-----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, S2UJQUGs4L5WRW72qB3nHPVMkwxjwur7Kd3x0QhP0ZdSTcRK8qty3PIGyFdGANRz xVFmEpmEwr2RzpWYeuXxWQ== 0000950150-98-000953.txt : 19980605 0000950150-98-000953.hdr.sgml : 19980605 ACCESSION NUMBER: 0000950150-98-000953 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19980604 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PACIFICARE HEALTH SYSTEMS INC /DE/ CENTRAL INDEX KEY: 0001027974 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 954591529 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-53167 FILM NUMBER: 98642545 BUSINESS ADDRESS: STREET 1: 5995 PLAZA DR CITY: CYPRESS STATE: CA ZIP: 90630 BUSINESS PHONE: 7149521121 MAIL ADDRESS: STREET 1: 5995 PLAZA DR CITY: CYPRESS STATE: CA ZIP: 90630 FORMER COMPANY: FORMER CONFORMED NAME: N T HOLDINGS INC DATE OF NAME CHANGE: 19961204 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FHP INTERNATIONAL CORP CENTRAL INDEX KEY: 0000793499 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-OFFICES & CLINICS OF DOCTORS OF MEDICINE [8011] IRS NUMBER: 330072502 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-53167-01 FILM NUMBER: 98642546 BUSINESS ADDRESS: STREET 1: 3120 LAKE CENTER DRIVE CITY: SANTA ANA STATE: CA ZIP: 92704 BUSINESS PHONE: 7148255200 MAIL ADDRESS: STREET 1: 3120 LAKE CENTER DRIVE CITY: SANTA ANA STATE: CA ZIP: 92704 FORMER COMPANY: FORMER CONFORMED NAME: FHP CORP DATE OF NAME CHANGE: 19870201 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PACIFCARE OPERATIONS INC CENTRAL INDEX KEY: 0001063300 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 330064895 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-53167-02 FILM NUMBER: 98642547 BUSINESS ADDRESS: STREET 1: 3120 LAKE CENTER DRIVE CITY: SANTA ANA STATE: CA ZIP: 92704 BUSINESS PHONE: 7148255200 MAIL ADDRESS: STREET 1: 3120 LAKE CENTER DRIVE CITY: SANTA ANA STATE: CA ZIP: 92704 S-3/A 1 FORM S-3 #1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1998 REGISTRATION NO. 333-53167 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 PACIFICARE HEALTH SYSTEMS, INC. (EXACT NAME OF ISSUER AS SPECIFIED IN ITS CHARTER) DELAWARE 95-4591529 (STATE OR OTHER JURISDICTION OF (I.R.S EMPLOYER IDENTIFICATION INCORPORATION OR ORGANIZATION) NUMBER) 3120 LAKE CENTER DRIVE, SANTA ANA, CALIFORNIA 92704 (714) 825-5200 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (TELEPHONE NUMBER)
ALAN R. HOOPS PRESIDENT AND CHIEF EXECUTIVE OFFICER PACIFICARE HEALTH SYSTEMS, INC. 3120 LAKE CENTER DRIVE SANTA ANA, CALIFORNIA 92704 (714) 825-5200 (NAME, ADDRESS AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENTS FOR SERVICE) COPIES TO: MICHAEL R. JACOBSON, ESQ. JAMES R. WALTHER, ESQ. COOLEY GODWARD LLP MAYER, BROWN & PLATT 5 PALO ALTO SQUARE 350 SOUTH GRAND AVENUE 3000 EL CAMINO REAL 25TH FLOOR PALO ALTO, CALIFORNIA 94306-2155 LOS ANGELES, CALIFORNIA 90071-1503 (650) 843-5000 (213) 229-9500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this registration statement. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE ========================================================================================================================= AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF SECURITIES TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------------------- Senior Debt Securities... $250,000,000 100% $250,000,000(2) $73,750(3) - ------------------------------------------------------------------------------------------------------------------------- Guarantees of Subsidiaries........... N/A N/A N/A N/A(4) =========================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o). (2) If any Debt Securities are issued at an original issue discount, such greater amount as shall result in an aggregate initial offering price of $250 million. (3) The registration fee for the $250,000,000 Senior Debt Securities was paid with the initial filing of this Registration Statement. (4) No separate registration fee is payable pursuant to 457(n). ADDITIONAL REGISTRANTS
EXACT NAME OF REGISTRANT STATE OR OTHER JURISDICTION I.R.S. EMPLOYER AS SPECIFIED IN ITS CHARTER OF INCORPORATION OR ORGANIZATION IDENTIFICATION NUMBER --------------------------- -------------------------------- --------------------- PacifiCare Operations, Inc. Delaware 33-0064895 FHP International Corporation Delaware 33-0072502
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 EXPLANATORY NOTE The prospectus associated with this offering is presented in two parts: an initial portion (labeled "Prospectus Supplement") containing more detailed information about the Notes being offered hereby and a second portion (labeled "Prospectus") containing more general information about the Notes and PacifiCare. These two sections together constitute a single prospectus which contains all required information (except information that may be omitted pursuant to Rule 430A under the Securities Act of 1933, as amended). 3 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION: DATED JUNE 4, 1998 PROSPECTUS SUPPLEMENT - ---------------------------------- (TO PROSPECTUS DATED JUNE , 1998) $250,000,000 PACIFICARE LOGO % SENIOR NOTES DUE 2008 ------------------------ The % Senior Notes due 2008 (the "Notes" ) are being offered by PacifiCare Health Systems, Inc. (the "Company" or "PacifiCare") in an aggregate principal amount of $250,000,000. Interest on the Notes is payable semiannually in arrears on and of each year, beginning on , 1998, at the rate of % per annum. The Notes will be redeemable, in whole or part, at the option of PacifiCare, at any time, at a redemption price equal to the greater of (i) 100% of the principal amount of the Notes to be redeemed or (ii) the sum of the present values of the Remaining Scheduled Payments (as defined herein) thereon discounted to such redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (as defined herein) plus basis points, plus in either case accrued interest on the principal amount being redeemed to such redemption date. The Notes will not be entitled to the benefit of any mandatory redemption or sinking fund. The Notes will be unsecured obligations of the Company and will rank equally with all senior unsecured indebtedness of the Company and will be guaranteed by certain subsidiaries of the Company to the extent described herein. The Notes will be represented by a global security deposited with The Depository Trust Company, New York, New York (the "Depository"), and registered in the name of a nominee of the Depository. Interests in the global security will be shown on, and transfer thereof will be effected through, records maintained by the Depository and its participants. Except as described herein, Notes in certificated form will not be issued. See "Description of Notes -- Global Securities." Settlement for the Notes will be made in immediately available funds. So long as the Notes are represented by a global security registered in the name of the Depository or its nominee, the Notes will trade in the Depository's Same-Day Funds Settlement System, secondary market trading activity in the Notes will settle in immediately available funds and all payments of principal and interest will be made by the Company in immediately available funds. See "Description of Notes -- Same-Day Settlement and Payment." ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ============================================================================================================== Underwriting Price to Discounts and Proceeds to Public(1) Commissions(2) Company(1)(3) - -------------------------------------------------------------------------------------------------------------- Per Note........................ $ $ $ - -------------------------------------------------------------------------------------------------------------- Total........................... $ $ $ ==============================================================================================================
(1) Plus accrued interest, if any, from the date of issuance. (2) The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (3) Before deducting estimated expenses of $506,250 payable by the Company. ------------------------ The Notes are offered by the several Underwriters, subject to prior sale, when, as and if issued and accepted by the Underwriters and certain other conditions. The several Underwriters reserve the right to withdraw, cancel or modify any such offer and to reject orders in whole or in part. It is expected that the Notes will be delivered in book-entry form only through the facilities of the Depository on or about June , 1998. BANCAMERICA ROBERTSON STEPHENS CHASE SECURITIES INC. ------------------------ CITICORP SECURITIES, INC. SBC WARBURG DILLON READ INC. The date of this Prospectus Supplement is June , 1998 4 CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING STABILIZING TRANSACTIONS AND THE PURCHASE OF NOTES TO COVER SHORT POSITIONS BY THE UNDERWRITERS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." ------------------------ The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain "forward looking statements" to encourage companies to provide prospective information about themselves based on management estimates and beliefs. This Prospectus Supplement contains forward-looking statements that are based on the beliefs of, estimates and assumptions made by, and information currently available to the Company's management. Actual results may differ materially from those projected in the forward looking statements, which statements involve risks and uncertainties. In addition, past financial performance is not necessarily a reliable indicator of future performance and investors should not use historical performance to anticipate results or future trends. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others: (i) changes in the Company's membership; (ii) loss or inability to contract with health care providers; (iii) increased health care costs; (iv) reductions in premiums; (v) government audits; (vi) reimbursement to payors; (vii) potential disposition losses; and (viii) changes in state and federal legislation. Prospective investors are also directed to the other risks discussed herein and in other documents filed by the Company with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and the Company's Current Report on Form 8-K filed June 4, 1998. S-2 5 THE COMPANY PacifiCare(R) Health Systems, Inc. (the "Company" or "PacifiCare") is one of the nation's leading managed health care services companies, serving nearly 3.7 million health maintenance organization ("HMO") members in its commercial and government product lines as of March 31, 1998. The Company is also a leader in the management, development and marketing of diversified HMO products and related services. The Company operates HMOs in 10 states and Guam, and as of March 31, 1998, had a combined commercial HMO membership of nearly 2.7 million members and over one million members in its Secure Horizons(R) Medicare risk programs. The Company believes that its ability to offer a comprehensive range of products and services, combined with its long-term relationships with health care providers, will enable the Company to respond effectively to the changing needs of the health care marketplace. THE OFFERING ISSUER........................ PacifiCare Health Systems, Inc. SECURITIES OFFERED............ $250,000,000 aggregate principal amount of % Senior Notes due 2008. MATURITY...................... , 2008. INTEREST PAYMENT DATES........ and of each year, commencing on , 1998. OPTIONAL REDEMPTION........... The Notes will be redeemable, in whole or part, at the option of PacifiCare, at any time, at a redemption price equal to the greater of (i) 100% of the principal amount of the Notes to be redeemed or (ii) the sum of the present values of the Remaining Scheduled Payments thereon discounted to such redemption date on a semiannual basis at the Treasury Rate plus basis points, plus in either case accrued interest on the principal amount being redeemed to such redemption date. See "Description of Notes -- Optional Redemption." RANKING....................... The Notes will be unsecured obligations of the Company and will rank equally with all other senior unsecured indebtedness of the Company. USE OF PROCEEDS............... To prepay a portion of the amount outstanding under its Credit Facility. See "Use of Proceeds." S-3 6 BUSINESS The Company is one of the nation's leading managed health care services companies, serving nearly 3.7 million HMO members in its commercial and government product lines as of March 31, 1998. Members join the Company's commercial plans primarily through employer groups while members of the Company's government programs are individual Medicare and Medicaid beneficiaries. The Company is also a leader in the management, development and marketing of diversified HMO products and related services. On February 14, 1997, the Company consummated the acquisition of FHP International Corporation ("FHP") for a total purchase price, including transaction costs, of approximately $2.2 billion (the "FHP Acquisition"). The Company's commercial and government membership increased substantially as a result of the FHP Acquisition. The FHP Acquisition has been accounted for as a purchase and the Company's consolidated results of operations include the results of FHP only from the date of the FHP Acquisition. Also during 1997, the Company consummated the sale of its Florida, Illinois and New Mexico subsidiaries and announced a proposed exit strategy for its Utah subsidiary, including its potential sale. BUSINESS STRATEGY The current business strategy of the Company has a strong operational focus. During 1998, the Company intends to: - improve commercial gross margins through premium increases and improved health care cost management through capitated arrangements with strong provider organizations which align the interest of providers with that of the Company and its members; - focus on management tools, including medical and pharmacy management and effective medical information reporting; - exit geographic markets and product lines which do not fit within the Company's profitability objectives; - improve administrative and marketing efficiencies in order to reduce the percentage of revenue spent on marketing, general and administrative expenses; and - increase the quality and service of its basic HMO products measured through expanded National Committee for Quality Assurance accreditation in 1998. In addition, the Company continues to evaluate opportunities in new and existing geographic markets that may be available through acquisitions and the development of new products. S-4 7 OPERATIONS, PRODUCTS AND SERVICES HMO Operations The Company operates HMOs in 10 states and Guam and the Company's membership at March 31, 1998 by state and program was as follows:
GOVERNMENT (MEDICARE & COMMERCIAL MEDICAID) TOTAL ---------- ----------- --------- Arizona............................................ 111,100 88,700 199,800 California......................................... 1,578,000 605,900 2,183,900 Colorado........................................... 293,800 53,400 347,200 Guam............................................... 42,600 -- 42,600 Nevada............................................. 44,200 24,400 68,600 Ohio............................................... 48,700 14,000 62,700 Oklahoma........................................... 101,500 26,500 128,000 Oregon............................................. 114,100 38,200 152,300 Texas.............................................. 138,600 68,500 207,100 Utah............................................... 120,300 23,100 143,400 Washington......................................... 95,300 57,600 152,900 --------- --------- --------- Total membership......................... 2,688,200 1,000,300 3,688,500 ========= ========= =========
Commercial Programs The Company's commercial membership has grown from approximately 0.7 million members at December 31, 1992 to approximately 2.7 million members at March 31, 1998. The Company offers a comprehensive range of products, including HMOs, Preferred Provider Organization ("PPO") and Point of Service ("POS") plans. PPOs are a defined network of providers which provide discounted fee-for-service health care. POS plans combine the features of an HMO (a defined provider network providing care to members with reduced deductibles and co-payments) with the features of a traditional indemnity insurance product (the option to use any physician, with higher deductibles and co-payments). For the commercial employer market, the Company offers a range of benefit plan designs that vary in the amount of member co-payments. The Company believes that nominal co-payments are useful in helping contain the costs of health care without providing a barrier to members seeking needed health care services. The Company offers a variety of specialty managed health care products either as supplements to its commercial programs or as stand-alone products. These products include pharmacy benefit management, life and health insurance, behavioral health services and dental and vision services. These optional services are generally provided through subcontracting or referral relationships with other health care providers. The Company is not dependent on any one employer group or group of employers to sustain its commercial product revenue stream. Secure Horizons Programs The Company offers health care services to Medicare beneficiaries through its Secure Horizons programs. The Secure Horizons programs represent the largest Medicare risk programs offered by a single company in the United States (as measured by membership). Secure Horizons membership has grown from approximately 0.2 million members at December 31, 1992 to over 1.0 million members at March 31, 1998. The Company has been offering Secure Horizons programs since 1985 pursuant to annual risk contracts with the Health Care Financing Administration ("HCFA"). HCFA requires that an HMO be federally qualified or meet similar requirements as a competitive medical plan to be eligible for S-5 8 Medicare risk contracts. These Medicare risk contracts entitle the Company to a fixed per-member premium, which is currently based upon the average cost of providing traditional fee-for-service Medicare benefits to the Medicare population in each county. The risk contracts are subject to periodic unilateral revisions by HCFA based upon updated demographic information relating to the Medicare population and the cost of providing health care in a particular geographic area. HCFA has the right to audit HMOs operating under Medicare risk contracts to determine the quality of care being rendered and the degree of compliance with HCFA's contracts and regulations. HCFA may unilaterally terminate the Company's Medicare risk contracts if the Company fails to continue to meet compliance and eligibility standards. Because the average use of health care services by Medicare beneficiaries greatly exceeds the use of services by those who are under the age of 65, the Company's Medicare risk plans generate substantially larger per member revenue than the Company's commercial plans. Premium revenue for each Secure Horizons member is usually more than three times that of a commercial member, reflecting, in part, the higher medical and administrative cost of serving a Medicare member. As a result, although membership in the Secure Horizons programs represented only approximately 27 percent of the Company's membership at March 31, 1998, such membership accounted for approximately 59 percent of the consolidated premium revenue for the three months ended March 31, 1998 and an even larger percentage of the Company's operating profit. On August 5, 1997, President Clinton signed into law the Balanced Budget Act of 1997 (the "1997 Budget Act"), which enacted numerous revisions to the Medicare program. The 1997 Budget Act revised the formula by which Medicare risk premiums are calculated, which could result in lower average Medicare premiums being paid to the Company. The Company believes that any reduction in premiums may be offset by other features of this new legislation which encourages the use of managed care plans by Medicare beneficiaries. Each Secure Horizons member enrolls individually and may disenroll by providing 30 days' notice. The Company believes that its Secure Horizons programs have one of the lowest disenrollment rates among Medicare risk plans. The Company believes that the Medicare market continues to offer significant growth opportunities since only approximately 15 percent of the country's Medicare beneficiaries are enrolled in Medicare risk HMO programs such as those offered by the Company. The 1997 Budget Act repeals the requirement that at least half of a Medicare health plan's enrollment be drawn from commercial contracts (the "50/50 Rule") beginning January 1, 1999, and gives the Department of Health and Human Services broad authority to waive the 50/50 Rule for certain plans beginning January 1, 1998. The Company believes that the repeal of the 50/50 Rule will allow it to develop Medicare risk programs in markets where it does not have operations through expansion of its Secure Horizons programs and affiliations between Secure Horizons USA, Inc. ("SHUSA"), its Medicare risk management subsidiary, and health plans or providers in such markets (see "Specialty Managed Care Products and Services-Medicare Risk Management"). The 1997 Budget Act replaces the risk contract program with a new "Medicare+choice" program, which is intended to increase Medicare enrollment in private health plans and will permit, beginning in 1999, provider sponsored organizations (networks of doctors, hospitals and other providers -- "PSOs") to contract directly with HCFA for Medicare risk contracts. PSOs, if successful, will increase the Company's competition for new Medicare enrollees. The loss of Medicare contracts or termination or modification of the HCFA risk-based Medicare program could have a material adverse effect on the profitability, operations and business prospects of the Company. In response to the needs of employers to provide cost-effective health care coverage to their retired employees who may or may not currently be entitled to Medicare, the Company developed its Secure Horizons retiree product. This product takes advantage of the Company's expertise in providing health care to seniors. The provider networks are similar to those offered to the Company's Secure Horizons enrollees and the premium is based on the revenue requirements needed to provide services to Secure Horizons enrollees. Moreover, the retiree product provides the Company with S-6 9 access to individuals who, once familiar with the Company's