lender hereunder, any amount owing to Agent by such Lender by virtue of this Section. 11.10 No Reliance. By execution of or joining in this Agreement, each Lender acknowledges that it has entered into this Agreement and the other Loan Documents solely upon its own independent investigation and is not relying upon any information supplied by or any representations made by Agent. Each Lender shall continue to make its own analysis and evaluation of Borrower. Agent makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower, or any Account Debtor of Borrower; the accuracy, sufficiency or currency of any information concerning the financial condition, prospects or results of operations of Borrower; or the sufficiency, authenticity, legal effect, validity or enforceability of this Agreement or the other Loan Documents. Agent assumes no responsibility or liability with respect to the collectability of the Obligations or the performance by Borrower of any obligation under this Agreement or the Loan Documents. 11.11 Reporting. During the term of this Agreement, Agent will (to the extent received by Agent) promptly furnish each Lender with (i) copies of all notices, financial statements, borrowing base certificates and supporting documentation of Borrower required to be delivered or obtained hereunder and (ii) such other financial statements and reports and other information in Agent's possession as any Lender may reasonably request; provided however, that Agent will not be liable to any Lender for Agent's failure to do so unless such failure constitutes gross negligence or willful misconduct or repeated failure to comply with this provision after repeated requests by Lender. Agent will immediately notify Lenders when it receives actual knowledge of any Event of Default under the Loan Documents. 11.12 Removal of Agent. Agent may resign at any time upon giving thirty (30) days prior written notice thereof to Lenders and Borrower. Agent may be removed as Agent hereunder upon the written consent of all Lenders exclusive of Agent upon the following: (i) willful misconduct in the performance of Agent's duties or responsibilities under this Agreement as finally determined by a court of competent jurisdiction; or (ii) if a receiver, trustee or conservator is appointed for Agent or any state or federal regulatory authority assumes management or control of Agent or if, under applicable law, the administrative or discretionary duties and responsibilities of Agent hereunder become controlled by or subject to the approval of any state or federal regulatory authority. Upon any resignation or permitted removal of Agent, Lenders shall have the right to appoint a successor Agent by majority vote of the Lenders (based upon the Pro Rata Percentages of the Lenders). Upon the acceptance of the appointment as a successor Agent hereunder by such successor Agent, such successor Agent shall thereupon succeed to and become vested with all rights, powers, obligations and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations hereunder. 11.13 Action on Instructions of Lenders. With respect to any provision of this Agreement, or any issue arising thereunder, concerning which Agent is authorized to act or withhold action by direction of Lenders (or, if applicable, Majority Lenders), Agent shall in all cases be fully protected in so acting, or in so refraining from acting, hereunder in accordance 51 with written instructions signed by Lenders (or, if applicable, Majority Lenders). Such instructions and any action taken or failure to act pursuant thereto shall be binding on all Lenders and on all holders of the Notes. 11.14 Several Obligations. The obligation of each Lender is several, and neither Agent nor any other Lender shall be responsible for the obligation and commitment of any other Lender. 11.15 Consent of Lenders. (a) Except as expressly provided herein, Agent shall have the sole and exclusive right to service, administer and monitor the Loans and the Loan Documents, including, without limitation, the right to exercise all rights, remedies, privileges and options under this Agreement and under the other Loan Documents, including, without limitation, the credit judgment with respect to the making of Loans and the determination as to the basis on which and extent to which Loans may be made and, upon consultation with Issuer or its Affiliate (as applicable), the determination as to whether draws should be honored for Letters of Credit. To the extent reasonably practicable under the circumstances, without impairing (in Agent's judgment) the Lenders' rights and interests concerning the Borrower or the Collateral, Agent shall give notice to and shall consult with Lenders prior to enforcing, or taking any action to collect, any and all of the Obligations of Borrower or any other Person under the Loan Documents or acquiring any or all of the Collateral (title to any such Collateral being held for the benefit of the Lenders according to this Agreement). Agent may exercise such rights directly or by employing others to operate, manage, preserve, protect and dispose of such Collateral. (b) Notwithstanding anything to the contrary contained in subsection 11.15(a) above, Agent shall not without the prior written consent of all Lenders: (i) extend any payment date under the Notes or this Agreement or the Revolving Credit Maturity Date, (ii) reduce any interest rate applicable to any of the Loans, any fee payable to Lenders hereunder or any fee for any Letter of Credit or LC Guaranty, (iii) increase the Total Revolving Credit Facility, (iv) waive any Event of Default under subsection 10.1.1, (v) compromise or settle all or a portion of the Obligations, (vi) release any Borrower or Subsidiary Guarantor or any other Person liable in any way on account of the Obligations except in connection with termination of the Revolving Credit Facility, and full payment and satisfaction of all Obligations (including, without limitation, obligations of Borrower under the Revolving Credit Note), except that, if all of the stock of Borrower or Subsidiary Guarantor is sold in a transaction permitted by subsection 8.2.9(iii), Agent shall release such Borrower or Subsidiary Guarantor from its obligations hereunder and under any of the other Loan Documents upon the request of Borrower, (vii) amend the definition of Borrowing Base, Eligible Accounts, or Majority Lenders, (viii) amend this subsection 11.15(b), or (ix) modify the permitted use of proceeds, provided that, Agent may, in its sole discretion and without the consent of any Lenders, release insurance proceeds collected under subsection 6.1.2 to Borrower to permit the repair, reconstruction or replacement of the loss or damage to Collateral. To the extent applicable, upon receipt of written consent of all Lenders with respect to any of the foregoing, Agent shall act in accordance therewith. 52 (c) Notwithstanding anything to the contrary contained in subsection 11.15(a) above, and subject to any applicable limitation set forth in subsection 11.15(b) above, Agent shall not, without the prior written consent of Majority Lenders: (i) waive any Event of Default (other than an Event of Default (A) resulting from a breach of any covenant or agreement under Section 8.1 which may be consented to by Agent within its discretion, or (B) under subsection 10.1.1 which is subject to clause (iv) of subsection 11.15(b) above); (ii) consent to Borrower's taking any action which, if taken, would constitute an Event of Default under this Agreement or under any of the other Loan Documents; (iii) amend or modify or agree to an amendment or modification of any provision of this Agreement; or (iv) release Collateral in excess of One Million Dollars ($1,000,000.00) in the aggregate in any fiscal year. To the extent applicable, upon receipt of written consent of Majority Lenders with respect to any of the foregoing, Agent shall act in accordance therewith. (d) After an acceleration of the Obligations, Agent shall have the sole and exclusive right, after consultation (to the extent reasonably practicable under the circumstances) with all Lenders and, unless otherwise directed by Majority Lenders, to exercise or refrain from exercising any and all right, remedies, privileges and options under this Agreement or the other Loan Documents and available at law or in equity to protect the rights of Agent and Lenders and collect the Obligations, including, without limitation, instituting and pursuing all legal actions against Borrower or to collect the Obligations, or defending any and all actions brought by Borrower or other Person; or incurring expenses or otherwise making expenditures to protect the Collateral, the Loans or Agent's or any Lenders' rights or remedies. (e) To the extent Agent is required to obtain or otherwise elects to seek the consent of Lenders to an action Agent desires to take, if any Lender fails to notify Agent, in writing, of its consent or dissent to any request of Agent hereunder within ten (10) Business Days of such Lender's receipt of such request, such Lender shall be deemed to have given its consent thereto. (f) Notwithstanding any other provision of this Section 11.15 and without impairing Agent's discretionary rights under Section 10, Agent shall have the right (in its sole discretion) to permit to exist Overadvances to be outstanding at any time up to an aggregate amount of Five Million Dollars ($5,000,000.00) without right of disapproval by or consent of any Lenders, and be entitled in its sole discretion to permit Borrower a period not to exceed ninety (90) days to repay or remove such Overadvance. Notwithstanding the foregoing, Agent shall not grant any request for an Overadvance to the extent that the aggregate amount of all Revolving Credit Loans outstanding (after giving effect to such requested Overadvance) would exceed the Total Revolving Credit Facility. 11.16 Participations and Assignments: Borrower hereby acknowledges and agrees that any Lender may at any time subject to the prior written consent of Majority Lenders: (a) grant participations in up to forty-nine percent (49%) of its Pro Rata Share of the Loans and of its right, title and interest therein or in or to this Agreement (collectively, "Participations") to any other lending office of such Lender or to any Participating Lender; provided, however, that: (i) all amounts payable by Borrower to each Lender hereunder shall be determined as if such Lender 53 had not granted such Participation; and (ii) any agreement pursuant to which any Lender may grant a Participation: (A) shall provide that such Lender shall retain the sole right and responsibility to enforce the obligations of Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provisions of this Agreement; (B) such participation agreement may provide that such Lender will not agree to any modification, amendment or waiver of this Agreement without the consent of the Participating Lender if such amendment, modification or waiver would reduce the principal of or rate of interest on the Loans, increase the amount of the Total Revolving Credit Facility, or postpone the date fixed for any scheduled payment of principal of or interest on the Loans; and (C) shall not relieve such Lender from its obligations, which shall remain absolute, to (subject to the terms and conditions hereof) make Loans hereunder; and (b) assign, pursuant to a written assignment and acceptance in form and substance satisfactory to Agent (the "Assignment") all or any percent of its Pro Rata Share of the Loans, or any right, title and interest therein or in and to this Agreement to any financial institution so long as (i) after any such assignment occurs, the Pro Rata Share of each Lender under this Agreement equals at least Five Million Dollars ($5,000,000.00), (ii) Agent and (if no Event of Default is outstanding) Borrower consents to such assignment in writing, which consent shall not be unreasonably withheld or delayed and (iii) Agent receives an assignment fee from the assigning Lender (not reimbursable by or chargeable to the Borrower) of Five Thousand Dollars ($5,000.00). Upon the execution by the assignor and assignee of the Assignment, and delivery to Agent of the Assignment for acceptance, the assigning Lender shall, to the extent provided in the Assignment, be released from its obligations under this Agreement and the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment have the rights and obligations of a Lender hereunder. All Participations and assignments hereunder shall be of all of the Loans in the same proportion as is the Pro Rata Percentage of all Loans of the Lender making the assignment or granting the Participation. Borrower agrees that it will use its best efforts to assist and cooperate with Agent in any manner reasonably requested by Agent to effect the sale of participations in or assignments pursuant to this Section 11.16, including, without limitation, assisting in the preparation of appropriate disclosure documents. Borrower further agrees that Agent may disclose credit information regarding Borrower to any potential participant or assignee. 11.17 Borrower's Consent. Any amendment to Section 11 (other than Section 11.16) of this Agreement shall not require Borrower's consent. 11.18 Security Interest of Lender. To the extent any Lender obtains a Lien upon or security interest in any of the Collateral in support of any Obligation of Borrower, or any of them, that does not arise under this Agreement or any of the Loan Documents (other than a purchase money security interest or a Capitalized Lease Obligation, the incurrence of and existence of which is otherwise permitted by this Agreement), such Lien and security interest shall be subordinate in priority to the Lien upon and security interest in the Collateral of Agent, held for the ratable benefit of Lenders. 54 SECTION 12. MISCELLANEOUS 12.1 Power of Attorney. Subject to and consistent with Medicare and Medicaid regulations, Borrower hereby irrevocably designates, makes, constitutes and appoints Agent (and all Persons designated by Agent) as Borrower's true and lawful attorney (and agent-in-fact) and Agent, or Agent's agent, may, without notice to Borrower, and in either Borrower's or Agent's name, but at the cost and expense of Borrower: 12.1.1 Agent or said agent, in its sole discretion, may for the purpose of deposit, endorse Borrower's name on any checks, notes, acceptances, drafts, money orders or any other evidence of payment or proceeds of the Collateral which come into the possession of Agent or any Lender or under Agent's or any Lender's control. 12.1.2 At such time or times after the occurrence and during the continuance of an Event of Default as Agent, or Agent's agent, in its sole discretion, may determine: (i) demand payment of the Accounts from the Account Debtors, enforce payment of the Accounts by legal proceedings or otherwise, and generally exercise all of Borrower's rights and remedies with respect to the collection of the Accounts; (ii) settle, adjust, compromise, discharge or release of the Accounts or other Collateral or any legal proceedings brought to collect any of the Accounts or other Collateral; (iii) sell or assign any of the Accounts and other Collateral upon such terms, for such amounts and at such time or times as Agent deems advisable; (iv) take control, in any manner, of any item of payment or proceeds relating to any Collateral; (v) prepare, file and sign Borrower's name to a proof of claim in bankruptcy or similar document against any Account Debtor or to any notice of lien, assignment or satisfaction of lien or similar document in connection with any of the Collateral; (vi) subject to any applicable confidentiality restrictions receive, open and dispose of all mail addressed to Borrower and to notify postal authorities to change the address for delivery thereof to such address as Agent may designate; (vii) endorse the name of Borrower upon any of the items of payment or proceeds relating to any Collateral and deposit the same to the account of Agent on account of the Obligations; (viii) endorse the name of Borrower upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to the Accounts, Inventory and any other Collateral; (ix) use Borrower's stationery and sign the name of Borrower to verifications of the Accounts and notices thereof to Account Debtors; (x) subject to any applicable confidentiality restrictions use the information recorded on or contained in any data processing equipment and computer hardware and software relating to the Accounts, Inventory, Equipment and any other Collateral; (xi) make and adjust claims under policies of insurance; and (xii) do all other acts and things necessary, in Agent's determination, to fulfill Borrower's obligations under this Agreement. 