services and delivery system, may enroll in Secure Horizons programs when they become entitled to Medicare benefits. Specialty Managed Care Products and Services In addition to its HMO operations, the Company provides a range of specialty managed care products and services to HMOs, insurers, employers, governmental entities, providers and PPOs, including the following: Medicare Risk Management. The Company formed SHUSA in March 1993 to take advantage of the Company's expertise in the Medicare risk area. SHUSA licenses the Secure Horizons name and provides management services, including, among other things, marketing, provider contracting and administrative services, to HMOs and health care delivery systems that want to engage in Medicare risk contracting. SHUSA has entered into agreements in New Mexico with Presbyterian Healthcare Services, in New England with Tufts Associated Health Maintenance Organization, Inc. and in 1999, contingent upon HCFA approval, in Hawaii with Queens Health Plans. SHUSA is currently engaged in discussions with a number of health plans and delivery systems regarding future business development opportunities in the Medicare risk market. The Company anticipates that with the repeal of the 50/50 Rule and the drive to enroll Medicare beneficiaries in HMOs, SHUSA may enter into licensing arrangements in a variety of geographic areas thereby expanding the Company's presence in new markets. While the Company currently expects the opportunities created by the repeal of the 50/50 Rule to outweigh the potential adverse effects of increased competition, HCFA has not adopted final regulations in connection with this legislation and it is too early to predict the ultimate effect, if any, this legislation will have on the Company. Pharmacy Benefit Management. Prescription Solutions(R) was established in May 1993 to offer pharmacy benefit management services. Clients of Prescription Solutions, one of the industry's largest pharmacy benefit management companies, have access to a pharmacy provider network that features independent and chain pharmacies, as well as a variety of cost and quality management capabilities. Prescription Solutions also provides its clients with an array of fully integrated services, including mail order distribution, an extensive network of retail pharmacies, claims processing and sophisticated drug utilization reporting. Life and Health Insurance. PacifiCare Life and Health Insurance Company ("PLHIC") and PacifiCare Life Assurance Company ("PLAC"), the Company's life and health insurance subsidiaries, offer employer groups managed health care insurance products which have been integrated with the Company's existing HMO products to form multi-option health benefits programs. Together, PLHIC and PLAC are licensed to operate in 38 states, the District of Columbia and Guam, including the states in which the Company's HMOs operate. Behavioral Health Services. PacifiCare Behavioral Health of California, Inc. is a licensed specialized health care service plan which provides behavioral health care services, including chemical dependency benefit programs, in California directly to corporate customers and indirectly through the Company's California HMO to its commercial members. Outside of California, PacifiCare Behavioral Health, Inc. contracts with various HMOs, insurers and employers to manage their respective mental health and chemical dependency benefit programs. Dental and Vision Services. California Dental Health Plan d/b/a PacifiCare Dental and Vision ("PDV") is a licensed specialized health care service plan which provides prepaid dental and optometry benefits for individuals, including members of PacifiCare's California commercial and Secure Horizons programs and employer groups. PDV continues to market independently of the Company's California HMO and to provide dental and vision benefits to its members. Recently, PacifiCare Dental of Colorado, Inc. received approval to offer stand-alone dental care plans to people in selected areas of Colorado. The stand-alone dental care plan works like an HMO and will allow employers to offer the dental plan to members of any medical carrier. S-7 10 HEALTH CARE PROVIDER RELATIONSHIPS AND HEALTH CARE COSTS The profitability of the Company and the success of its business strategy is dependent on its ability to attract and retain a network of qualified health care providers in each geographic area it serves. The Company's contracts with physician groups and other health care providers typically have one year terms; however, the Company has entered into multiple year contracts with certain physician groups to ensure the quality and stability of its provider network. The Company generally contracts with providers on a capitated basis (fixed fee per member per month) with, in some cases, contractual risk sharing arrangements that shift some of the risks of higher than expected health care costs to the provider groups. Increased competition among health care providers has resulted in the consolidation of such providers, resulting in larger provider groups being created and fewer groups with which the Company can contract. The consolidation among provider groups increased competition with other HMOs and the inability of provider groups to effectively manage capitated programs have made contracting on a cost-effective basis more difficult. If provider groups face financial problems or become insolvent, the Company may incur: (i) a loss of membership, if existing provider relationships are disrupted; (ii) additional expenditures to enter into more expensive or non-capitated provider contracts in order to provide alternative health care services to its members in the areas covered by such providers; (iii) loss of its ability to obtain contractual reimbursement from providers; and (iv) potential claims from third parties. An inability to contract with new or existing providers, at reasonable cost, the inability of providers to provide adequate care, or insolvency of providers could adversely affect the profitability, operations and business prospects of the Company. FPA Medical Management, Inc. ("FPA"), is a publicly-traded medical care provider which provides services to approximately 206,000 of the Company's members, primarily in Arizona, California, Nevada and Texas. FPA has been the subject of press reports regarding its financial problems and recently announced that it had received a waiver of certain defaults on its bank credit agreements through June 11, 1998 and that it expected cash on hand and cash flows to be sufficient to meet its operating capital needs only through June 1998. The Company is in active negotiations with FPA with respect to potential renegotiation of provider contracts and other matters. The Company does not expect that these actions or FPA's reported financial problems will materially and adversely affect the Company's results of operations, cash flows, or consolidated financial position. However, if FPA were to become insolvent, the Company would likely be required to record a charge in the quarter of insolvency and such charge might be material to the results of that quarter. The Company's profitability is also dependent in part on its ability to maintain effective control over health care costs while providing members with quality care. Factors such as legislative or regulatory mandates or changes, the level of utilization of health care services by members, new technologies, hospital costs, epidemics and numerous other external influences may affect the Company's health care costs. RECENT DEVELOPMENTS On May 22, 1998, the Company announced that it would redeem its Series A Cumulative Convertible Preferred Stock ("Preferred Stock") on June 23, 1998, at $25.75 per share plus accrued and unpaid dividends (approximately $0.02 per share), for a total redemption price of approximately $25.77 per share (the "Redemption Price"). Each share of Preferred Stock is convertible into 0.37419548 shares of the Company's Class B Common Stock through June 22, 1998. The market value of the Class B Common Stock to be received upon conversion will exceed the Redemption Price if the market value of Class B Common Stock exceeds $68.87 per share. The Company has 10,517,044 outstanding shares of Preferred Stock. S-8 11 USE OF PROCEEDS The net proceeds to be received by PacifiCare from the sale of the Notes offered hereby, after deducting estimated underwriting discounts and commissions and expenses of the offering payable by PacifiCare, will be approximately $ . All of the net proceeds will be used to prepay a portion of the amount outstanding under the Company's Credit Facility. Application of the net proceeds to the Credit Facility will result in a corresponding reduction in the aggregate commitments available thereunder. Bank of America, NT&SA, The Chase Manhattan Bank and Citicorp USA, Inc., which are affiliates of BancAmerica Robertson Stephens, Chase Securities Inc. and Citicorp Securities, Inc., respectively, (and, in the case of The Chase Manhattan Bank, of the Trustee), are lenders under the Credit Facility and will, in the aggregate, receive approximately 17 percent of the net proceeds used to prepay the Credit Facility. S-9 12 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company as of March 31, 1998 (i) on an actual basis and (ii) as adjusted to give effect to the sale by the Company of the Notes being offered, less estimated underwriting discounts and commissions and offering expenses totaling $2.0 million, and the application of the net proceeds therefrom as described under "Use of Proceeds."
MARCH 31, 1998 ------------------------ ACTUAL AS ADJUSTED ---------- ----------- (IN THOUSANDS) Debt: Current maturities of long-term debt...................... $ 152 $ 152 ========== ========== Long-term debt, excluding current maturities.............. $1,041,195 $ 793,195 % Senior Notes due 2008.............................. -- 250,000 Shareholders' equity........................................ 2,083,695 2,083,695 ---------- ---------- Total capitalization...................................... $3,124,890 $3,126,890 ========== ==========
S-10 13 SELECTED HISTORICAL AND OPERATING DATA The following data for the year ended December 31, 1997, the three-month period ended December 31, 1996, and each of the four fiscal years in the period ended September 30, 1996 are derived from the audited consolidated financial statements of PacifiCare. The following selected historical financial and operating data for the three-month period ended March 31, 1998 and 1997 and the twelve-month period ended December 31, 1996 are derived from the unaudited consolidated financial statements of PacifiCare. The unaudited consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) which PacifiCare considers necessary for a fair presentation of its financial position and results of operations for these periods. The following selected financial and operating data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," found in the consolidated financial statements and related notes and other financial information contained in PacifiCare's Form 10-K for the year ended December 31, 1997, Form 10-Q for the quarter ended March 31, 1998 and Current Report on Form 8-K filed on June 4, 1998, which are incorporated herein by reference. See "Incorporation of Certain Documents by Reference" and "Available Information."