12.2 Indemnity. Borrower hereby agrees to indemnify Agent and each Lender and hold Agent and each Lender harmless from and against any liability, loss, damage, suit, action or proceeding ever suffered or incurred by Agent and any Lender (including reasonable attorneys fees and legal expenses) as the result of Borrower's failure to observe, perform or discharge Borrower's duties hereunder except to the extent resulting from or relating to Agent's gross negligence or wilful misconduct. In addition, Borrower shall defend Agent and each Lender against and hold Agent and each Lender harmless from all claims of any Person with respect to the Collateral except to the extent resulting from or relating to Agent's gross negligence or 55 willful misconduct. Without limiting the generality of the foregoing, these indemnities shall extend to any claims asserted against Agent and each Lender by any Person under any Environmental Laws or similar laws by reason of Borrower's or any other Person's failure to comply with laws applicable to solid or hazardous waste materials or other toxic substances. Notwithstanding any contrary provision in this Agreement, the obligation of Borrower under this Section 12.2 shall survive the payment in full of the Obligations and the termination of this Agreement. 12.3 Modification of Agreement; Sale of Interest. This Agreement may not be modified, altered or amended, except by an agreement in writing signed by Borrower, Agent and the Lenders required hereunder. Borrower may not sell, assign or transfer any interest in this Agreement, any of the other Loan Documents, or any of the Obligations, or any portion thereof, including, without limitation, Borrower's rights, title, interests, remedies, powers, and duties hereunder or thereunder. 12.4 Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 12.5 Successors and Assigns. This Agreement, the Other Agreements and the Security Documents shall be binding upon and inure to the benefit of the successors and assigns of Borrower, Agent and each Lender permitted under Section 11.16 hereof. 12.6 Cumulative Effect; Conflict of Terms. The provisions of the Other Agreements and the Security Documents are hereby made cumulative with the provisions of this Agreement. Except as otherwise provided in Section 3.2 hereof and except as otherwise provided in any of the other Loan Documents by specific reference to the applicable provision of this Agreement, if any provision contained in this Agreement is in direct conflict with, or inconsistent with, any provision in any of the other Loan Documents, the provision contained in this Agreement shall govern and control. 12.7 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. 12.8 Notice. Except as otherwise provided herein, all notices, requests and demands to or upon a party hereto, to be effective, shall be in writing and shall be sent by certified or registered mail, return receipt requested, by personal delivery against receipt, by overnight courier or by facsimile and, unless otherwise expressly provided herein, shall be deemed to have been validly served, given or delivered immediately when delivered against receipt, three (3) Business Days after deposit in the mail, postage prepaid, one (1) Business Day after deposit with 56 an overnight courier or, in the case of facsimile notice, when sent, provided that a copy is sent either by mail or overnight courier immediately thereafter addressed as follows: If to Agent or any Lender: Fleet Capital Corporation 60 East 42nd Street 3rd Floor New York, NY 10017 Attention: Loan Administration Manager Facsimile No.: 212-885-8808 With a copy to: Blank Rome Comisky & McCauley LLP One Logan Square Philadelphia, PA 19103 Attention: Lawrence F. Flick, II, Esquire Facsimile No.: 215-569-5522 If to Borrower: Gentiva Health Services, Inc. Olsten Health Services Holding Corp. 175 Broad Hollow Road Melville, NY 11747 Attention: John J. Collura Facsimile No.: 631 - 844 - 7538 With a copy to: Cahill Gordon & Reindel 80 Pine Street New York, NY 10005 Attention: John Schuster, Esquire Facsimile No.: 212 - 269 - 5420 If to Lenders: To the address for each Lender set forth on Annex I hereto. or to such other address as each party may designate for itself by notice given in accordance with this Section 12.8; provided, however, that any notice, request or demand to or upon Agent pursuant to subsection 3.1.1 or 4.2.2 hereof shall not be effective until received by Agent. Any notice provided hereunder to Borrower shall be deemed to have been provided to, and shall bind and be effective against, Borrower. 57 12.9 Agent's and Lender's Consent. Whenever Agent's or any Lender's consent is required to be obtained under this Agreement, any of the Other Agreements or any of the Security Documents as a condition to any action, inaction, condition or event, Agent or any Lender shall be authorized to give or withhold such consent in its sole and absolute discretion (except to the extent expressly provided otherwise in this Agreement) and to condition its consent upon the giving of additional collateral security for the Obligations, the payment of money or any other matter. 12.10 Credit Inquiries. Borrower hereby authorizes and permits Agent and each Lender to respond to usual and customary credit inquiries from third parties concerning Borrower or any of its Subsidiaries. 12.11 Time of Essence. Time is of the essence of this Agreement, the Other Agreements and the Security Documents. 12.12 Entire Agreement. This Agreement and the other Loan Documents, together with all other instruments, agreements and certificates executed by the parties in connection therewith or with reference thereto, embody the entire understanding and agreement between the parties hereto and thereto with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings and inducements, whether express or implied, oral or written. 12.13 Interpretation. No provision of this Agreement or any of the other Loan Documents shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or dictated such provision. 12.14 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN NEW YORK. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK; PROVIDED, HOWEVER, THAT IF ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN NEW YORK, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE OF AGENT'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF AGENT'S OR ANY LENDER'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF NEW YORK. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWER, AGENT OR ANY LENDER, BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPREME COURT OF NEW YORK, SITTING IN NEW YORK COUNTY, OR, AT AGENT'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW YORK, SHALL HAVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND AGENT AND/OR ANY LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING 58 OUT OF OR RELATED TO THIS AGREEMENT. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON BORROWER'S ACTUAL RECEIPT THEREOF. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF AGENT OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY AGENT OR ANY LENDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION. 12.15 WAIVERS BY BORROWER. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY JURY (WHICH EACH LENDER AND AGENT HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL; (ii) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY AGENT AND/OR ANY LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER AGENT AND/OR ANY LENDER MAY DO IN THIS REGARD; (iii) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING AGENT AND/OR ANY LENDER TO EXERCISE ANY OF AGENT'S AND/OR ANY LENDER'S REMEDIES; (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; AND (v) NOTICE OF ACCEPTANCE HEREOF. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO AGENT'S AND EACH LENDER'S ENTERING INTO THIS AGREEMENT AND THAT AGENT AND EACH LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE 59 EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 12.16 Joint and Several Liability. The liability of each of the entities comprising the "Borrower" hereunder shall be joint and several. 12.17 Release Upon Termination. Upon the termination of this Agreement pursuant to Section 4.2 hereof and the full, final and indefeasible payment in cash of all of the Obligations hereunder, or any sale or transfer (but not including any lease transfer) of Collateral by Borrower or any Subsidiary permitted by the terms of this Agreement, the Agent shall, upon the request and at the sole cost and expense of Borrower, forthwith assign, transfer and deliver to Borrower, against receipt and without recourse or warranty by Agent, (i) all of the Collateral (or in the case of a sale or transfer, such of the Collateral as is subject to such sale or transfer) that may be in possession of the Agent and shall not have been sold by Agent in accordance with or otherwise applied to the Obligations pursuant to the terms hereof, and (ii) with respect to such Collateral as is not in possession of the Agent, proper documents and instruments (including UCC-3 termination statements or releases) acknowledging the termination hereof or the release of such Collateral (or, in the case of a sale or transfer such of the Collateral, as is subject to such sale or transfer), as the case may be. Notwithstanding anything else herein, Agent shall retain any Collateral provided to Agent under Section 1.3 for the purpose of securing any Letter(s) of Credit or LC Guaranties with expiration dates beyond the last day of the Original Term until such time as such Letter(s) of Credit and/or LC Guarant(ies) shall have expired. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] 60 IN WITNESS WHEREOF, this Loan and Security Agreement has been duly executed on the day and year specified at the beginning of this Agreement. GENTIVA HEALTH SERVICES, INC. By: ------------------------------------ Print name: ------------------------------------ Title: ------------------------------------ OLSTEN HEALTH SERVICES HOLDING CORP. By: ------------------------------------ Print name: ------------------------------------ Title: ------------------------------------ [SIGNATURES CONTINUED ON FOLLOWING PAGE] S-1 SUBSIDIARY BORROWING CORPORATIONS: New York Healthcare Services, Inc. OHS Service Corp. Olsten Certified HealthCare Corp. Olsten Flying Nurses Corp. Olsten Health Services (Certified), Inc. Olsten Health Services (Infusion), Inc. Olsten Health Services (Quantum) Corp. Olsten Health Services (Staffing), Inc. Olsten Health Services (USA), Inc. Olsten Network Management, Inc. Olsten Network Management (Area One) Corp. Olsten Network Management (Area Two) Corp. Olsten Network Management (Area Three ) Corp. Olsten Services of New York, Inc. QC-Medi New York, Inc. Quality Care - USA, Inc. Quality Managed Care, Inc. The I.V. Clinic, Inc. The I.V. Clinic III, Inc. By: ------------------------------------ Print name: ------------------------------------ Title: ------------------------------------ AGENT: FLEET CAPITAL CORPORATION By: /s/ Frank J. Galle ------------------------------------ Print name: Frank J. Galle ------------------------------------ Title: Senior Vice President ------------------------------------ [SIGNATURES CONTINUED ON FOLLOWING PAGE] S-2 LENDERS: FLEET CAPITAL CORPORATION By: /s/ Frank J. Galle ------------------------------------ Print name: Frank J. Galle ------------------------------------ Title: Senior Vice President ------------------------------------ GMAC COMMERCIAL CREDIT LLC By: ------------------------------------ Print name: ------------------------------------ Title: ------------------------------------ U.S. BANK NATIONAL ASSOCIATION By: /s/ Robert W. Josephson ------------------------------------ Print name: Robert W. Josephson ------------------------------------ Title: Vice President ------------------------------------ debis FINANCIAL SERVICES, INC. By: /s/ James M. Vandervalk ------------------------------------ Print name: James M. Vandervalk ------------------------------------ Title: President, ABL Division ------------------------------------ [SIGNATURES CONTINUED ON FOLLOWING PAGE] S-3 DIME COMMERCIAL CORP. By: /s/ James A. Fisher ------------------------------------ Print name: James A. Fisher ------------------------------------ Title: Senior Vice President ------------------------------------ IBJ WHITEHALL BUSINESS CREDIT CORPORATION By: /s/ Andrew Sepe ------------------------------------ Print name: Andrew Sepe ------------------------------------ Title: Assistant Vice President ------------------------------------ NATIONAL BANK OF CANADA By: /s/ Michael F. McIntyre ------------------------------------ Print name: Michael F. McIntyre ------------------------------------ Title: Assistant Vice Presdient ------------------------------------ By: /s/ Vincent Lima ------------------------------------ Print name: Vincent Lima ------------------------------------ Title: Vice President ------------------------------------ SIEMENS CREDIT CORPORATION By: /s/ Frank Amodio ------------------------------------ Print name: Frank Amodio ------------------------------------ Title: Vice President - Credit ------------------------------------ S-4 APPENDIX A GENERAL DEFINITIONS When used in the Loan and Security Agreement dated as of March ___, 2000 by and among Fleet Capital Corporation, as agent, the financial institutions identified as "Lenders" on Annex I attached thereto, Gentiva Health Services, Inc. Olsten Health Services Holding Corp., and each of the Subsidiary Borrowing Corporations listed on the signature pages hereto (each a "Borrower," and collectively "Borrower"), the following terms shall have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa): Account Debtor - any Person who is or may become obligated under or on account of an Account. Accounts - all of each Borrower's accounts, accounts receivable and rights to payment for services performed or for goods and Inventory sold or leased by such Borrower including, without limitation, (a) all "accounts" as defined in the Code, (b) all health-care-insurance receivables, including the third party reimbursable portion of accounts receivable owing to a Borrower arising out of the delivery by Borrower of medical, surgical, diagnostic, treatment or other professional or medical or other healthcare related services and/or the supply of goods related to any of such services (whether such services are supplied by Borrower or a third party), including all rights to reimbursement under any agreements with an Obligor, (c) all accounts, general intangibles (other than general intangibles to the extent related to any Borrower's Equipment or fixtures), rights, remedies, guarantees, and security interests in respect of the foregoing, all rights of enforcement and collection, all books and records (other than medical records, unless patient consents with respect thereto have been received) evidencing or related to the foregoing, and all rights under this Agreement in respect of the foregoing, whether now owned or hereafter created or acquired by Borrower or in which Borrower now has acquired or hereafter acquires any interest, (d) all information and data compiled or derived by such Borrower in respect of such accounts receivable (other than any such information and data subject to legal restrictions of patient confidentiality), (e) Government Accounts and (f) all proceeds of any of the foregoing. Additional Convertible Debentures - see "Convertible Debentures." Adjusted LIBOR Rate - for any LIBOR Interest Period, as applied to a Revolving Credit LIBOR Rate Loan, the rate per annum (rounded upward if necessary to the next 1/16 of 1%) determined pursuant to the following formula: Adjusted LIBOR Rate = LIBOR Rate (1.00 - Reserve Percentage) For purposes hereof, "LIBOR Rate" shall mean the arithmetic average of the rates of interest per annum (rounded upward, if necessary, to the next 1/16 of 1%) at which Bank is offered deposits of the United States Dollar in the interbank euro dollar loan market on or about 11:00 A.M London time two (2) London Business Days prior to the commencement of such LIBOR Interest Period on amounts substantially equal to the Revolving Credit LIBOR Rate Loan as to which Borrower may elect the Adjusted LIBOR Rate to be applicable with a maturity of comparable duration to the LIBOR Interest Period selected by Borrower for such Revolving Credit LIBOR Rate Loan Adjusted Net Earnings From Operations - with respect to any fiscal period, means the net earnings (or net loss) as reflected on the financial statements of Borrower supplied to Lender pursuant to subsection 8.1.3 of the Agreement, but excluding: (i) any gain or loss arising from the sale of capital assets; (ii) any gain arising from any write-up of assets; (iii) earnings of any Subsidiary of any Borrower accrued prior to the date it became a Subsidiary; (iv) earnings of any corporation, substantially all the assets of which have been acquired in any manner by any Borrower, realized by such corporation prior to the date of such acquisition; (v) net earnings of any business entity (other than a Subsidiary of any Borrower) in which any Borrower has an ownership interest unless such net earnings shall have actually been received by such Borrower in the form of cash distributions; (vi) any portion of the net earnings of any Subsidiary of any Borrower which for any reason is unavailable for payment of dividends to any of the Borrower; (vii) the earnings of any Person to which any assets of any Borrower shall have been sold, transferred of disposed of, or into which any Borrower shall have merged, or been a party to any consolidation or other form of reorganization, prior to the date of such transaction; (viii) any gain arising from the acquisition of any Securities of any Borrower; and (ix) any gain arising from extraordinary or non-recurring items. Affiliate - a Person (other than a Subsidiary): (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, a Person; (ii) which beneficially owns or holds 25% (or, when used in the definition of Eligible Account, 5%) or more of any class of the Voting Stock of a Person; or (iii) 25% (or, when used ii in the definition of Eligible Account, 5%) or more of the Voting Stock (or in the case of a Person which is not a corporation, 25% (or, when used in the definition of Eligible Account, 5%) or more of the equity interest) of which is beneficially owned or held by a Person or a Subsidiary of a Person. Agreement - the Loan and Security Agreement referred to in the first sentence of this Appendix A, all Exhibits thereto and this Appendix A, all as amended, restated, replaced or supplemented from time to time. Aggregate Adjusted Availability - an amount equal to the sum of (i) the Borrowing Base plus (ii) Borrower's unrestricted cash on hand, less the sum of (i) the amount of Revolving Credit Loans and the LC Amount as of the Funding Date plus (ii) all sums due and owing to trade creditors which remain outstanding beyond normal trade terms or special terms granted by trade creditors, plus (iii) any reserves against the Borrowing Base permitted by subsection 1.1.1 hereof, plus (iv) closing payments and expenses. Applicable Margin - with respect to Revolving Credit LIBOR Rate Loans, 2.5% and with respect to Revolving Credit Base Rate Loans, .25%. Availability - the amount of money which Borrower is entitled to borrow from time to time as Revolving Credit Loans, such amount being the difference derived when the sum of (i) the principal amount of Revolving Credit Loans then outstanding (including any amounts which Agent and/or any Lender may have paid for the account of Borrower pursuant to any of the Loan Documents and which have not been reimbursed by Borrower) and (ii) the LC Amount, is subtracted from the Borrowing Base. If the amount outstanding is equal to or greater than the Borrowing Base, Availability is zero. Bank - Fleet National Bank, N.A., or its successor, or such other bank as Agent may hereafter designate with the consent of Borrower, which consent shall not be unreasonably withheld. Base Rate - the rate of interest announced or quoted by Bank from time to time as its prime rate for commercial loans, whether or not such rate is the lowest rate charged by Bank to its most preferred borrowers; and, if such prime rate for commercial loans is discontinued by Bank as a standard, a comparable reference rate designated by Bank as a substitute therefor shall be the Base Rate. Borrowing Base - as at any date of determination thereof, an amount equal to the lesser of: (i) an amount equal to Total Revolving Credit Facility; or (ii) an amount equal to 80% of the net amount of Eligible Accounts outstanding at such date; provided, however, that loans against Government Accounts shall at no time exceed in the aggregate the lesser of (a) Fifty Million Dollars ($50,000,000) or (b) 33% of Availability. For the purposes hereof, the net amount of Eligible Accounts at any time shall be the face amount of such Eligible Accounts less any and all returns, rebates, discounts (which may, iii at Agent's option, be calculated on shortest terms), credits, allowances or excise taxes of any nature at any time issued, owing, claimed by Account Debtors, granted, outstanding or payable in connection with such Accounts at such time. Business Day - any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are closed. Capital Expenditures - expenditures made or liabilities incurred for the acquisition of any fixed assets or improvements, replacements, substitutions or additions thereto which have a useful life of more than one year, including the total principal portion of Capitalized Lease Obligations all as determined in accordance with GAAP. Capitalized Lease Obligation - any Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. Change of Control - if at any time (i) with respect to the Company, any person (as such term is used in Section 13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934 as in effect at the date of the Closing) or related persons constituting a group (as such term is used Rule 13d-5 under the Securities Exchange Act of 1934 as in effect as of the date of the Closing) become the "beneficial owners" (as such term is used in Rule 13(d)3 of the Securities Exchange Act of 1934 as in effect on the date of the Closing), directly or indirectly, of more than Fifty Percent (50.0%) of the total voting power of the then outstanding Capital Stock of Borrower, or (ii) with respect to any Borrower or Subsidiary Guarantor other than the Company, such Borrower or Subsidiary Guarantor shall cease to be a wholly-owned direct or indirect subsidiary of the Company (except in connection with a disposition of all of the stock of any such Borrower or Subsidiary Guarantor in accordance with the terms of subsection 8.2.9 (iii)). Notwithstanding the foregoing, the Gentiva Trust may issue, and other Persons besides the Company may own, Convertible Trust Preferred Stock which is issued in accordance with the terms of this Agreement. Chattel Paper - as defined in the Code, whether now owned or hereafter acquired by Borrower. Closing Date - the date on which all of the conditions precedent to the effectiveness of this Agreement in Section 9.1 of the Agreement are satisfied. Code - the Uniform Commercial Code as adopted and in force in the State of New York, as from time to time in effect; provided, however, that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the security interest in any item or portion of the Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, "Code" shall mean the Uniform Commercial Code as in effect in such other jurisdiction as from time to time in effect, for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection. iv Collateral - all of the Property and interests in Property granted to Agent, for the ratable benefit of Lenders, pursuant to Section 5 of the Agreement, and all other Property and interests in Property that now or hereafter is granted to Agent, for the ratable benefit of Lenders, to secure the payment and performance of any of the Obligations. Collections - means with respect to any Account, all cash collections on such Account. Commercial Lockbox - any lockbox and/or deposit account in the name of Borrower maintained at Bank, or such other bank as is acceptable to Agent, to which collections are sent, that is not a Government Lockbox. Company - as defined in the Recitals to the Agreement. Concentration Account(s) - Borrower's centralized cash management deposit account(s) maintained at Bank, or such other bank as is acceptable to Agent, which is subject to a tri-party agreement among Agent, Borrower and the Concentration Bank and into which Borrower's funds are transferred and from which, during any Dominion Triggered Period, Borrower's funds will be swept on a daily basis according to the provisions of subsection 6.2.5. Concentration Account(s) may also be Lockbox Account(s). Concentration Bank - any depository bank at which a Concentration Account is maintained. Consolidated - the consolidation in accordance with GAAP of the accounts or other items as to which such term applies. Consolidated and Consolidating - the consolidation and consolidating in accordance with GAAP of the accounts or other items as to which such term applies. Convertible Debentures - all of (i) those certain 10.0% Convertible Subordinated Debentures of the Company issued in a minimum amount of Twenty Million Dollars ($20,000,000.00) on or before the Funding Date and maturing on March 15, 2005, on such terms and conditions as shall be reasonably satisfactory to Agent ("Initial Convertible Debentures"), (ii) an additional amount of Convertible Subordinated Debentures of the Company issued in an aggregate amount not to exceed Ten Million Dollars ($10,000,000.00) at any time after the Funding Date on terms no less favorable to the Lenders than those of the Initial Convertible Debentures ("Additional Convertible Debenture"), and (iii) any Convertible Subordinated Debentures of the Company issued as regularly scheduled in-kind interest payments on either the Initial Convertible Debentures or the Additional Convertible Debentures pursuant to the terms and conditions of the respective documents governing the Initial Convertible Debentures and the Additional Convertible Debentures ("Dividend Convertible Debentures"). Convertible Trust Preferred Stock - all of those certain shares of preferred stock issued by the Gentiva Trust in conjunction with the issuance by the Company and v purchase by the Gentiva Trust of (i) the Initial Convertible Debentures, (ii) any Additional Convertible Debentures and (iii) any Dividend Convertible Debentures. Default - an event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both, become an Event of Default. Default Rate - as defined in subsection 2.1.2 of the Agreement. Deposit Accounts - as defined in the Code, whether now owned or hereafter created or acquired by Borrower or in which Borrower now has acquired or hereafter acquires any interest. Distribution - in respect of any corporation means and includes: (i) the payment of any dividends or other distributions on capital stock of the corporation (except distributions in such stock) and (ii) the redemption or acquisition of Securities unless made contemporaneously from the net proceeds of the sale of Securities. Divestiture - the transfer to the Company of all healthcare related assets of Olsten Corporation and the initial public offering and spin-off of the Company from Olsten Corporation. Divestiture Documents - means the Separation Agreement, evidence that the Divestiture has been consummated and all other documents, instruments and agreements entered into by borrowers in connections with the divestiture of Borrower's from Olsten Corporation. Dividend Convertible Debentures - see "Convertible Debentures." Documents - as defined in the Code, whether now owned or hereafter acquired by Borrower or in which Borrower now has acquired or hereafter acquires any interest. Dominion Account - a special account of Agent, for the benefit of Lenders, established by Borrower pursuant to the Agreement at a bank selected by Borrower, but acceptable to Agent in its reasonable discretion, and over which Agent shall have sole and exclusive access and control for withdrawal purposes. Dominion Triggered Period - as defined in subsection 6.2.5. EBITDA - Adjusted Net Earnings from Operations plus the sum of depreciation, amortization, income taxes and Interest Expense during the period for which Adjusted Net Earnings from Operations were calculated, determined on a Consolidated basis for the Borrower for the applicable Measurement Period. Eligible Account - an Account arising in the ordinary course of Borrower's business from the sale of goods or rendition of services, and for which an invoice has been mailed or transmitted to the respective Account Debtor or Obligor (or prepared for mailing or transmission to the respective Account Debtor or Obligor, provided that such vi invoice is actually mailed or transmitted within three (3) Business Days), which Agent, in its sole credit judgment, deems to be an Eligible Account. Without limiting the generality of the foregoing, no Account shall be an Eligible Account if: (i) it is outstanding (a) more than 180 days past the date the invoice for the goods and/or services was issued or (b) more than 195 days past the date the corresponding goods and/or services were provided; (ii) it arises out of a sale made by Borrower to an Obligor who is an Affiliate of Borrower or to an Obligor controlled by an Affiliate of Borrower; or (iii) 50% or more of the Accounts from the Account Debtor or Obligor are not deemed Eligible Accounts hereunder; or (iv) the total unpaid Accounts of the Account Debtor or Obligor to Borrower exceed 20% of the net amount of all Eligible Accounts, to the extent of such excess; or (v) the Account is subject to any terms pursuant to which (i) payment by the Obligor is conditional or (ii) the repayment of the Account by the Obligor is subject to any payment arrangement entered into after payment default by the Obligor; (vi) any covenant, representation or warranty contained in the Agreement with respect to such Account has been breached; or (vii) the Account Debtor or Obligor is also Borrower's creditor or supplier, but only to the extent of Borrower's liabilities or obligations to such creditor or supplier, or the Account Debtor has disputed liability with respect to such Account, or the Account Debtor has made any claim with respect to any other Account due from such Account Debtor to Borrower, or the Account otherwise is or may become subject to any right of setoff by the Account Debtor, but only to the extent of any actual dispute or claim or actual or potential right of setoff; or (viii) the Account Debtor or Obligor has commenced a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or made an assignment for the benefit of creditors, or a decree or order for relief has been entered by a court having jurisdiction in the premises in respect of the Account Debtor in an involuntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other petition or other application for relief under the federal bankruptcy laws has been filed against the Account Debtor, or if the Account Debtor has failed, suspended business, ceased to be Solvent, or consented to or suffered a receiver, trustee, liquidator or custodian to be appointed for it or for all or a significant portion of its assets or affairs; or vii (ix) the Account Debtor or Obligor is not located in the United States or Canada, unless the Account is supported by a letter of credit, guaranty or acceptance terms, in each case acceptable to Agent in its sole discretion; or (x) it arises from a sale to the Account Debtor on a bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval, consignment or any other repurchase or return basis, provided that, at such time as such sale becomes final, such Account shall no longer be excluded from Eligible Accounts under this clause; or (xi) the Account is not at all times subject to Agent's duly perfected, first priority Lien and security interest (for the ratable benefit of Lenders) and no other Lien other than a Permitted Lien; or (xii) the goods giving rise to such Account have not been delivered to and accepted by the Account Debtor or the services giving rise to such Account have not been performed by the Borrower and accepted by the Account Debtor or the Account otherwise does not represent a final sale; or (xiii) the Account is evidenced by chattel paper or an instrument of any kind, or has been reduced to judgment; or (xiv) the Borrower has made any agreement with the Account Debtor for any deduction therefrom, except for discounts or allowances which are made in the ordinary course of business for prompt payment and which discounts or allowances are reflected in the calculation of the face value of each invoice related to such Account; or (xv) it represents finance charges, to such extent. Environmental Laws - all federal, state and local laws, rules, regulations, ordinances, programs, permits, guidelines, orders and consent decrees relating to health, safety and environmental matters. EOB - as defined in subsection 7.1.26(c)(i) of the Agreement. Equipment - as defined in the Code, including, without limitation, all machinery, apparatus, equipment, fittings, furniture, fixtures, motor vehicles and other tangible personal Property (other than Inventory) of every kind and description used in Borrower's operations or owned by Borrower or in which Borrower has an interest, whether now owned or hereafter acquired by Borrower or in which Borrower now has acquired or hereafter acquires any interest, and all parts, accessories and special tools and all increases and accessions thereto and substitutions and replacements therefor. ERISA - the Employee Retirement Income Security Act of 1974, as amended, and all rules and regulations from time to time promulgated thereunder. viii Event of Default - as defined in Section 10.1 of the Agreement. Fixtures - as defined in the Code, whether now owned or hereafter acquired by Borrower or in which Borrower now has acquired or hereafter acquires any interest. Funding Date - the date on which all of the conditions precedent in Sections 9.1 and 9.2 of the Agreement are satisfied and the initial Loans are made and/or the initial Letters of Credit or LC Guaranties are issued under the Agreement. GAAP - generally accepted accounting principles in the United States of America in effect from time to time. General Intangibles - as defined in the Code, including, without limitation, all personal property of Borrower (including, without limitation, Intellectual Property, tax, insurance and other refunds, licenses, contract rights, claims and choses in action) other than goods, Accounts, chattel paper, documents, instruments and money, whether now owned or hereafter created or acquired by Borrower or in which Borrower now has acquired or hereafter acquires any interest, but not including any General Intangibles which to the extent related to Equipment or fixtures of Borrower. Gentiva Trust - the corporate trust of that name organized under the laws of Delaware in connection with the issuance by the Company of the Convertible Debentures. Government Accounts - Accounts on which any federal or state governmental unit or any intermediary for federal or state governmental unit is the Obligor. Government Authority - any nation or government, government agency or instrumentality, any state or other political subdivision thereof and any entity exercising executive legislative, judicial, regulatory or administrative functions of or pertaining to government. Government Lockbox - a lockbox and/or deposit account in the name of Borrower(s) maintained at Bank, or such other bank as is acceptable to the Agent, to which Collections on all Government Accounts are sent. Guarantor - any Person who may now or hereafter guarantee or become surety for payment or performance of the whole or any part of the Obligations. HCFA - the Health Care Financing Administration Initial Convertible Debentures - see "Convertible Debentures." Indebtedness - as applied to a Person means, without duplication ix (i) all items which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person as at the date as of which Indebtedness is to be determined, including, without limitation, Capitalized Lease Obligations, (ii) all obligations of other Persons which such Person has guaranteed, (iii) all reimbursement obligations in connection with letters of credit or letter of credit guaranties issued for the account of such Person, and (iv) in the case of Borrower (without duplication), the Obligations. Instruments - as defined in the Code, whether now owned or hereafter created or acquired by Borrower or in which Borrower now has acquired or hereafter acquires any interest. Insurer - any Person which in the ordinary course of its business or activities agrees to pay for healthcare goods and services received by individuals, including a commercial insurance company, a non-profit insurance (such as a Blue Cross/Blue Shield entity), an employer or union which self insures for employees or member health insurance and a health maintenance organization. "Insurer" includes, without limitation, insurance companies issuing health, personal injury, worker's compensation or other types of insurance, corporations, hospitals and thirty party intermediaries but does not include any individual guarantors or employee benefit plans. Intellectual Property - brand names, copyrights, copyrightable material, data, designs, drawings, formulas, information, inventions, logos, labels, label designs, license rights, licenses, manufacturing and processing rights, methods, processes, software and computer programs, patents, patterns, plans and blueprints, royalties, service marks, specifications and descriptions, trademarks, trade names, trade secrets, and any registrations and applications with respect to any of the foregoing, and all memoranda, notes and records with respect to any research or development of any of the foregoing, and all proceeds and products of the foregoing. Interest Expense - for any period, all amounts which, in conformity with GAAP, should be included as interest expense on a consolidated statement of operations of the Borrower and its Subsidiaries for such period, including in any event, without limitation, interest accrued on the Revolving Credit Loans, interest accrued in respect of all Subordinated Debt, that portion of any Capitalized Lease Obligations attributable to interest expense in accordance with GAAP, debt issuance costs (excluding any original issue discount on the Subordinated Notes and any debt issuance costs incurred on or prior to the date hereof with respect to the Subordinated Notes and the Revolving Credit Loans) and capitalized interest accrued during such period, all commissions, all discounts and other fees and charges accrued with respect to letters of credit and bankers' acceptance financing and net costs under interest rate protection agreements (including amortization x of such costs), all as determined for the Borrower and its Subsidiaries on a consolidated basis for such period in accordance with GAAP. Inventory - all of Borrower's inventory, whether now owned or hereafter acquired including, but not limited to, "inventory" as defined in the Code, all goods intended for sale or lease by Borrower, or for display or demonstration; all work in process; all raw materials and other materials and supplies of every nature and description used or which might be used in connection with the manufacture, printing, packing, shipping, advertising, selling, leasing or furnishing of such goods or otherwise used or consumed in Borrower's business; and all documents evidencing and General Intangibles relating to any of the foregoing, whether now owned or hereafter acquired by Borrower or in which Borrower now has acquired or hereafter acquires any interest; provided that Inventory shall not include any of Borrower's Equipment. Investment Property - as defined in the Code, whether now owned or hereafter acquired by Borrower or in which Borrower now has acquired or hereafter acquires any interest. Issuer - Fleet National Bank, N.A., in its capacity as issuer of letters of credit hereunder. JCAHO - the Joint Commission for Accreditation of Healthcare Organizations, a nationally recognized organization providing accreditations to hospitals and other healthcare facilities, or any successor entity charged with performing its functions. LC Amount - at any time, the aggregate undrawn face amount of all Letters of Credit and LC Guaranties then outstanding. LC Guaranty - any guaranty pursuant to which Issuer shall guaranty the payment or performance by Borrower of its reimbursement obligation under any letter of credit. Lenders - as defined in the Recitals hereto. Letter of Credit - any letter of credit issued by Issuer for the account of Borrower. LIBOR Interest Period - a period of one, two, three or six months duration during which the Revolving Credit LIBOR Rate is applicable. LIBOR Rate Loans - collectively, all Revolving Credit LIBOR Rate Loans. Lien - any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on common law, statute or contract. The term "Lien" shall also include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. For the purpose of the Agreement, Borrower shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement or other arrangement pursuant xi to which title to the Property has been retained by or vested in some other Person for security purposes. Loan Account - the loan account established on the books of Agent pursuant to Section 3.6 of the Agreement. Loan Documents - the Agreement, the Subsidiary Guaranty and the Security Documents and any and all other instruments or documents executed and/or delivered in connection therewith. Loans - all loans and advances of any kind made by Agent or any Lender pursuant to the Agreement. Lockbox Accounts - all Commercial Lockboxes and Government Lockboxes. Lockbox Bank - any bank at which Borrower maintains a Commercial Lockbox and/or a Government Lockbox. Lockbox Trigger Notices - as defined in subsection 6.2.6. London Business Day - any Business Day on which banks in London, England are open for business. Majority Lenders - as of any date, Lenders holding Pro Rata Percentages aggregating at least 66 and 2/3 %. Material Adverse Effect - any specified event, condition or occurrence as to Borrower or any of its Subsidiaries which individually or in the aggregate with any other such event, condition or occurrence and whether through the effect on Borrower's or Subsidiary's business, Property, profits or condition (financial or otherwise) or otherwise, that could reasonably be expected to materially and adversely effect the financial condition, business or Properties of the Borrower and its Subsidiaries taken as a whole, or the perfection or priority of Agent's security interest with respect to any material portion of the Collateral. Measurement Period - as of the end of any fiscal quarter, the four (4) consecutive fiscal quarters then ended. Medicare Act - Subchapter XVIII of the Social Security Act (42 USC Ch. 7). Money Borrowed - means (i) Indebtedness arising from the lending of money by any Person to Borrower; (ii) Indebtedness, whether or not in any such case arising from the lending by any Person of money to Borrower, (A) which is represented by notes payable or drafts accepted that evidence extensions of credit, (B) which constitutes obligations evidenced by bonds, debentures, notes or similar instruments, or (C) upon which interest charges are customarily paid (other than accounts payable) or that was issued or assumed as full or partial payment for Property; (iii) Indebtedness that consti- xii tutes a Capitalized Lease Obligation; (iv) reimbursement obligations with respect to letters of credit or guaranties of letters of credit and (v) Indebtedness of Borrower under any guaranty of obligations that would constitute Indebtedness for Money Borrowed under clauses (i) through (iii) hereof, if owed directly by Borrower. Multiemployer Plan - has the meaning set forth in Section 4001(a)(3) of ERISA. Net Available Proceeds - means the aggregate amount of proceeds of insurance, condemnation awards and other compensation received by Borrower in the event that any of the Collateral is lost or destroyed or taken by condemnation net of (i) fees and expenses incurred by Borrower in connection with recovery thereof, (ii) repayment of Indebtedness (other than Indebtedness hereunder) to the extent secured by a Lien that is permitted hereunder and (iii) any taxes (including income, transfer, stamp, duty, customs, withholding, and any other taxes) paid or payable by Borrower in respect of amounts recovered (after application of all creditors and other offsets). Net Income - The net income of a Person as such would appear on such Person's statement of income, prepared in accordance with GAAP. Notes - any and all promissory notes executed by Borrower, as of the date hereof and at any time hereafter, in connection with this Agreement or any of the Loan Documents. Obligations - all Loans and all other advances, debts, liabilities, obligations, covenants and duties, including reimbursement obligations or Letters of Credit and LC Guaranties, together with all interest, fees and other charges thereon, owing, arising, due or payable from Borrower to Agent or any Lender of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, whether arising under this Agreement or any of the other Loan Documents or otherwise whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising and however acquired. Obligor - means the party primarily obligated to pay on Account, including without limitation, any Insurer and any Government Authority that is responsible for payment for all or any portion of any Account. OHS - as defined in the Recitals to the Agreement. Operating Lease - any lease of real or personal Property (other than leases the lessee's obligations under which are Capitalized Lease Obligations). Original Term - as defined in Section 4.1. Other Agreements - any and all agreements, instruments and documents (other than the Agreement and the Security Documents), heretofore, now or hereafter executed xiii by Borrower, any Subsidiary of Borrower or any other third party and delivered to Agent or any Lender in respect of the transactions contemplated by the Agreement. Overadvance - the amount, if any, by which the sum of the outstanding principal amount of Revolving Credit Loans plus the LC Amount exceeds the Borrowing Base. Participations - shall have the meaning set forth in Section 11.16 herein. Participating Lender - each Person who shall be granted the right by any Lender, pursuant to the terms of this Agreement, to participate in any of the Loans described in the Agreement and who shall have entered into a participation agreement in form and substance satisfactory to Agent Patient - when used in connection with any Account on which the primary Obligor is not the party who received the medical or healthcare related goods and services from Borrower which resulted in the creation of an Account, the actual party who received such goods and services. Permitted Acquisition - any acquisition transaction whereby any Borrower shall acquire all or substantially all of the assets of another Person or shall acquire all of the capital stock or other equity interests of another Person and/or merge or consolidate with another Person, provided that (i) the value of each such acquisition shall not exceed One Million Dollars ($1,000,000.00) and (ii) the aggregate value of all such acquisition transactions which have occurred since the Closing Date do not exceed Five Million Dollars ($5,000,000.00). For the purposes of this definition, the value of an acquisition shall be deemed to be an amount equal to the sum of