(TRANSITION PERIOD) THREE MONTHS TWELVE THREE ENDED MARCH 31, YEAR ENDED MONTHS ENDED MONTHS ENDED ----------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1997(1) 1997(1) 1996(2) 1996 ---------- ---------- ------------ ------------ ------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA Operating revenue..................... $2,381,950 $1,843,603 $8,982,680 $4,807,856 $1,234,875 Expenses: Health care services................. 2,008,501 1,547,655 7,658,879 4,017,383 1,039,345 Other operating expenses............. 300,949 224,833 1,125,299 605,546 154,996 Impairment, disposition, -- -- 154,507 75,840 -- restructuring and other charges.... Office of Personnel Management -- -- -- 25,000 -- charge............................. ---------- ---------- ---------- ---------- ---------- Operating income...................... 72,500 71,115 43,995 84,087 40,534 Interest income, net.................. 7,786 7,966 16,129 44,696 12,302 ---------- ---------- ---------- ---------- ---------- Income before income taxes and 80,286 79,081 60,124 128,783 52,836 cumulative effect of a change in accounting principle................. Provision for income taxes............ 38,940 35,587 81,825 53,052 21,079 ---------- ---------- ---------- ---------- ---------- Income (loss) before cumulative effect 41,346 43,494 (21,701) 75,731 31,757 of a change in accounting principle............................ Cumulative effect on prior years of a -- -- -- -- -- change in accounting principle....... ---------- ---------- ---------- ---------- ---------- Net income (loss)..................... $ 41,346 $ 43,494 $ (21,701) $ 75,731 $ 31,757 ========== ========== ========== ========== ========== Preferred dividends................... (2,629) (904) (8,792) -- -- ---------- ---------- ---------- ---------- ---------- Net income (loss) available to common $ 38,717 $ 42,590 $ (30,493) $ 75,731 $ 31,757 shareholders......................... ---------- ---------- ---------- ---------- ---------- Basic earnings (loss) per share (4)... $ 0.93 $ 1.17 $ (0.75) $ 2.43 $ 1.01 ---------- ---------- ---------- ---------- ---------- Diluted earnings (loss) per $ 0.90 $ 1.12 $ (0.75) $ 2.39 $ 1.00 share(4)............................. ========== ========== ========== ========== ========== Ratio of earnings to fixed 4.7x 7.3x 1.8x 13.9x 31.5x charges(5)(6)........................ ========== ========== ========== ========== ========== OPERATING STATISTICS Medical care ratio (health care services as a percent of premium revenue) Consolidated......................... 85.2% 84.5% 85.7% 84.5% 85.1% Commercial........................... 83.1% 83.2% 85.8% 82.8% 84.4% Government........................... 86.6% 85.4% 85.6% 85.6% 85.5% Marketing, general and administrative 11.9% 11.6% 11.7% 12.4% 12.4% expenses as a percent of operating revenue.............................. Operating income...................... 3.0% 3.9% 0.5% 1.7% 3.3% Effective tax rate(7)................. 48.5% 45.0% 136.1% 41.2% 39.9% YEAR ENDED SEPTEMBER 30, ------------------------------------------------- 1996(2) 1995 1994(3) 1993 ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA Operating revenue..................... $4,637,305 $3,731,022 $2,893,252 $2,221,073 Expenses: Health care services................. 3,872,747 3,077,135 2,374,258 1,850,469 Other operating expenses............. 585,081 505,644 398,064 283,360 Impairment, disposition, 75,840 -- -- -- restructuring and other charges.... Office of Personnel Management 25,000 -- -- -- charge............................. ---------- ---------- ---------- ---------- Operating income...................... 78,637 148,243 120,930 87,244 Interest income, net.................. 44,143 33,857 24,538 21,083 ---------- ---------- ---------- ---------- Income before income taxes and 122,780 182,100 145,468 108,327 cumulative effect of a change in accounting principle................. Provision for income taxes............ 50,827 74,005 60,875 45,631 ---------- ---------- ---------- ---------- Income (loss) before cumulative effect 71,953 108,095 84,593 62,696 of a change in accounting principle............................ Cumulative effect on prior years of a -- -- 5,658 -- change in accounting principle....... ---------- ---------- ---------- ---------- Net income (loss)..................... $ 71,953 $ 108,095 $ 90,251 $ 62,696 ========== ========== ========== ========== Preferred dividends................... -- -- -- -- ---------- ---------- ---------- ---------- Net income (loss) available to common $ 71,953 $ 108,095 $ 90,251 $ 62,696 shareholders......................... ---------- ---------- ---------- ---------- Basic earnings (loss) per share (4)... $ 2.31 $ 3.69 $ 3.30 $ 2.30 ---------- ---------- ---------- ---------- Diluted earnings (loss) per $ 2.27 $ 3.62 $ 3.22 $ 2.25 share(4)............................. ========== ========== ========== ========== Ratio of earnings to fixed 12.3x 17.5x 21.5x 23.5x charges(5)(6)........................ ========== ========== ========== ========== OPERATING STATISTICS Medical care ratio (health care services as a percent of premium revenue) Consolidated......................... 84.4% 83.6% 83.1% 84.1% Commercial........................... 83.1% 82.5% 80.5% 82.5% Government........................... 85.4% 84.3% 85.2% 85.6% Marketing, general and administrative 12.4% 13.4% 13.6% 12.6% expenses as a percent of operating revenue.............................. Operating income...................... 1.7% 4.0% 4.2% 3.9% Effective tax rate(7)................. 41.4% 40.6% 41.8% 42.1%
AS OF MARCH 31, AS OF DECEMBER 31, AS OF SEPTEMBER 30, ----------------------- --------------------------- ----------------------------- 1998 1997 1997 1996 1996 1995 ---------- ---------- ------------ ------------ ------------- ------------- MEMBERSHIP DATA Commercial............................... 2,688,200 2,829,100 2,790,000 1,451,500 1,434,500 1,216,100 Government (Medicare and Medicaid)....... 1,000,300 1,019,400 1,001,100 593,600 596,200 541,000 ---------- ---------- ---------- ---------- ---------- ---------- Total membership.................. 3,688,500 3,848,500 3,791,100 2,045,100 2,030,700 1,757,100 ========== ========== ========== ========== ========== ========== BALANCE SHEET DATA Cash and equivalents and marketable securities.............................. $1,162,345 $1,005,760 $1,545,382 $ 962,482 $ 700,093 $ 811,525 Total assets...................... $4,494,881 $4,729,255 $4,867,958 $1,561,472 $1,299,462 $1,385,372 Medical claims and benefits payable...... $ 708,700 $ 655,700 $ 715,600 $ 278,800 $ 268,000 $ 288,400 Long-term debt, excluding current maturities.............................. $1,041,195 $1,141,497 $1,011,234 $ 1,370 $ 5,183 $ 11,949 Shareholders' equity..................... $2,083,695 $2,102,318 $2,062,187 $ 860,102 $ 823,224 $ 732,024 AS OF SEPTEMBER 30, ----------------------------- 1994 1993 ------------- ------------- MEMBERSHIP DATA Commercial............................... 949,100 806,900 Government (Medicare and Medicaid)....... 409,100 290,100 ---------- ---------- Total membership.................. 1,358,200 1,097,000 ========== ========== BALANCE SHEET DATA Cash and equivalents and marketable securities.............................. $ 710,608 $ 437,231 Total assets...................... $1,105,548 $ 693,646 Medical claims and benefits payable...... $ 302,900 $ 255,000 Long-term debt, excluding current maturities.............................. $ 101,137 $ 21,821 Shareholders' equity..................... $ 413,358 $ 319,294
S-11 14 - --------------- (1) The three months ended March 31, 1997 and year ended December 31, 1997 results of operations include the results for FHP from February 14, 1997. The year ended December 31, 1997 results include $155 million of pretax charges ($129 million or $3.18 diluted loss per share, net of tax) for the impairment of long-lived assets, restructuring and certain other charges. Operating income as a percentage of operating revenue before pretax charges was 2.2 percent. Return on average shareholders' equity before pretax charges was 7.3 percent. (2) The 1996 results of operations include $101 million of pretax charges ($62 million or $1.96 and $1.97 diluted loss per share, net of tax for the year ended September 30 and the twelve months ended December 31, respectively) for the impairment of long-lived assets, potential government claims, dispositions and certain restructuring charges. Operating income as a percentage of operating revenue before pretax charges for 1996 was 3.8 and 3.9 percent, respectively, for the fiscal year ended September 30 and the twelve months ended December 31. Return on average shareholders' equity before pretax charges for the fiscal year ended September 30, 1996 and the twelve months ended December 31, 1996 was 17.2 percent and 17.0 percent, respectively. (3) The 1994 results of operations reflect the cumulative effect on prior fiscal years of a change in accounting principle. Diluted earnings per share before cumulative effect of a change in accounting principle for the fiscal year ended September 30, 1994 was $3.02 per share. The cumulative effect of a change in accounting principle for the fiscal year ended September 30, 1994 was $0.20 per share. The fiscal year 1994 changes in net income and earnings per share before cumulative effect of a change in accounting principle are 34.9 percent and 34.2 percent, respectively. (4) Earnings per share have been restated to conform with the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share." Basic earnings per share excludes the effect of all potentially dilutive securities. Diluted earnings per share includes the effect of the potentially dilutive securities. For the years ended September 30, 1993 through September 30, 1996 and for the three months and twelve months ended December 31, 1996 the current presentation of diluted earnings per share is identical to the Company's former presentation of primary earnings per share. The potentially dilutive securities were not included in the calculation of diluted loss per share for 1997 because they were anti-dilutive. (5) For purposes of computing the ratio of earnings to fixed charges, earnings include income before fixed charges, provision for federal and state income taxes and cumulative effect of accounting change. Fixed charges consist of interest expense, including the interest component of capitalized leases, and that portion of operating lease expense which management believes is representative of the interest component of rental expense. (6) Earnings for the year ended December 31, 1997, twelve months ended December 31, 1996 and the fiscal year ended September 30, 1996 include pretax charges of $155 million, $101 million and $101 million, respectively. Excluding these pretax charges for the year ended December 31, 1997, the twelve months ended December 31, 1996 and the fiscal year ended September 30, 1996, the ratio of earnings to fixed charges would have been 3.7x, 24.0x and 21.6x, respectively. (7) Effective income tax rate includes the effect of non-deductible pretax charges. S-12 15 DESCRIPTION OF NOTES The % Senior Notes due 2008 of the Company (the "Notes") are to be issued under an indenture to be dated as of June 1, 1998, as supplemented from time to time (the "Indenture"), between the Company, certain wholly owned subsidiaries of the Company and Chase Manhattan Bank and Trust Company, National Association, as trustee (the "Trustee"). The form of the Indenture is filed as an exhibit to the Registration Statement of which this Prospectus Supplement forms a part. The statements made under this heading and under "Description of Debt Securities" in the Prospectus relating to the Notes and the Indenture are summaries of the provisions thereof, do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all of the provisions of the Indenture, including the definitions therein of certain terms that are not otherwise defined in this Prospectus Supplement or the Prospectus. GENERAL As of the date of this Prospectus Supplement, no Notes were outstanding under the Indenture. The Notes constitute a single series for purposes of the Indenture and are limited to $250,000,000 aggregate principal amount. The Notes will bear interest from , 1998 at the rate per annum set forth on the cover page hereof, which interest shall be payable semi-annually in arrears on and of each year to the holders of record at the close of business on the preceding and , respectively, beginning on , 1998, and will mature on , 2008. The Notes will be issued only in fully registered form without coupons (to be deposited with the Depository referred to below) and in denominations of $1,000 and integral multiples thereof. The Notes will be unsecured obligations of the Company and will rank equally in right of payment with all senior unsecured indebtedness of the Company. The Notes will not be entitled to the benefit of any mandatory redemption or sinking fund. GUARANTEES The obligations of the Company under the Notes will be guaranteed by certain subsidiaries of the Company to the extent and for the limited period of time described in the Prospectus. The Company and such subsidiaries are holding companies and are subject to certain restrictions on their ability to receive funds from their subsidiaries. See "Description of Debt Securities -- General;" "-- Subsidiary Guarantees." OPTIONAL REDEMPTION The Notes will be redeemable, as a whole or in part, at any time, at the option of the Company on any date (a "Redemption Date") at a redemption price equal to the greater of (i) 100% of the principal amount of the Notes to be redeemed or (ii) the sum of the present values of the Remaining Scheduled Payments thereon discounted to such Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus basis points, plus in either case accrued interest on the principal amount being redeemed to such Redemption Date. "Comparable Treasury Issue" means the United States security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Notes. "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company. "Comparable Treasury Price" means, with respect to any redemption date, (A) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest from such Reference Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such Quotations. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, S-13 16 the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day next preceding such redemption date. "Reference Treasury Dealer" means each of BancAmerica Robertson Stephens, Chase Securities Inc., Citicorp Securities, Inc. and SBC Warburg Dillon Read Inc. and their respective successors and, at the option of the Company, additional Primary Treasury Dealers; provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Company shall substitute therefor another Primary Treasury Dealer. "Remaining Scheduled Payments" means, with respect to any Note to be redeemed, the remaining scheduled payments of the principal thereof and interest thereon that would be due after the related Redemption Date but for such redemption; provided, however, that, if such Redemption Date is not an Interest Payment Date with respect to such Note, the amount of the next succeeding scheduled interest payment thereon will be reduced by the amount of interest accrued thereon to such Redemption date. "Treasury Rate" means, with respect to any Redemption Date for the Notes, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. SELECTION AND NOTICE OF REDEMPTION In the event that less than all of the Notes are to be redeemed at any time pursuant to an Optional Redemption, selection of such Notes for redemption will be made by the Trustee on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that no Notes of a principal amount or principal amount at maturity, as the case may be, of $1,000 or less shall be redeemed in part. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 90 days before the Redemption Date to each Holder of Notes to be redeemed as its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount or principal amount at maturity, as the case may be, thereof to be redeemed. A new Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the Redemption Date, interest will cease to accrue on Notes or portions thereof called for redemption as long as the Company has deposited funds sufficient to pay the applicable Redemption Price with the Paying Agent for the Notes. GLOBAL SECURITIES The Indenture provisions relating to Registered Global Securities described in the Prospectus under "Description of Debt Securities -- Global Securities" will be applicable to the Notes. The Notes will be issued in the form of a global security which will be deposited with or on behalf of the Depository and registered in the name of the its nominee. Redemption notices will be sent to the Depository. If less than all of the Notes are to be redeemed, the Depository's practice is to determine by lot the amount of the interest of each Direct Participant in such Notes to be redeemed. SAME-DAY SETTLEMENT AND PAYMENT Settlement for the Notes will be made by the Underwriters in immediately available funds. Secondary trading in long-term notes and debentures of corporate issuers is generally settled in clearing-house or next-day funds. In contrast, the Notes will trade in the Depository's Same-Day Funds Settlement System, and secondary market trading in the Notes will therefore be required by the Depository to settle in immediately available funds. No assurance can be given as to the effect, if any, of settlement in immediately available funds on trading activity in the Notes. S-14 17 UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement dated the date hereof (the "Underwriting Agreement"), the Company has agreed to sell to each of the underwriters named below (the "Underwriters"), and each of such Underwriters has severally agreed to purchase, the principal amount of the Notes set forth opposite its name below.
PRINCIPAL UNDERWRITER AMOUNT ----------- --------- BancAmerica Robertson Stephens.............................. $ Chase Securities Inc........................................ $ Citicorp Securities, Inc.................................... $ SBC Warburg Dillon Read Inc................................. $ -------- Total............................................. $ ========
Under the terms and conditions of the Underwriting Agreement, the Underwriters are committed to take and pay for all of the Notes, if any are taken. The Underwriters propose to offer the Notes in part directly to the public at the initial public offering price set forth on the cover page of this Prospectus Supplement and in part to certain securities dealers at such price less a concession of % of the principal amount of the Notes. The Underwriters may allow, and such dealers may reallow, a concession not to exceed % of the principal amount of the Notes to certain brokers and dealers. After the Notes are released for sale to the public, the offering price and other selling terms may from time to time be varied by the Underwriters. The Notes are a new issue of securities with no established trading market. The Company has been advised by the Underwriters that the Underwriters intend to make a market in the Notes but they are not obligated to do so and may discontinue such market making at any time without notice. No assurance can be given as to the liquidity of the trading market for the Notes. The Underwriters may engage in stabilizing and syndicate covering transactions in accordance with Rule 104 under the Exchange Act. Rule 104 permits stabilizing bids to purchase a security so long as bids do not exceed a specified maximum. Syndicate covering transactions would involve purchases of Notes in the open market after the distribution has been completed in order to cover syndicate short positions. Stabilizing and syndicate covering transactions may cause the price of the Notes to be higher than would otherwise be the case in the absence of such transactions. These transactions, if commenced, may be discontinued at any time. Each of the Underwriters or their affiliates have from time to time provided, and may continue to provide, commercial banking and/or financial advisory services to the Company. The net proceeds to the Company from the sale of the Notes offered hereby will be used to repay a portion of the amount outstanding under the Credit Facility extended to the Company by a syndicate of commercial banking institutions for which the commercial banking affiliate of BancAmerica Robertson Stephens is Agent and affiliates of Chase Securities Inc. and Citicorp Securities, Inc. are Managing Agents. This offering is being conducted in conformance with the provisions of Rule 2710(c)(8) of the Conduct Rules of the National Association of Securities Dealers, Inc. ("NASD") applicable to offerings in which more than 10% of the net proceeds of the offering are to be paid to members of the NASD or affiliated or associated persons. See "Use of Proceeds." The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. LEGAL MATTERS The validity of the issuance of the Notes offered by PacifiCare hereby will be passed upon for the Company by Cooley Godward LLP, Palo Alto, California. Certain matters in connection with the issuance of the Notes will be passed upon for the Underwriters by Mayer, Brown & Platt, Los Angeles, California. S-15 18 PROSPECTUS PACIFICARE HEALTH SYSTEMS, INC. SENIOR DEBT SECURITIES PacifiCare Health Systems, Inc., a Delaware corporation ("PacifiCare" or the "Company"), may offer, from time to time, one or more series of its unsecured senior debt securities consisting of debentures, notes, bonds or other evidences of indebtedness (the "Debt Securities"). The Debt Securities offered by the Company may be offered separately, or together, in separate series, in amounts, at prices and on terms to be determined at the time of the offering and to be set forth in one or more supplements to this Prospectus (each a "Prospectus Supplement") up to an aggregate principal amount of $250,000,000 (or if issued at an original issue discount, such greater amount as shall result in aggregate gross proceeds of $250,000,000). The specific terms of the Debt Securities in respect of which this Prospectus is being delivered will be set forth in the applicable Prospectus Supplement and will include, where applicable, the specific title, series, aggregate principal amount, maturity, interest rate (or manner of calculation thereof), time of payment of interest, form (which may be certificated or global), authorized denominations, terms for redemption at the option of the Company, terms for sinking fund payments and the initial public offering price. The applicable Prospectus Supplement will also contain information, where applicable, about certain United States federal income tax considerations relating to, and listing on a securities exchange, of the Debt Securities covered by such Prospectus Supplement. Unless otherwise specified in an accompanying Prospectus Supplement, the Debt Securities will be senior securities of the Company, ranking equally with all other senior unsecured indebtedness of the Company. Certain direct subsidiaries of the Company may guarantee the obligations of the Company under the Debt Securities. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The Company may sell all or a portion of any offering of the Debt Securities directly to investors, through agents designated from time to time, or to or through underwriters or dealers. If any agents or any underwriters are involved in the sale of the Debt Securities, their names and any applicable purchase price, commission or discount arrangements between or among them will be set forth, or will be calculable from the information set forth in, the applicable Prospectus Supplement. See "Plan of Distribution." No Debt Securities will be offered or sold without delivery of the applicable Prospectus Supplement describing the method and terms of the offering of such Debt Securities. THE DATE OF THIS PROSPECTUS IS JUNE , 1998. 19 No dealer, salesperson or other person has been authorized to give any information or to make any representations other than those contained or incorporated by reference in this Prospectus or any Prospectus Supplement and, if given or made, such information or representations must not be relied upon as having been authorized. Neither this Prospectus nor any Prospectus Supplement shall constitute an offer to sell or the solicitation of an offer to buy any of the Debt Securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus or any Prospectus Supplement nor any sale made hereunder or thereunder shall, under any circumstances, create any implication that the information incorporated by reference herein or therein is correct as of any time subsequent to the respective dates of this Prospectus and any Prospectus Supplement. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy statements, information statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements, information statements and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at the principal offices of the Commission, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's regional offices located at Room 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661-2511, and at Room 1300, Seven World Trade Center, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Additionally the Commission maintains a website (http://www.sec.gov) that contains reports, proxy statements and information statements and other information regarding registrants that file electronically with the Commission. The Series A Cumulative Convertible Preferred Stock and the Class A and Class B Common Stock of PacifiCare are traded on the Nasdaq National Market ("Nasdaq"). Reports, proxy statements and other information concerning PacifiCare can be inspected at the offices of Nasdaq. The Company has filed with the Commission a Registration Statement on Form S-3 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"), with respect to the Debt Securities. This Prospectus does not contain all the information set forth or incorporated by reference in the Registration Statement and the exhibits and schedules relating thereto, certain portions of which have been omitted as permitted by the rules and regulations of the Commission. For further information with respect to the Company and the Debt Securities, reference is made to the Registration Statement and the exhibits and schedules thereto which are on file at the offices of the Commission and may be obtained upon payment of the fee prescribed by the Commission, or may be examined without charge at the above offices of the Commission. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete, and are qualified in all respects by such reference. INCORPORATION OF DOCUMENTS BY REFERENCE The following documents previously filed with the Commission are hereby incorporated by reference into this Prospectus: 1. The Company's Annual Report on Form 10-K for the year ended December 31, 1997. 2. The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. 3. The Company's Current Report on Form 8-K filed June 4, 1998. All reports and other documents subsequently filed by the Registrant pursuant to Section 13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the filing of a post-effective amendment which indicates that all Debt Securities offered have been sold or which deregisters all Debt Securities then remaining unsold, shall be deemed to be incorporated by reference in this Registration Statement and to be a part hereof from the time of filing of such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein will be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is, or is 2 20 deemed to be, incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. This Prospectus incorporates documents by reference which are not presented herewith. The Company will provide without charge to each person to whom this Prospectus is delivered, upon written or oral request, a copy of any or all of the documents that are incorporated herein by reference, other than exhibits to such documents not specifically incorporated by reference herein. Such requests should be addressed to: Investor Relations, Attn.: David Erickson, PacifiCare Health Systems, Inc., 3120 Lake Center Drive, Santa Ana, California 92704, telephone: (714) 825-5200. 3 21 THE COMPANY PacifiCare(R) Health Systems, Inc. (the "Company" or "PacifiCare") is one of the nation's leading managed health care services companies, serving nearly 3.7 million health maintenance organization ("HMO") members in its commercial and government product lines as of March 31, 1998. Members join the Company's commercial plans primarily through employer groups while members of the Company's government programs are individual Medicare and Medicaid beneficiaries. On February 14, 1997, the Company acquired FHP International Corporation ("FHP") for a total purchase price, including transaction costs, of approximately $2.2 billion (the "FHP Acquisition").The Company's commercial and government membership substantially increased as a result of the FHP Acquisition. The FHP Acquisition has been accounted for as a purchase and the Company's consolidated results of operations include the results of FHP only from the date of the FHP Acquisition. Also during 1997, the Company consummated the sale of its Florida, Illinois and New Mexico subsidiaries and announced a proposed exit strategy for its Utah subsidiary, including its potential sale. The Company is also a leader in the management, development and marketing of diversified HMO products and related services. The Company operates HMOs in 10 states and Guam, and as of March 31, 1998, had a combined commercial HMO membership of nearly 2.7 million members. The Company's Secure Horizons(R) programs, which operate the largest Medicare risk programs in the United States (as measured by membership), had over 1.0 million members enrolled as of March 31, 1998. The Company believes that its Secure Horizons programs are attractive to Medicare beneficiaries because such programs provide a more comprehensive package of benefits than traditional Medicare and substantially reduce the members' administrative responsibilities. The Company believes that its ability to offer a comprehensive range of products and services, combined with its long-term relationships with health care providers, will enable the Company to respond effectively to the changing needs of the health care marketplace. In connection with the FHP Acquisition, the Company entered into a $1.5 billion credit facility with a syndicate of commercial banks for which Bank of America, NT&SA is agent (the "Credit Facility"). The interest rate under the Credit Facility is presently based on the London Interbank Offering Rate plus a spread, with the average interest rate under the Credit Facility at March 31, 1998 being approximately six percent. As of March 31, 1998, the Company had $940 million outstanding under the Credit Facility. The terms of the Credit Facility require mandatory reductions of its outstanding principal balance beginning January 1999 with a final maturity on January 1, 2002. Such terms would not require a reduction below the current $940 million outstanding principal balance until July 1, 2001. The Company's principal executive offices are located at 3120 Lake Center Drive, Santa Ana, California 92704 and its telephone number is (714) 825-5200. USE OF PROCEEDS Unless otherwise set forth in the applicable Prospectus Supplement, all net proceeds from the sale of the Debt Securities will be used to prepay a portion of the amount outstanding under the Credit Facility. 4 22 RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth the ratio of earnings to fixed charges of the Company for the periods indicated. The ratio reflects the historical results of the Company, excluding FHP, for all periods prior to 1997. For 1997, the ratio includes FHP results from February 14, 1997.
(TRANSITION PERIOD) TWELVE THREE THREE MONTHS MONTHS MONTHS ENDED YEAR ENDED ENDED ENDED YEAR ENDED SEPTEMBER 30, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, ---------------------------------------- 1998 1997 1997(1) 1996(1) 1996 1996(1) 1995 1994 1993 ----- ----- ------------ ------------ ------------ ---------- ------- ------- ------- Ratio of earnings to fixed charges(2).............. 4.7x 7.3x 1.8x 13.9x 31.5x 12.3x 17.5x 21.5x 23.5x ===== ===== ===== ====== ====== ====== ====== ====== ======
- --------------- (1) Earnings for the year ended December 31, 1997, twelve months ended December 31, 1996 and the fiscal year ended September 30, 1996 include pretax charges of $155 million, $101 million and $101 million, respectively. Excluding these pretax charges for the year ended December 31, 1997, the twelve months ended December 31, 1996 and the fiscal year ended September 30, 1996, the ratio of earnings to fixed charges would have been 3.7x, 24.0x and 21.6x, respectively. (2) For purposes of computing the ratio of earnings to fixed charges, earnings include income before fixed charges, provision for federal and state income taxes and cumulative effect of accounting change. Fixed charges consist of interest expense, including the interest component of capitalized leases, and that portion of operating lease expense which management believes is representative of the interest component of rental expense. 5 23 DESCRIPTION OF DEBT SECURITIES GENERAL The Debt Securities are to be issued under an Indenture, as amended or supplemented from time to time (the "Indenture"), between the Company, certain wholly owned subsidiaries of the Company and Chase Manhattan Bank and Trust Company, National Association, as trustee (the "Trustee"). A form of the Indenture is filed as an exhibit to the Registration Statement of which this Prospectus forms a part. The Debt Securities may be issued from time to time in one or more series. The particular terms of each series, or of Debt Securities forming a part of a series, which are offered by a Prospectus Supplement will be described in such Prospectus Supplement. The following summaries of certain provisions of the Indenture do not purport to be complete and are subject, and are qualified in their entirety by reference, to all the provisions of the Indenture, including the definitions therein of certain terms and with respect to any particular Debt Securities, to the description of the terms thereof included in the Prospectus Supplement relating thereto. Wherever particular sections or defined terms of the Indenture are referred to herein or in a Prospectus Supplement, such sections or defined terms are incorporated by reference herein or therein, as the case may be. The Company is a holding company, conducting its operations through its operating subsidiaries. Accordingly, the Company's ability to service the Debt Securities is dependent, in part, on its ability to obtain funds from the Company's subsidiaries. The subsidiaries pay fees for management services rendered by the Company to the subsidiaries and cash dividends. Most of the subsidiaries of the Company are subject to HMO or insurance regulations and are subject to supervision by one or more HMO or insurance regulators. Subsidiaries subject to regulation may be required to satisfy minimum equity, capital, deposit and/or reserve requirements. These requirements, which limit the ability of the Company's subsidiaries to transfer funds to the Company, may impact the amount of funds that may be paid by the subsidiaries to the Company. In addition, the rights of the Company and the rights of its creditors, including Holders of the Debt Securities, to participate in any distribution of the assets of a subsidiary upon the liquidation or recapitalization of such subsidiary will be subject to the prior claims of the subsidiary's creditors, except to the extent that the Company itself may be a creditor with recognized claims against the subsidiary. Accordingly, Holders of the Debt Securities may be deemed to be effectively subordinated to such claims. In connection with the FHP Acquisition, the Company's California health plans provided undertakings to the California Department of Corporations. As part of these undertakings, the California plans are required to describe to all future holders of indebtedness that: (i) the plans would not upstream funds in any manner, if such action would cause the plans to be out of compliance with their tangible net equity requirements, would result in insufficient working capital or cash flows necessary to provide for the retirement of existing or proposed indebtedness of the plans or affect the plans' ability to provide health care services; (ii) the plans would not guarantee, cosign, assume or pledge any assets or stock to secure any portion of the Credit Facility or any future indebtedness of the Company; (iii) the plans would not lend any money to the Company without an evaluation by independent financial accountants establishing the value of the loan to be equal to the amount shown in the plan's financial statements; and (iv) any indebtedness of the plans to the Company may be subordinated to the plans' obligations under California laws and regulations. The covenants in the Indenture will not necessarily afford the Holders of the Debt Securities protection in the event of a decline in the Company's credit quality resulting from highly leveraged or other transactions involving the Company. The Indenture provides that separate series of Debt Securities may be issued under the Indenture from time to time without limitation as to aggregate principal amount. The Company may specify a maximum aggregate principal amount for the Debt Securities of any series. (Section 301). The Debt Securities are to have such terms and provisions which are not inconsistent with the Indenture, including as to maturity, principal and interest, as the Company may determine. Except as provided in Section 1006, the Debt Securities will be unsecured obligations of the Company, will rank on a parity with all other senior unsecured indebtedness of the Company and, if so provided in a Prospectus Supplement, will be guaranteed by certain 6 24 subsidiaries of the Company to the extent and for the limited period of time described under "Subsidiary Guarantees" below. The applicable Prospectus Supplement will set forth the price or prices at which the Debt Securities to be offered will be issued and will describe the following terms of such Debt Securities: (1) the title of such Debt Securities; (2) any limit on the aggregate principal amount of the particular series of Debt Securities; (3) the date or dates on which the principal of any of such Debt Securities will be payable or the method by which such date or dates will be determined or extended; (4) the rate or rates at which any of such Debt Securities will bear interest, if any, or the method by which such rate or rates shall be determined, the date or dates from which any such interest will