all cash and the fair market value of all non-cash consideration paid by the respective Borrower in connection with the acquisition, including cash paid, indebtedness assumed and the value of any stock of the Company issued in connection with the acquisition based on the market value of such stock as of the date of the acquisition. Furthermore, in the case of any acquisition transaction which involves the acquisition of all of the capital stock or other equity interests of another Person and/or the merger or consolidation with another Person, such acquisition transaction will only be deemed to be a "Permitted Acquisition" if (i) such other Person shall engage solely in line(s) or type(s) of business that are substantially similar to the lines and types of business engaged in by Borrower on the Closing Date, (ii) in the case of any transaction involving a merger or consolidation, the Borrower shall be the surviving entity, and (ii) in the case of any transaction not involving a merger or consolidation, the acquired Person shall become a party to this Agreement as a Subsidiary Borrowing Corporation by executing a Joinder Agreement in the form of Exhibit D attached hereto. Permitted Liens - any Lien of a kind specified in subsection 8.2.5 of the Agreement. Permitted Purchase Money Indebtedness - Purchase Money Indebtedness of Borrower incurred after the date hereof which is secured by a Purchase Money Lien. xiv Person - an individual, partnership, corporation, limited liability company, joint stock company, land trust, business trust, or unincorporated organization, or a government or agency or political subdivision thereof. Plan - an employee benefit plan now or hereafter maintained for employees of Borrower that is covered by Title IV of ERISA. Pledge Agreement(s) - those certain Pledge Agreement(s) of even date herewith executed and delivered by each Borrower which is the owner of the capital stock or equity interests of any other Person, pledging such capital stock or equity interests to Agent, for the ratable benefit of the Lenders, to secure the Obligations hereunder. Projections - Borrower's forecasted Consolidated (a) balance sheets, (b) profit and loss statements, (c) cash flow statements, and (d) capitalization statements, all prepared on a consistent basis with Borrower's historical financial statements, together with appropriate supporting details and a statement of underlying assumptions. Property - any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. Pro Rata Percentage - With respect to a Lender, the percentage set forth next to such Lender's name on Annex I to the Agreement. Pro Rata Share - With respect to a Lender, the share of the Total Revolving Credit Facility set forth next to such Lender's name on Annex I to the Agreement. Purchase Money Indebtedness - means and includes (i) Indebtedness (other than the Obligations) for the payment of all or any part of the purchase price of any fixed assets, (ii) any Indebtedness (other than the Obligations) incurred at the time of or within ten (10) days prior to or after the acquisition of any fixed assets for the purpose of financing all or any part of the purchase price thereof, and (iii) any renewals, extensions or refinancing thereof, but not any increases in the principal amounts thereof outstanding at the time. Purchase Money Lien - a Lien upon fixed assets which secures Purchase Money Indebtedness, but only if such Lien shall at all times be confined solely to the fixed assets the purchase price of which was financed through the incurrence of the Purchase Money Indebtedness secured by such Lien. Quantum Debentures - those certain Quantum Health Resources, Inc. 4 3/4 % Convertible Subordinated Debentures due October 1, 2000. Real Estate - all right, title and interest of any Borrower (including, without limitation, any leasehold estate) in and to a parcel of real property owned or operated by any Borrower together with, in each case, all improvements and appurtenant personal property, easements and other property and rights incidental to the ownership, lease or operation; provided, however, that this shall not include any Fixtures or Equipment attached to or located at such real property. xv Regulation D - Regulation D of the Board of Governors of the Federal Reserve System, comprising Part 204 of Title 12, Code of Federal Regulations, as amended, and any successor thereto. Rentals - as defined in subsection 8.2.13 of the Agreement. Reportable Event - any of the events set forth in Section 4043(b) of ERISA. Reserve Percentage - for any day, that reserve (expressed as a decimal) which is in effect (whether or not actually incurred) with respect to Bank on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor or any other banking authority to which Bank is subject including any board or governmental or administrative agency of the United States or any other jurisdiction to which Bank is subject), for determining the maximum reserve requirement (including without limitation any basic, supplemental, marginal or emergency reserves) for Eurocurrency liabilities as defined in Regulation D. Restricted Investment - any investment made in cash or by delivery of Property to any Person, whether by acquisition of stock, Indebtedness or other obligation or Security, or by loan, advance or capital contribution, or otherwise, or in any Property except the following: (i) investments in one or more Subsidiaries of Borrower to the extent existing on the Closing Date; (ii) Property to be used in the ordinary course of business; (iii) Current Assets arising from the sale of goods and services in the ordinary course of business of Borrower and its Subsidiaries; (iv) investments in direct obligations of the United States of America, or any agency thereof or obligations guaranteed by the United States of America, provided that such obligations mature within one year from the date of acquisition thereof; (v) investments in certificates of deposit maturing within one year from the date of acquisition issued by a bank or trust company organized under the laws of the United States or any state thereof having capital surplus and undivided profits aggregating at least One Hundred Million Dollars ($100,000,000.00); (vi) investments in commercial paper given the highest rating by a national credit rating agency and maturing not more than 270 days from the date of creation thereof; and (vii) investments made in connection with any Permitted Acquisition. xvi Revolving Credit Base Rate - a per annum rate equal to the sum of the Base Rate plus the Applicable Margin. Revolving Credit Base Rate Loan - that portion of the Revolving Credit Loans that bears interest at the Revolving Credit Base Rate. Revolving Credit Facility - the credit facility established pursuant to Section 1.1 of the Agreement. Revolving Credit LIBOR Rate - a per annum rate equal to the sum of the Adjusted LIBOR Rate plus the Applicable Margin. Revolving Credit LIBOR Rate Loan - that portion of the Revolving Credit Loans on which interest accrues at the Revolving Credit LIBOR Rate. Revolving Credit Loan - a Loan made by Lenders to Borrower as provided in Section 1.1 of the Agreement. Revolving Credit Maturity Date - the last day of the Original Term. Revolving Credit Notes - the secured promissory notes to be executed by Borrower on or about the Closing Date in favor of each Lender, each in the amount of such Lender's Pro Rata Share of the Total Revolving Credit Facility, to evidence the Revolving Credit Loans, which shall be in form of Exhibit A to the Agreement, as amended, restated, supplemented or replaced from time to time. Schedule of Accounts - as defined in subsection 6.2.1 of the Agreement. Security - shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. Security Documents - the Trademark Security Agreement(s), the Pledge Agreement(s), the Subsidiary Guarantor Pledge Agreement(s) and all instruments and agreements now or at any time hereafter securing the whole or any part of the Obligations. Separation Agreement - that Separation Agreement dated August 17, 1999, as amended, among Olsten Corporation, Adecco SA and Gentiva Health Services, Inc. and all other related agreements, including the Employee Benefits Agreement among the same parties of even date therewith and the Tax Sharing Agreement among the same parties of even date therewith. Solvent - as to any Person, such Person (i) owns Property whose fair saleable value is greater than the amount required to pay all of such Person's Indebtedness (including contingent debts), (ii) is able to pay all of its Indebtedness as such Indebtedness matures and (iii) has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage. xvii Special Charges - unusual or non-recurring expenses which are reflected in the Consolidated statements of operations and which are required to be separately disclosed under GAAP in notes to the Consolidated financial statements of Borrower. Specified Officer - John J. Collura, who is presently Executive Vice President, Chief Financial Officer and Treasurer of Borrower, or John R. Potapchuk, who is presently Vice President of Finance and Controller of Borrower, or such other officer of Borrower as Borrower may hereafter specify in writing to Agent. Subordinated Debt - Indebtedness of Borrower with respect to (i) the Quantum Debentures and (ii) the Convertible Debentures, and (iii) any other Indebtedness incurred by Borrower prior to the maturity of the Quantum Debentures and the Convertible Debentures to refinance either or both of the Quantum Debentures and the Convertible Debentures in an amount not to exceed the then outstanding principal balance of the Quantum Debentures and the Convertible Debentures provided such refinanced Subordinated Debt is fully subordinated to Lenders and is on terms no less favorable to Borrower and Lenders than the existing Quantum Debentures and/or Convertible Debentures except for changes which are reasonably acceptable to Agent and except with respect to the rate of interest which may be a market created interest. Subsidiary - any corporation of which a Person owns, directly or indirectly through one or more intermediaries, more than 50% of the Voting Stock at the time of determination. Subsidiary Borrowing Corporation - any Subsidiary of Olsten Health Services Holding Corp. or Gentiva Health Services, Inc. which is a party to this Agreement as a Borrower. Subsidiary Guarantor Pledge Agreement(s) - those certain Subsidiary Guarantor Pledge Agreement(s) of even date herewith executed and delivered by each Subsidiary Guarantor which is the owner of the capital stock or equity interests of any other Person, pledging such capital stock or equity interests to Agent, for the ratable benefit of the Lenders, to secure the obligations of each such Subsidiary Guarantor under the Subsidiary Guaranty. Subsidiary Guarantors - all of the direct and indirect Subsidiaries of the company (except the Gentiva Trust and Gentiva Services Limited Canada), but not including any Subsidiary which is a party to this Agreement as a Borrower. Subsidiary Guaranty - that certain Subsidiary Guaranty of even date herewith executed and delivered by each Subsidiary Guarantor guaranteeing the Obligations of Borrower under this Agreement. Tangible Net Worth - at any time, the amount by which the total assets of Borrower as determined on a Consolidated basis and as would be shown on a xviii Consolidated balance sheet for Borrower, prepared in accordance with GAAP (excluding trademarks, copyrights, goodwill, covenants not to compete, deferred closing costs, leasehold improvements and all other assets which would be determined to be intangible assets under GAAP) exceed all of Borrower's liabilities as determined on a Consolidated basis as would be shown on a Consolidated balance sheet for Borrower, prepared in accordance with GAAP. Total Revolving Credit Facility - means One Hundred Fifty Million Dollars ($150,000,000.00). Trademark Security Agreement(s) - those certain Trademark Security Agreement(s) of even date herewith executed and delivered by each Borrower which is the owner of any trademark Collateral granting a security interest in such trademark Collateral to Agent, for the ratable benefit of the Lenders, to secure the Obligations hereunder. Trigger Effectiveness Notice - as defined in subsection 6.2.5 of this Agreement. Trigger Rescission Notice - as defined in subsection 6.2.5 of this Agreement. Triggering Event - as defined in subsection 6.2.5 of this Agreement. Unused Line Fee - as defined in Section 2.5 of this Agreement. Voting Stock - Securities of any class or classes of a corporation the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). Other Terms. All other terms contained in the Agreement shall have, when the context so indicates, the meanings provided for by the Code to the extent the same are used or defined therein. Certain Matters of Construction. The terms "herein", "hereof" and "hereunder" and other words of similar import refer to the Agreement as a whole and not to any particular section, paragraph or subdivision. Any pronoun used shall be deemed to cover all genders. The section titles, table of contents and list of exhibits appear as a matter of convenience only and shall not affect the interpretation of the Agreement. All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations. All references to any of the Loan Documents shall include any and all modifications thereto and any and all extensions or renewals thereof. xix
ANNEX I SCHEDULE OF LENDERS Lender Pro Rate Share Pro Rate Percentage - ------ -------------- ------------------- Fleet Capital Corporation $32,500,000.00 21.67% 60 East 42nd Street 3rd Floor New York, NY 10017 Attention: Frank Galle GMAC Commercial Credit LLC $32,500,000.00 21.67% 1290 Avenue of the Americas 3rd Floor New York, NY 10104 Attention: Sam Cirelli U.S. Bank National Association $23,000,000.00 15.33% U.S. Bank Business Finance MPFP P0512 601 Second Avenue South Minneapolis, MN 55402 Attention: Robert Josephson debis Financial Services, Inc. $14,000,000.00 9.33% 89 Headquarters Plaza North Suite 1444 Morristown, NJ 07960 Attention: Alexander Cole Dime Commercial Corp. $14,000,000.00 9.33% 1180 Avenue of the Americas Suite 510 New York, NY 10036 Attention: James Fisher IBJ Whitehall Business Credit Corporation $14,000,000.00 9.33% One State Street New York, NY 10004 Attention: Andrew C. Sepe cc: Craig Thaler xx National Bank of Canada $10,000,000.00 6.67% 125 West 55th Street 23rd Floor New York, NY 10019 Attention: Michael McIntyre Siemens Credit Corporation $10,000,000.00 6.67% 991 U.S. Highway 22 Bridgewater, NJ 08807 Attention: Frank Amodio