accrue, the Interest Payment Dates on which any such interest will be payable and the Regular Record Date for any such interest payable on any Interest Payment Date, or the method by which such date or dates shall be determined, and the basis upon which interest shall be calculated if other than that of a 360-day year of twelve 30-day months; (5) the place or places where the principal of, and any premium and interest on any of such Debt Securities will be payable; (6) the period or periods within which, the price or prices at which and the terms and conditions upon which any of such Debt Securities may be redeemed, in whole or in part, at the option of the Company and the manner in which any election by the Company to redeem such Debt Securities shall be evidenced (if other than by a Board Resolution); (7) the obligation, if any, of the Company to redeem or purchase any of such Debt Securities pursuant to any sinking fund or analogous provision or at the option of the Holder thereof, and the period or periods within which, the price or prices at which and the terms and conditions on which any of such Debt Securities will be redeemed or purchased, in whole or in part, pursuant to any such obligation; (8) the denominations in which any of such Debt Securities will be issuable, if other than denominations of $1,000 and any integral multiple thereof; (9) if the amount of principal of, or any premium or interest on any of such Debt Securities may be determined with reference to an index or pursuant to a formula, the manner in which such amounts will be determined; (10) if other than the currency of the United States of America, the currency, currencies or currency units in which the principal of or any premium or interest on any of such Debt Securities will be payable (and the manner in which the equivalent of the principal amount thereof in the currency of the United States of America is to be determined for any purpose, including for the purpose of determining the principal amount deemed to be Outstanding at any time); (11) if the principal of or any premium or interest on any of such Debt Securities is to be payable, at the election of the Company or the Holder thereof, in one or more currencies or currency units other than those in which such Debt Securities are stated to be payable, the currency, currencies or currency units in which payment of any such amount as to which such election is made will be payable, the periods within which and the terms and conditions upon which such election is to be made and the amount so payable (or the manner in which such amount is to be determined); (12) the percentage of the principal amount at which such Debt Securities will be issued and, if other than the entire principal amount thereof, the portion of the principal amount of any of such Debt Securities which will be payable upon declaration of acceleration of the Maturity thereof or the method by which such portion shall be determined; (13) if the principal amount payable at the Stated Maturity of any of such Debt Securities will not be determinable as of any one or more dates prior to the Stated Maturity, the amount which will be deemed to be such principal amount as of any such date for any purpose, including the principal amount thereof which will be due and payable upon any Maturity other than the Stated Maturity or which will be deemed to be Outstanding as of any such date (or, in any such case, the manner in which such deemed principal amount is to be determined); (14) any variation from the application of the provisions of the Indenture described under "Defeasance and Covenant Defeasance -- Defeasance and Discharge" or "Defeasance and Covenant Defeasance -- Defeasance of Certain Covenants" or under both such captions and the manner in which any election of the Company to defease such Debt Securities shall be evidenced (if other than by a Board Resolution); (15) whether any of such Debt Securities will be issuable in whole or in part in the form of one or more Global Securities and, if so, the respective Depositaries for such Global Securities, the form of any legend or legends to be borne by any such Global Securities in addition to or in lieu of the legend referred to under "Form, Exchange and Transfer -- Global Securities" and, if different from those described under such caption, any circumstances under which any such Global Securities may be exchanged in whole or in part for Debt Securities registered, and any transfer of such Global Securities in whole or in part may be registered, in the name of Persons other than the Depositary for such Global Securities or its nominee; (16) whether any of 7 25 such Debt Securities will be subject to certain optional interest rate reset provisions; (17) whether any of such Debt Securities will be subject to certain optional extension of maturity provisions; (18) any addition to or change in the Events of Default applicable to any of such Debt Securities and any change in the right of the Trustee or the Holders of any such Debt Securities to declare the principal amount of any of such Debt Securities and any change in the right of the Trustee or the Holders of any of such Debt Securities to declare the principal amount thereof due and payable; (19) any addition to or change in the covenants in the Indenture applicable to any of such Debt Securities; (20) whether such Debt Securities shall be guaranteed as herein described; and (21) any other terms of such Debt Securities not inconsistent with the provisions of the Indenture. (Section 301). Debt Securities, including Original Issue Discount Securities, may be sold at a substantial discount below their principal amount. Special United States federal income tax considerations (if any) applicable to Debt Securities sold at an original issue discount may be described in the applicable Prospectus Supplement. In addition, special United States federal income tax or other considerations (if any) applicable to any Debt Securities which are denominated in a currency or currency unit other than United States dollars may be described in the applicable Prospectus Supplement. FORM, EXCHANGE AND TRANSFER The Debt Securities of each series will be issuable only in fully registered form, without coupons, and, unless otherwise specified in the applicable Prospectus Supplement, only in denominations of $1,000 and integral multiples thereof. (Section 302). At the option of the Holder, subject to the terms of the Indenture and the limitations applicable to Global Securities, Debt Securities of each series will be exchangeable for other Debt Securities of the same series of any authorized denomination and of a like tenor and aggregate principal amount. (Section 305). Subject to the terms of the Indenture and the limitations applicable to Global Securities, Debt Securities may be presented for exchange as provided above or for registration of transfer (duly endorsed with the form of transfer endorsed thereon duly executed) at the office of the Security Registrar or at the office of any transfer agent designated by the Company for such purpose. No service charge will be made for any registration at transfer or exchange of Debt Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Such transfer or exchange will be effected upon the Security Registrar or such transfer agent, as the case may be, being satisfied with the documents of title and identity of the person making the request. The Company has appointed the Trustee as Security Registrar. Any transfer agent (in addition to the Security Registrar) initially designated by the Company for any Debt Securities will be named in the applicable Prospectus Supplement. (Section 305). The Company may from time to time designate additional transfer agents or rescind the designation of any transfer agent or approve a change in the office through which any transfer agent acts, except that the Company will be required to maintain a transfer agent in each Place of Payment for the Debt Securities of each series. (Section 1002). If the Debt Securities of any series (or of any series and specified tenor) are to be redeemed in part, the Company will not be required to (i) issue, register the transfer of, or exchange any Debt Security of that series (or of that series and specified tenor, as the case may be) during a period beginning at the opening of business 15 days before the day of mailing of a notice of redemption of any such Debt Security that may be selected for redemption and ending at the close of business on the day of such mailing or (ii) register the transfer of, or exchange any Debt Security so selected for redemption, in whole or in part, except the unredeemed portion of any such Debt Security being redeemed in part. (Section 305). GLOBAL SECURITIES To the extent provided in an applicable Prospectus Supplement, some or all of the Debt Securities of any series may be represented, in whole or in part, by one or more Global Securities which will have an aggregate principal amount equal to that of the Debt Securities represented thereby. Unless otherwise provided in the Prospectus Supplement, the Global Security representing Debt Securities will be deposited with, or on behalf 8 26 of, The Depository Trust Company ("DTC"), or other successor depository appointed by the Company (DTC or such other depository is herein referred to as the "Depository") and registered in the name of a nominee of the Depository and such Global Security will bear a legend regarding the restrictions on exchange and registration of transfer thereof referred to below and any such other matters as may be provided for pursuant to the Indenture. Unless otherwise provided in the Prospectus Supplement, Debt Securities will not be issued in definitive form. Notwithstanding any provision of the Indenture or any Debt Security described herein, no Global Security may be exchanged in whole or in part for Debt Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depository for such Global Security or any nominee of such Depository unless (i) the Depository has notified the Company that it is unwilling or unable to continue as Depository for such Global Security or has ceased to be qualified to act as such as required by the Indenture, (ii) there shall have occurred and be continuing an Event of Default with respect to the Debt Securities represented by such Global Security or (iii) there shall exist such circumstances, if any, in addition to or in lieu of those described above as may be described in the applicable Prospectus Supplement. All Debt Securities issued in exchange for a Global Security or any portion thereof will be registered in such names as the Depository may direct. (Sections 204 and 305). DTC has advised the Company as follows: DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation' within the meaning of the New York Uniform Commercial Code and a "clearing agency," registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds securities that its participants ("Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is owned by a number of Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to DTC's book-entry system is also available to others, such as securities brokers and dealers, banks and trust companies, that clear securities transactions through or maintain a custodial relationship with a Direct Participant either directly or indirectly ("Indirect Participants"). The rules applicable to DTC and its Participants are on file with the Commission. Upon the issuance by the Company of Debt Securities represented by a Global Security, purchases of Debt Securities under the DTC System must be made by or through Direct Participants, which will receive a credit for the Debt Securities on DTC's records. The ownership interest of each actual purchaser of each Debt Security (a "Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Debt Securities are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Debt Securities, except in the event that use of the book-entry system for the Debt Securities is discontinued. The laws of some states require that certain purchasers of securities take physical delivery of such securities in definitive form. Such laws may impair the ability to transfer beneficial interests in a Global Security. So long as the Depository for the Global Security, or its nominee, is the registered owner of the Global Security, the Depository or its nominee, as the case may be, will be considered the sole owner or holder of the Debt Securities represented by such Global Security for all purposes under the Indenture. Except as described above, Beneficial Owners will not be entitled to have Debt Securities represented by such Global Security registered in their names, will not receive or be entitled to receive physical delivery of Debt Securities in definitive form and will not be considered the owners or holders thereof under the Indenture. 