xxi TABLE OF CONTENTS Page SECTION 1. CREDIT FACILITY...........................................2 1.1 Revolving Credit Loans.....................................2 1.2 Use of Proceeds............................................3 1.3 Letters of Credit; LC Guaranties...........................3 SECTION 2. INTEREST, FEES AND CHARGES................................4 2.1 Interest...................................................4 2.2 Computation of Interest and Fees...........................6 2.3 Commitment Fee.............................................6 2.4 Letter of Credit and LC Guaranty Fees......................6 2.5 Unused Line Fee............................................7 2.6 Administrative Agent Fee...................................7 2.7 Inspection, Audit, Examination and Appraisal Expenses......7 2.8 Reimbursement of Expenses..................................7 2.9 Bank Charges...............................................8 2.10 Indemnity re: LIBOR........................................8 SECTION 3. LOAN ADMINISTRATION......................................8 3.1 Manner of Borrowing Revolving Credit Loans.................8 3.2 Payments...................................................10 3.3 Mandatory Prepayments......................................10 3.4 Application of Payments and Collections....................11 3.5 All Loans to Constitute One Obligation.....................11 3.6 Loan Account...............................................11 3.7 Statements of Account......................................11 SECTION 4. TERM AND TERMINATION....................................11 4.1 Term of Agreement..........................................12 4.2 Termination................................................12 SECTION 5. SECURITY INTERESTS........................................13 5.1 Security Interest in Collateral............................13 5.2 Lien Perfection; Further Assurances........................14 SECTION 6. COLLATERAL ADMINISTRATION................................15 6.1 General....................................................15 6.2 Administration of Accounts.................................16 6.3 Administration of Inventory................................19 6.4 Administration of Equipment................................19 6.5 Payment of Charges.........................................19 SECTION 7. REPRESENTATIONS AND WARRANTIES............................19 7.1 General Representations and Warranties.....................19 7.2 Continuous Nature of Representations and Warranties........30 7.3 Survival of Representations and Warranties.................31 SECTION 8. COVENANTS AND CONTINUING AGREEMENTS....................31 8.1 Affirmative Covenants......................................31 8.2 Negative Covenants.........................................35 8.3 Specific Financial Covenants...............................41 xxii SECTION 9. CONDITIONS PRECEDENT......................................41 9.1 Conditions Precedent to Effectiveness of Agreement.........41 9.2 Conditions Precedent to Funding............................42 Other Loan Documents................................................42 Availability........................................................42 No Litigation.......................................................43 9.3 Funding Date...............................................43 SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT..........44 10.1 Events of Default..........................................44 10.2 Acceleration of the Obligations............................46 10.3 Other Remedies.............................................46 10.4 Remedies Cumulative; No Waiver.............................48 SECTION 11. AGENT......................................................49 11.1 Appointment and Authorization..............................49 11.2 General Immunity...........................................49 11.3 Consultation with Counsel..................................49 11.4 Documents..................................................49 11.5 Rights as a Lender.........................................49 11.6 Responsibility of Agent....................................50 11.7 Collections and Disbursements..............................50 11.8 Indemnification............................................51 11.9 Expenses...................................................51 11.10 No Reliance................................................52 11.11 Reporting..................................................52 11.12 Removal of Agent...........................................52 11.13 Action on Instructions of Lenders..........................53 11.14 Several Obligations........................................53 11.15 Consent of Lenders.........................................53 11.16 Participations and Assignments.............................55 11.17 Borrower's Consent.........................................55 11.18 Security Interest of Lender................................55 SECTION 12. MISCELLANEOUS..............................................56 12.1 Power of Attorney..........................................56 12.2 Indemnity..................................................56 12.3 Modification of Agreement; Sale of Interest................57 12.4 Severability...............................................57 12.5 Successors and Assigns.....................................57 12.6 Cumulative Effect; Conflict of Terms.......................57 12.7 Execution in Counterparts..................................57 12.8 Notice.....................................................58 12.9 Agent's and Lender's Consent...............................59 12.10 Credit Inquiries...........................................59 12.11 Time of Essence............................................59 12.12 Entire Agreement...........................................59 12.13 Interpretation.............................................59 12.14 GOVERNING LAW; CONSENT TO FORUM............................59 12.15 WAIVERS BY BORROWER........................................60 12.16 Joint and Several Liability................................61 xxiii LIST OF EXHIBITS Exhibit A Revolving Credit Notes Exhibit B Compliance Certificate Exhibit C Borrowing Base Certificate Exhibit D Joinder Agreement Exhibit E Notice to Obligors - Commercial Exhibit F Notice to Obligors - Government Exhibit 6.1.1 Inventory Locations Exhibit 7.1.1 Jurisdictions in which Authorized to Do Business Exhibit 7.1.4 Capital Structure of Borrower Exhibit 7.1.5 Corporate Names Exhibit 7.1.6 Borrower's and each Subsidiary's Business Locations Exhibit 7.1.14 Tax Identification Numbers of Borrower and Subsidiaries Exhibit 7.1.16 Patents, Trademarks, Copyrights and Licenses Exhibit 7.1.19 Contracts Restricting Borrower's Right to Incur Debts Exhibit 7.1.20 Litigation Exhibit 7.1.22(a) Capitalized Leases Exhibit 7.1.22(b) Operating Leases Exhibit 7.1.23 Pension Plans Exhibit 7.1.25 Labor Contracts Exhibit 7.1.26(a) Medicare and Medicaid Provider Numbers Exhibit 7.1.26(c) Litigation Relating to Accounts Exhibit 8.2.4 Affiliate Transactions Exhibit 8.2.5 Permitted Liens Exhibit 8.3 Financial Covenants LIST OF ANNEXES Annex I Lenders' Pro Rata Shares/Percentages xxiv EX-10.11 8 CHANGE IN CONTROL AGREEMENT CHANGE IN CONTROL AGREEMENT Agreement, made this ___ day of _________, 2000, by and between Gentiva Health Services, Inc., a Delaware corporation (the "Company"), and _________________ (the "Executive"). WHEREAS, the Executive is a key employee of the Company; and WHEREAS, the Board of Directors of the Company (the "Board") considers the maintenance of a sound management to be essential to protecting and enhancing the best interests of the Company and its stockholders and recognizes that the possibility of a change in control raises uncertainty and questions among key employees and may result in the departure or distraction of such key employees to the detriment of the Company and its stockholders; and WHEREAS, the Board wishes to assure that it will have the continued dedication of the Executive and the availability of his or her advice and counsel, notwithstanding the possibility, threat or occurrence of a bid to take over control of the Company, and to induce the Executive to remain in the employ of the Company; and WHEREAS, the Executive is willing to continue to serve the Company taking into account the provisions of this Agreement; NOW, THEREFORE, in consideration of the foregoinq, and the respective covenants and agreements of the parties herein contained, the parties agree as follows: 1. Operation and Term of Agreement. This Agreement shall commence at the Effective Time of the Merger as contemplated in the Merger Agreement (defined below) and shall continue through the third anniversary of such date; provided, however, that after a Change in Control of the Company during the term of this Agreement, this Agreement shall remain in effect until all of the obligations of the parties hereunder are satisfied and the Protection Period has expired. Prior to a Change in Control this Agreement shall immediately terminate upon termination of the Executive's employment, except in the case of such termination under circumstances set forth in the last paragraph of Section 4 below. -2- 2. Change in Control; Protection Period. A "Change of Control" shall be deemed to occur on the date that any of the following events occur: (a) any person or persons acting together which would constitute a "group" for purposes of Section 13(d) of the Exchange Act (other than the Company or any subsidiary and other than Permitted Holders) shall beneficially own (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, at least 25% of the total voting power of all classes of capital stock of the Company entitled to vote generally in the election of the Board; (b) either (i) Current Directors (as herein defined) shall cease for any reason to constitute at least a majority of the members of the Board (for these purposes, a "Current Director" shall mean any member of the Board as of the date hereof, and any successor of a Current Director whose election, or nomination for election by the Company's shareholders, was approved by at least two-thirds of the Current Directors then on the Board) or (ii) at any meeting of the shareholders of the Company called for the purpose of electing directors, a majority of the persons nominated by the Board for election as directors shall fail to be elected; (c) consummation of (i) a plan of complete liquidation of the Company, or (ii) a merger or consolidation of the Company (A) in which the Company is not the continuing or surviving corporation (other than a consolidation or merger with a wholly owned subsidiary of the Company in which all shares of Common Stock outstanding immediately prior to the effectiveness thereof are changed into common stock of the subsidiary) or (B) pursuant to which the Common Stock is converted into cash, securities or other property, except a consolidation or merger of the Company in which the holders of the Common Stock immediately prior to the consolidation or merger have, directly or indirectly, at least a majority of the common stock of the continuing or surviving corporation immediately after such consolidation or merger or in which the Board immediately prior to the merger or consolidation would, immediately after the merger or consolidation, constitute a majority of the board of directors of the continuing or surviving corporation; or -3- (d) consummation of a sale or other disposition (in one transaction or a series of transactions) of all or substantially all of the assets of the Company. For purposes of this Section 2 under this Agreement, "Permitted Holders" shall mean Miriam Olsten, Stuart Olsten, and Cheryl Olsten, and each of their spouses, their lineal descendants and their estates and their Affiliates or Associates (as defined in Rule 12b-2 of the Exchange Act) (collectively the "Olsten Stockholders"), so long as the Olsten Stockholders beneficially own 20% or less of the voting power of all classes of capital stock of the Company entitled to vote generally in the election of the Board; provided, however, such percentage shall be increased on a percentage basis (rounded to the nearest whole percent) to the extent the Olsten Stockholders acquire any such capital stock on conversion of the convertible trust preferred securities which they hold on March 15, 2000. Notwithstanding the foregoing, the transactions provided for in the Agreement and Plan of Merger By and Among Adecco SA, Staffing Acquisition Corporation and Olsten Corporation dated as of August 17, 1999, as amended (the "Merger Agreement"), shall not constitute a Change in Control for purposes hereof. A "Protection Period" shall be the period beginning on the date of a Change in Control and ending on the third anniversary of the date on which the Change in Control occurs. 3. Termination Following Change in Control. The Executive shall be entitled to the benefits provided in Section 4 hereof upon any termination of his or her employment with the Company within a Protection Period, except a termination of employment (a) because of his or her death, (b) because of a "Disability," (c) by the Company for "Cause," or (d) by the Executive other than for "Good Reason." (i) Disability. The Executive's employment shall be deemed to have terminated because of a "Disability" if the Executive applies for and is determined to be eligible to receive disability benefits under the Company's Long-Term Disability Plan. (ii) Cause. Termination by the Company of the Executive's employment for "Cause" shall mean termination upon: (A) the willful and continued failure by the Execu- -4- tive to substantially perform his or her duties with the Company, after a written demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes that the Executive has not substantially performed his or her duties; or (B) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes hereof, no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that his or her action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board at a meeting of the Board called and held for that purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his or her counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Executive engaged in the prohibited conduct set forth above in clauses (A) or (B) of the first sentence of this subsection and specifying the particulars thereof in detail. (iii) Without Cause. The Company may terminate the employment of the Executive without Cause during a Protection Period only by giving the Executive written notice of termination to that effect. In that event, the Executive's employment shall terminate on the last day of the month in which such notice is given (or such later date as may be specified in such notice), and the benefits set forth in Section 4 hereof shall be provided to the Executive. (iv) Good Reason. Termination of employment by the Executive for "Good Reason" shall mean termination: (A) if there has occurred a reduction by the Company in the Executive's base salary in effect on the date hereof, as increased from time to time thereafter, other than a reduction in the Executive's base salary of not more than ten percent which is part of a general salary reduction for a majority of -5- the salaried employees of the Company and its subsidiaries; (B) if without the Executive's written consent, the Company has required the Executive to be relocated anywhere in excess of fifty (50) miles from the Executive's office location on the date hereof, except for required travel on the business of the Company; (C) if there has occurred a failure by the Company to maintain plans providing benefits not materially less favorable than those provided by any benefit or compensation plan (including, without limitation, any incentive compensation plan, bonus plan or program, retirement, pension or savings plan, stock option plan, restricted stock plan, life insurance plan, health and dental plan and disability plan) in which the Executive is participating immediately before the beginning of the Protection Period, or if the Company has taken any action which would adversely affect the Executive's participation in or reduce the Executive's benefits (other than stock option or restricted stock grants) under any of such plans or deprive the Executive of any material fringe benefit enjoyed by the Executive immediately before the beginning of the Protection Period, or if the Company has failed to provide the Executive with the number of paid vacation days to which he or she would be entitled in accordance with the normal vacations policy of the Company as in effect immediately before the beginning of the Protection Period; provided, however, that a reduction in benefits under the Company's tax-qualified retirement, pension or savings plans or its life insurance plan, health and dental plan, disability plans or other insurance plans which reduction applies equally to all participants in the plans and has a de minimis effect on the Executive shall not constitute "Good Reason" for termination by the Executive; (D) the assignment to the Executive of any material duties inconsistent with his or her status as a senior executive officer of the Company or a substantial adverse alteration in the nature or status -6- of the Executive's responsibilities from those in effect immediately prior to the Change in Control; (E) if the Company has failed to obtain the assumption of the obligations contained in this Agreement by any successor as contemplated in Section 8(c) hereof; or (F) if there occurs any purported termination of the Executive's employment by the Company which is not effected pursuant to a written notice of termination as described in subsection (ii) or (iii) above. The Executive shall exercise his or her right to terminate employment for Good Reason by giving the Company a written notice of termination specifying in reasonable detail the circumstances constituting such Good Reason. In that event, the Executive's employment shall terminate on the last day of the month in which such notice is given. A termination of employment by the Executive within a Protection Period shall be for Good Reason if one of the occurrences specified in this subsection (iv) shall have occurred, notwithstanding that the Executive may have other reasons for terminating employment, including employment by another employer which the Executive desires to accept. 4. Benefits Upon Termination Within Protection Period. If, within a Protection Period, the Executive's employment by the Company shall be terminated (a) by the Company other than for Cause or because of the Executive's death or Disability, or (b) by the Executive for Good Reason, the Executive shall be entitled to the benefits provided for below (and the Executive shall not be entitled to severance benefits otherwise payable under the Executive's separate severance letter agreement with the Company): (i) The Company shall pay to the Executive through the date of the Executive's termination of employment salary at the rate then in effect, together with salary in lieu of vacation accrued to the date on which his employment terminates, in accordance with the standard payroll practices of the Company; (ii) The Company shall pay to the Executive an amount in cash equal to two times the sum of (A) the Ex- -7- ecutive's annual base salary in effect immediately prior to the date of the Executive's termination of employment or the date of the Change in Control (whichever is higher), and (B) the higher of (x) the Executive's target annual bonus for the year that includes the date of the Executive's termination of employment or (y) the Executive's target annual bonus for the year that includes the date of the Change in Control; and such payment shall be made in a lump sum within 10 business days after the date of such termination of employment; (iii) The Company shall continue to cover the Executive and his or her dependents under, or provide the Executive and his or her dependents with insurance coverage no less favorable than, the Company's life, disability, health, dental or other emp1oyee welfare benefit plans or programs (as in effect on the day immediately preceding the Protection Period or, at the option of the Executive, on the date of termination of his or her employment) for a period equal to the lesser of (x) two years following the date of termination or (y) until the Executive is provided by another employer with benefits substantially comparable to the benefits provided by such plans or programs; (iv) All options to purchase Company stock granted under the Company's 1999 Stock Incentive Plan (or other Company plan) held by the Executive shall become immediately vested and exercisable in full upon such termination of employment, and all such stock options shall remain exercisable for one year following such termination of employment (but not beyond the original full term of the stock option); and (v) All of the Executive's benefits accrued under the pension, retirement, savings and deferred compensation plans of the Company shall become vested in full; provided, however, that to the extent such accelerated vesting of benefits cannot be provided under one or more of such plans consistent with applicable provisions of the Internal Revenue Code of 1986, as amended, such benefits shall be paid to the Executive in a lump sum within 10 days after termination of employment outside the applicable plan. Anything in this Agreement to the contrary notwithstanding, the Executive shall be entitled to the benefits de- -8- scribed in this Section 4, if the Executive's employment with the Company is terminated by the Company (other than for Cause) within one year prior to the date on which a Change in Control occurs, and it is reasonably demonstrated that such termination (i) was at the request of a third party who has taken steps reasonably calculated or intended to effect a Change in Control or (ii) otherwise arose in connection with or anticipation of a Change in Control. 5. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plans, practices, policies or programs provided by the Company or any of its subsidiaries and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any stock option or other agreements with the Company or any of its subsidiaries. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, practice, policy or program of the Company or any of its subsidiaries at or subsequent to the date of termination of the Executive's employment shall be payable in accordance with such plan, practice, policy or program. 6. Full-Settlement; Legal Expenses. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. The Company agrees to pay, upon written demand therefor by the Executive, all legal fees and expenses which the Executive may reasonably incur as a result of any dispute or contest by or with the Company or others regarding the validity or enforceability of, or liability under, any provision of this Agreement (including as a result of any contest by the Executive about the amount of any payment hereunder) if the Executive substantially prevails in the dispute or contest, plus in each case interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Internal Revenue Code of 1986, as amended (the "Code"). In any such action brought by the Executive for damages or to enforce any provisions of this Agreement, the Executive shall be entitled to seek both legal and equitable relief and remedies, in- -9- cluding, without limitation, specific performance of the Company's obligations hereunder, in his or her sole discretion. 7. Excise Tax Cut Back. (a) Anything in this Agreement to the contrary notwithstanding, if it shall be determined that any payment, distribution or benefit provided (including, without limitation, the acceleration of any payment, distribution or benefit and the acceleration of exercisability of any stock option) to the Executive or for his or her benefit (whether paid or payable or distributed or distributable) pursuant to the terms of this Agreement or otherwise would be subject, in whole or in part, to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Excise Tax"), then the amounts payable to the Executive under this Agreement shall be reduced (by the minimum possible amount) until no amount payable to the Executive is subject to the Excise Tax; provided however, that no such reduction shall be made if the net after-tax benefit (after taking into account Federal, state, local or other income, employment, self-employment and excise taxes) to which the Executive would otherwise be entitled without such reduction would be greater than the net after-tax benefit (after taking into account Federal, state, local or other income, employment, self-employment and excise taxes) to the Executive resulting from the receipt of such payments with such reduction. If, as a result of subsequent events or conditions, it is determined that payments have been reduced by more than the minimum amount required under this Section 7, then an additional payment shall be promptly made to the Executive in an amount equal to the excess reduction. (b) All determinations required to be made under this Section 7, including whether a payment would result in an Excise Tax shall be made by PricewaterhouseCoopers LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive as requested by the Company or the Executive. All fees and expenses of the Accounting Firm shall be borne solely by the Company and shall be paid by the Company. Except as set forth in the last sentence of Section 7(a) hereof, all determinations made by the Accounting Firm under this Section 7 shall be final and binding upon the Company and the Executive. 8. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all -10- secret or confidential information, knowledge or data relating to the Company or any of its subsidiaries, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its subsidiaries and which shall not be or become public knowledge (other than by acts of the Executive or his or her representatives in violation of this Agreement). After the date of termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 8 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 9. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives or successor(s) in interest. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to a11 or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. 10. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without reference to principles of conflict of laws therof. The captions of this Agreement are not part of the provisions -11- hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: If to the Company: Gentiva Health Services, Inc. 175 Broad Hollow Road Melville, NY 11747 Attention: or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision thereof. (f) This Agreement contains the entire understanding of the Company and the Executive with respect to the subject -12- matter hereof but, except as specifically provided in Section 4 hereof, does not supersede or override the provisions of any stock option, severance letter agreement, employee benefit or other plan, program, policy or practice in which Executive is a participant or under which the Executive is a beneficiary; provided, however, that this Agreement does supersede the Change in Control Agreement between Olsten Corporation and the Executive dated ______________. -13- IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed as of the day and year first above written. --------------------------- Name: GENTIVA HEALTH SERVICES, INC. By: ------------------------ Name: Title: EX-10.12 9 CHANGE IN CONTROL AGREE. - BLECHSCHMIDT CHANGE IN CONTROL AGREEMENT Agreement, made this ___ day of January, 2000, by and between Gentiva Health Services, Inc., a Delaware corporation (the "Company"), and Edward A. Blechschmidt (the "Executive"). WHEREAS, the Executive is a key employee of the Company; and WHEREAS, the Board of Directors of the Company (the "Board") considers the maintenance of a sound management to be essential to protecting and enhancing the best interests of the Company and its stockholders and recognizes that the possibility of a change in control raises uncertainty and questions among key employees and may result in the departure or distraction of such key employees to the detriment of the Company and its stockholders; and WHEREAS, the Board wishes to assure that it will have the continued dedication of the Executive and the availability of his or her advice and counsel, notwithstanding the possibility, threat or occurrence of a bid to take over control of the Company, and to induce the Executive to remain in the employ of the Company; and WHEREAS, the Executive is willing to continue to serve the Company taking into account the provisions of this Agreement; NOW, THEREFORE, in consideration of the foregoinq, and the respective covenants and agreements of the parties herein contained, the parties agree as follows: 1. Operation and Term of Agreement. This Agreement shall commence at the Effective Time of the Merger as contemplated in the Merger Agreement (defined below) and shall continue through the third anniversary of such date; provided, however, that after a Change in Control of the Company during the term of this Agreement, this Agreement shall remain in effect until all of the obligations of the parties hereunder are satisfied and the Protection Period has expired. Prior to a Change in Control this Agreement shall immediately terminate upon termination of the Executive's employment, except in the case of such termination under circumstances set forth in the last paragraph of Section 4 below. -2- 2. Change in Control; Protection Period. A "Change of Control" shall be deemed to occur on the date that any of the following events occur: (a) any person or persons acting together which would constitute a "group" for purposes of Section 13(d) of the Exchange Act (other than the Company or any subsidiary and other than Permitted Holders) shall beneficially own (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, at least 25% of the total voting power of all classes of capital stock of the Company entitled to vote generally in the election of the Board; (b) either (i) Current Directors (as herein defined) shall cease for any reason to constitute at least a majority of the members of the Board (for these purposes, a "Current Director" shall mean any member of the Board as of the date hereof, and any successor of a Current Director whose election, or nomination for election by the Company's shareholders, was approved by at least two-thirds of the Current Directors then on the Board) or (ii) at any meeting of the shareholders of the Company called for the purpose of electing directors, a majority of the persons nominated by the Board for election as directors shall fail to be elected; (c) consummation of (i) a plan of complete liquidation of the Company, or (ii) a merger or consolidation of the Company (A) in which the Company is not the continuing or surviving corporation (other than a consolidation or merger with a wholly owned subsidiary of the Company in which all shares of Common Stock outstanding immediately prior to the effectiveness thereof are changed into common stock of the subsidiary) or (B) pursuant to which the Common Stock is converted into cash, securities or other property, except a consolidation or merger of the Company in which the holders of the Common Stock immediately prior to the consolidation or merger have, directly or indirectly, at least a majority of the common stock of the continuing or surviving corporation immediately after such consolidation or merger or in which the Board immediately prior to the merger or consolidation would, immediately after the merger or consolidation, constitute a majority of the board of directors of the continuing or surviving corporation; or -3- (d) consummation of a sale or other disposition (in one transaction or a series of transactions) of all or substantially all of the assets of the Company. For purposes of this Section 2 under this Agreement, "Permitted Holders" shall mean Miriam Olsten, Stuart Olsten, and Cheryl Olsten, and each of their spouses, their lineal descendants and their estates and their Affiliates or Associates (as defined in Rule 12b-2 of the Exchange Act) (collectively the "Olsten Stockholders"), so long as the Olsten Stockholders beneficially own 20% or less of the voting power of all classes of capital stock of the Company entitled to vote generally in the election of the Board; provided, however, such percentage shall be increased on a percentage basis (rounded to the nearest whole percent) to the extent the Olsten Stockholders acquire any such capital stock on conversion of the convertible trust preferred securities which they hold on March 15, 2000. Notwithstanding the foregoing, the transactions provided for in the Agreement and Plan of Merger By and Among Adecco SA, Staffing Acquisition Corporation and Olsten Corporation dated as of August 17, 1999, as amended (the "Merger Agreement"), shall not constitute a Change in Control for purposes hereof. A "Protection Period" shall be the period beginning on the date of a Change in Control and ending on the third anniversary of the date on which the Change in Control occurs. 3. Termination Following Change in Control. The Executive shall be entitled to the benefits provided in Section 4 hereof upon any termination of his or her employment with the Company within a Protection Period, except a termination of employment (a) because of his or her death, (b) because of a "Disability," (c) by the Company for "Cause," or (d) by the Executive other than for "Good Reason." (i) Disability. The Executive's employment shall be deemed to have terminated because of a "Disability" if the Executive applies for and is determined to be eligible to receive disability benefits under the Company's Long-Term Disability Plan. (ii) Cause. Termination by the Company of the Executive's employment for "Cause" shall mean termination upon: (A) the willful and continued failure by the Execu- -4- tive to substantially perform his or her duties with the Company, after a written demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes that the Executive has not substantially performed his or her duties; or (B) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes hereof, no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that his or her action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board at a meeting of the Board called and held for that purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his or her counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Executive engaged in the prohibited conduct set forth above in clauses (A) or (B) of the first sentence of this subsection and specifying the particulars thereof in detail. (iii) Without Cause. The Company may terminate the employment of the Executive without Cause during a Protection Period only by giving the Executive written notice of termination to that effect. In that event, the Executive's employment shall terminate on the last day of the month in which such notice is given (or such later date as may be specified in such notice), and the benefits set forth in Section 4 hereof shall be provided to the Executive. (iv) Good Reason. Termination of employment by the Executive for "Good Reason" shall mean termination: (A) if there has occurred a reduction by the Company in the Executive's base salary in effect on the date hereof, as increased from time to time thereafter, other than a reduction in the Executive's base salary of not more than ten percent which is part of a general salary reduction for a majority of -5- the salaried employees of the Company and its subsidiaries; (B) if without the Executive's written consent, the Company has required the Executive to be relocated anywhere in excess of fifty (50) miles from the Executive's office location on the date hereof, except for required travel on the business of the Company; (C) if there has occurred a failure by the Company to maintain plans providing benefits not materially less favorable than those provided by any benefit or compensation plan (including, without limitation, any incentive compensation plan, bonus plan or program, retirement, pension or savings plan, stock option plan, restricted stock plan, life insurance plan, health and dental plan and disability plan) in which the Executive is participating immediately before the beginning of the Protection Period, or if the Company has taken any action which would adversely affect the Executive's participation in or reduce the Executive's benefits (other than stock option or restricted stock grants) under any of such plans or deprive the Executive of any material fringe benefit enjoyed by the Executive immediately before the beginning of the Protection Period, or if the Company has failed to provide the Executive with the number of paid vacation days to which he or she would be entitled in accordance with the normal vacations policy of the Company as in effect immediately before the beginning of the Protection Period; provided, however, that a reduction in benefits under the Company's tax-qualified retirement, pension or savings plans or its life insurance plan, health and dental plan, disability plans or other insurance plans which reduction applies equally to all participants in the plans and has a de minimis effect on the Executive shall not constitute "Good Reason" for termination by the Executive; (D) the assignment to the Executive of any material duties inconsistent with his or her status as a senior executive officer of the Company or a substantial adverse alteration in the nature or status -6- of the Executive's responsibilities from those in effect immediately prior to the Change in Control; (E) if the Company has failed to obtain the assumption of the obligations contained in this Agreement by any successor as contemplated in Section 8(c) hereof; or (F) if there occurs any purported termination of the Executive's employment by the Company which is not effected pursuant to a written notice of termination as described in subsection (ii) or (iii) above. The Executive shall exercise his or her right to terminate employment for Good Reason by giving the Company a written notice of termination specifying in reasonable detail the circumstances constituting such Good Reason. In that event, the Executive's employment shall terminate on the last day of the month in which such notice is given. A termination of employment by the Executive within a Protection Period shall be for Good Reason if one of the occurrences specified in this subsection (iv) shall have occurred, notwithstanding that the Executive may have other reasons for terminating employment, including employment by another employer which the Executive desires to accept. 4. Benefits Upon Termination Within Protection Period. If, within a Protection Period, the Executive's employment by the Company shall be terminated (a) by the Company other than for Cause or because of the Executive's death or Disability, or (b) by the Executive for Good Reason, the Executive shall be entitled to the benefits provided for below (and the Executive shall not be entitled to severance benefits otherwise payable under the Executive's separate Employment Agreement with the Company): (i) The Company shall pay to the Executive through the date of the Executive's termination of employment salary at the rate then in effect, together with salary in lieu of vacation accrued to the date on which his employment terminates, in accordance with the standard payroll practices of the Company; (ii) (a) If such termination of employment occurs prior to the first anniversary of the date hereof, the -7- Company shall pay to the Executive an amount in cash equal to the sum of (A) the Executive's annual base salary in effect immediately prior to the date of the Executive's termination of employment or the date of the Change in Control (whichever is higher), and (B) the higher of (x) the Executive's target annual bonus for the year that includes the date of the Executive's termination of employment or (y) the Executive's target annual bonus for the year that includes the date of the Change in Control; and such payment shall be made in a lump sum within 10 business days after the date of such termination of employment; (b) If such termination of employment occurs on or after the first anniversary of the date hereof, the Company shall pay to the Executive an amount in cash equal to two times the sum of (A) the Executive's annual base salary in effect immediately prior to the date of the Executive's termination of employment or the date of the Change in Control (whichever is higher), and (B) the higher of (x) the Executive's target annual bonus for the year that includes the date of the Executive's termination of employment or (y) the Executive's target annual bonus for the year that includes the date of the Change in Control; and such payment shall be made in a lump sum within 10 business days after the date of such termination of employment; (iii) The Company shall continue to cover the Executive and his or her dependents under, or provide the Executive and his or her dependents with insurance coverage no less favorable than, the Company's life, disability, health, dental or other emp1oyee welfare benefit plans or programs (as in effect on the day immediately preceding the Protection Period or, at the option of the Executive, on the date of termination of his or her employment) for a period equal to the lesser of (x) two years following the date of termination or (y) until the Executive is provided by another employer with benefits substantially comparable to the benefits provided by such plans or programs; (iv) All options to purchase Company stock granted under the Company's 1999 Stock Incentive Plan (or other Company plan) held by the Executive shall become immediately vested and exercisable in full upon such termination of employment, and all such stock options shall remain ex- -8- ercisable for one year following such termination of employment (but not beyond the original full term of the stock option); and (v) All of the Executive's benefits accrued under the pension, retirement, savings and deferred compensation plans of the Company shall become vested in full; provided, however, that to the extent such accelerated vesting of benefits cannot be provided under one or more of such plans consistent with applicable provisions of the Internal Revenue Code of 1986, as amended, such benefits shall be paid to the Executive in a lump sum within 10 days after termination of employment outside the applicable plan. Anything in this Agreement to the contrary notwithstanding, the Executive shall be entitled to the benefits described in this Section 4, if the Executive's employment with the Company is terminated by the Company (other than for Cause) within one year prior to the date on which a Change in Control occurs, and it is reasonably demonstrated that such termination (i) was at the request of a third party who has taken steps reasonably calculated or intended to effect a Change in Control or (ii) otherwise arose in connection with or anticipation of a Change in Control. 5. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plans, practices, policies or programs provided by the Company or any of its subsidiaries and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any stock option or other agreements with the Company or any of its subsidiaries. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, practice, policy or program of the Company or any of its subsidiaries at or subsequent to the date of termination of the Executive's employment shall be payable in accordance with such plan, practice, policy or program. 6. Full-Settlement; Legal Expenses. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against -9- the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. The Company agrees to pay, upon written demand therefor by the Executive, all legal fees and expenses which the Executive may reasonably incur as a result of any dispute or contest by or with the Company or others regarding the validity or enforceability of, or liability under, any provision of this Agreement (including as a result of any contest by the Executive about the amount of any payment hereunder) if the Executive substantially prevails in the dispute or contest, plus in each case interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Internal Revenue Code of 1986, as amended (the "Code"). In any such action brought by the Executive for damages or to enforce any provisions of this Agreement, the Executive shall be entitled to seek both legal and equitable relief and remedies, including, without limitation, specific performance of the Company's obligations hereunder, in his or her sole discretion. 7. Excise Tax Cut Back. (a) Anything in this Agreement to the contrary notwithstanding, if it shall be determined that any payment, distribution or benefit provided (including, without limitation, the acceleration of any payment, distribution or benefit and the acceleration of exercisability of any stock option) to the Executive or for his or her benefit (whether paid or payable or distributed or distributable) pursuant to the terms of this Agreement or otherwise would be subject, in whole or in part, to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Excise Tax"), then the amounts payable to the Executive under this Agreement shall be reduced (by the minimum possible amount) until no amount payable to the Executive is subject to the Excise Tax; provided however, that no such reduction shall be made if the net after-tax benefit (after taking into account Federal, state, local or other income, employment, self-employment and excise taxes) to which the Executive would otherwise be entitled without such reduction would be greater than the net after-tax benefit (after taking into account Federal, state, local or other income, employment, self-employment and excise taxes) to the Executive resulting from the receipt of such payments with such reduction. If, as a result of subsequent events or conditions, it is determined that payments have been reduced by more than the minimum amount required under this Section 7, then an addi- -10- tional payment shall be promptly made to the Executive in an amount equal to the excess reduction. (b) All determinations required to be made under this Section 7, including whether a payment would result in an Excise Tax shall be made by PricewaterhouseCoopers LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive as requested by the Company or the Executive. All fees and expenses of the Accounting Firm shall be borne solely by the Company and shall be paid by the Company. Except as set forth in the last sentence of Section 7(a) hereof, all determinations made by the Accounting Firm under this Section 7 shall be final and binding upon the Company and the Executive. 8. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its subsidiaries, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its subsidiaries and which shall not be or become public knowledge (other than by acts of the Executive or his or her representatives in violation of this Agreement). After the date of termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 8 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 9. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives or successor(s) in interest. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. -11- (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to a11 or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. 10. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without reference to principles of conflict of laws therof. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Edward A. Blechschmidt c/o Gentiva Health Services, Inc. 175 Broad Hollow Road Melville, NY 11747 If to the Company: Gentiva Health Services, Inc. 175 Broad Hollow Road Melville, NY 11747 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and -12- communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision thereof. (f) This Agreement contains the entire understanding of the Company and the Executive with respect to the subject matter hereof but, except as specifically provided in Section 4 hereof, does not supersede or override the provisions of any stock option, severance letter agreement, employee benefit or other plan, program, policy or practice in which Executive is a participant or under which the Executive is a beneficiary. -13- IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed as of the day and year first above written. ---------------------------- Edward A. Blechschmidt GENTIVA HEALTH SERIVCES, INC. By: ------------------------ Josh S. Weston, Chairman, Human Resources and Compensation Committee EX-23.1 10 CONSENT OF INDEPENDENT ACOCUNTANTS Consent of Independent Accountants We hereby consent to the incorporation by reference in the Post-Effective Amendment No. 1 on Form S-8 (No. 333-88663) to the Registration Statement on Form S-4 of Gentiva Health Services, Inc. of our report dated March 15, 2000 relating to the financial statements and financial statement schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP - ---------------------------------- PricewaterhouseCoopers LLP New York, New York March 31, 2000 EX-27 11 ARTICLE 5 FDS FOR YEAR 10-K
5 This schedule contains summary financial imformation extracted from Gentiva Health Services, Inc. and Subsidiaries Consolidated Balance Sheet at January 2, 2000 and Gentiva Health Services, Inc. and Subsidiaries Consolidated Statement of Income for the year ended January 2, 2000 and is qualified in its entirety by reference to such financial statements. 1,000 YEAR JAN-02-2000 JAN-02-2000 2,942 0 612,219 36,759 95,218 759,231 131,681 79,872 1,063,015 320,695 0 0 0 2,035 703,256 1,063,015 1,489,822 1,489,822 984,396 984,396 470,971 38,687 16,975 (21,207) (6,121) (15,086) 0 0 0 (15,086) (.74) (.74)
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