9 27 To facilitate subsequent transfers, all Debt Securities deposited by Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The deposit of Debt Securities with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Debt Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Debt Securities are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Neither DTC nor Cede & Co. will consent or vote with respect to any Debt Securities. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Debt Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payments of principal of, and interest, if any, on the Debt Securities represented by the Global Security registered in the name of the Depository or its nominee will be made by the Company through the Trustee under the Indenture or a paying agent (the "Paying Agent"), which may also be the Trustee under the Indenture, to the Depository or its nominee, as the case may be, as the registered owner of the Global Security. Neither the Company, the Trustee, nor the Paying Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of the Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The Company has been advised that DTC will credit Direct Participants' accounts on the payable date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on the payable date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as in the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Paying Agent or the Company, subject to any such statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the Company or the Paying Agent, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. The information in this section concerning the Depository and the Depository's book-entry system has been obtained from sources that the Company believes to be reliable, but the Company takes no responsibility for the accuracy thereof. PAYMENT AND PAYING AGENTS Unless otherwise indicated in the applicable Prospectus Supplement, payment of interest on a Debt Security on any Interest Payment Date will be made to the Person in whose name such Debt Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such Interest. (Section 307). Unless otherwise indicated in the applicable Prospectus Supplement, principal of, and any premium and interest on the Debt Securities of a particular series will be payable at the office of such Paying Agent or Paying Agents as the Company may designate for such purpose from time to time, except that at the option of the Company payment of any interest may be made by check mailed to the address of the Person entitled thereto as such address appears in the Security Register. Unless otherwise indicated in the applicable Prospectus Supplement, the corporate trust office of the Trustee in New York, New York will be designated as the Company's sole Paying Agent for payments with respect to Debt Securities of each series. Any other Paying Agents initially designated by the Company for the Debt Securities of a particular series will be named 10 28 in the applicable Prospectus Supplement. 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, except that the Company will be required to maintain a Paying Agent in each Place of Payment for the Debt Securities of a particular series. (Section 1002). Any money paid by the Company to a Paying Agent for the payment of the principal of or any premium or interest on any Debt Security which remains unclaimed at the end of two years after such principal, premium or interest, as the case may be, has become due and payable may be repaid to the Company at the Company's request. (Section 1003). COVENANTS CONSOLIDATION, MERGER AND SALE OF ASSETS The Indenture provides that the Company shall not consolidate with or merge with, or convey, transfer or lease its properties and assets substantially as an entirety to, any Person (a "Successor Person"), and shall not permit any Person to merge into, or convey, transfer or lease its properties and assets substantially as an entirety to, the Company, unless (i) the Company is the continuing and surviving entity or the Successor Person is a corporation, partnership, trust, or other entity organized and validly existing under the laws of any domestic jurisdiction and assumes the Company's obligations on the Debt Securities and under the Indenture and (ii) immediately after giving effect to the transaction (and treating any indebtedness which becomes an obligation of the Company or any Subsidiary as a result of such transaction as having been incurred at the time of 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 occurred and be continuing. (Section 801). The Indenture provides similar covenants with respect to the Subsidiary Guarantors, except that transactions between the Subsidiary Guarantors and the Company (or with each other) are freely permitted. If such a transaction results in the release of all other guarantees of debt of the Company, the Subsidiary Guarantors (or their successors) will be released from any guarantees of any series of Debt Securities. (Sections 803 and 1507). LIMITATION ON LIENS The Indenture provides that the Company shall not, and shall not permit any Restricted Subsidiary of the Company, to create or suffer to exist any Lien on property or assets of the Company or such Subsidiary in connection with incurring Debt without making effective provision whereby all of the Debt Securities are equally and ratably secured with such borrowing, subject to the following exceptions: (a) Liens upon or in the property acquired or existing in such property at the time of acquisition, or in the case of an entity which becomes a Subsidiary of the Company, existing with respect to its property at the time it becomes a Subsidiary; (b) with respect to any series of Debt Securities, Liens existing on the date of issuance of such series; (c) Liens created by a Restricted Subsidiary as security for Debt owing to the Company or any Restricted Subsidiary; (d) Liens otherwise prohibited by the covenant in the Indenture relating to Liens, securing Debt which, together with the aggregate outstanding principal amount of all other Debt of the Company and its Restricted Subsidiaries which is secured by Liens that would otherwise be subject to such covenant and the Attributable Debt of Sale and Leaseback Transactions effected in accordance with this clause (d) does not exceed the greater of (A) $50,000,000 or (B) 15% of Consolidated Net Tangible Assets; (e) Liens resulting from the deposit of funds or evidences of indebtedness in trust for the purpose of defeasing indebtedness of the Company or any of its Subsidiaries, (f) Liens securing obligations pursuant to hedging transactions, including rate swaps, basis swaps, forward rate transactions, commodity swaps and options, foreign exchange transactions, cap, collar and floor transactions, currency swap transactions and the like, and (g) any extension, renewal or refunding of any Liens referred to in the foregoing clauses; provided, however, that in the case of this clause (g), the principal amount of Debt secured thereby shall not exceed the principal amount of Debt, plus any premium or fee payable in connection with any such extension, renewal, replacement or refunding, so secured at the time of such extension, renewal, replacement or refunding. (Section 1006). 11 29 LIMITATION ON SALE AND LEASEBACK TRANSACTIONS The Indenture provides that the Company shall not, and the Company shall not permit any Restricted Subsidiary to, enter into any Sale and Leaseback Transaction unless: (i) immediately prior to entering into such Sale and Leaseback Transaction, the Company or such Restricted Subsidiary could create a Lien on the property that is to be the subject of the Sale and Leaseback Transaction in an amount equal to the Attributable Debt with respect to the Sale and Leaseback Transaction without thereby causing an Event of Default, or (ii) an amount equal to the greater of the net proceeds of such Sale and Leaseback Transaction and the fair value (as determined by the Board of Directors) of the property that is to be the subject thereof is used (x) to reduce the Debt of the Company or any Subsidiary having an original term to maturity of twelve months or greater or (y) to purchase assets for use in the same line of business as that which the property that is the subject of the Sale and Leaseback Transaction was used by the Company or the Restricted Subsidiary in each case referred to in the preceding clauses (x) and (y) within 180 days after the effective date of the sale of the property in the Sale and Leaseback Transaction. (Section 1007). EVENTS OF DEFAULT Each of the following will constitute an Event of Default under the Indenture with respect to Debt Securities of any series: (a) failure to pay principal of, or any premium on any Debt Security of that series when due; (b) failure to pay any interest on any Debt Securities of that series when due, and continuance of such failure to make payment for 30 days; (c) failure to deposit any sinking fund payment, when due, in respect of any Debt Security of the applicable series; (d) failure to perform, or breach of, any other covenant or warranty of the Company or any Subsidiary Guarantor in the Indenture (other than a covenant included in the Indenture solely for the benefit of a series other than the applicable series), continued for 90 days after written notice has been given to the Company or any applicable Subsidiary Guarantor by the Trustee or the Holders of at least 25% in principal amount of the outstanding Debt Securities of that series, as provided in the Indenture; (e) a final judgment, decree or order for the payment of money in excess of $75,000,000 is rendered against the Company or any subsidiary and remains unsatisfied and in effect for 90 days without a stay of execution; (f) a default occurs under any instrument or instruments (including the Indenture) under which there is at the time outstanding, or by which there may be secured or evidenced, any Debt of the Company or any subsidiary or any guarantee of payment by the Company or any subsidiary of any obligation of any Person, which default results in acceleration of, or the nonpayment at maturity (after giving effect to any applicable grace period) of, such Debt or guarantee in an aggregate amount exceeding $75,000,000 and such default is not cured or waived, and such acceleration has not been rescinded or annulled, within 30 days after receipt by the Company of notice as provided in the Indenture; and (g) certain events involving bankruptcy, insolvency or reorganization. (Section 501). If an Event of Default (other than an Event of Default described in clauses (d) or (f) above that is applicable to all Outstanding Debt Securities) with respect to the Debt Securities of any series at the time Outstanding Debt shall occur and be continuing, either the Trustee or the Holders of at least 25% in aggregate principal amount of the Outstanding Debt Securities of that series by notice as provided in the Indenture may declare the principal amount of the Debt Securities of that series (or, in the case of any Debt Security that is an Original Issue Discount Security or the principal amount of which is not then determinable, such portion of the principal amount of such Debt Security, or such other amount in lieu of such principal amount, as may be specified in the terms of such Debt Security) to be due and payable immediately. If an Event of Default described in clauses (d) or (f) of the preceding paragraph that is applicable to all Outstanding Debt Securities shall occur and be continuing, either the Trustee or the Holders of at least 25% in aggregate principal amount of all the Debt Securities then outstanding (treated as one class) by notice as provided in the Indenture may declare the principal amount (or, if any Debt Securities are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms thereof) of all the Debt Securities then Outstanding to be due and payable immediately. After any such acceleration of a series, the Holders of a majority in aggregate principal amount of the Outstanding Debt Securities of that series may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the non-payment of 12 30 accelerated principal (or other specified amount) have been cured or waived as provided in the Indenture. (Section 502). For information as to waiver or defaults, see "Modification and Waiver." Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default shall occur and be continuing, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee reasonable indemnity. (Section 603) Subject to such provisions for the indemnification of the Trustee, the Holders of a majority in aggregate principal amount of the Outstanding Debt Securities of any series will 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 with respect to the Debt Securities of that series. (Section 512). No Holder of a Debt Security of any series will have any right to institute any proceeding with respect to the Indenture, or for the appointment of a receiver or a trustee, or for any other remedy thereunder, unless (i) such Holder has previously given to the Trustee written notice of a continuing Event of Default with respect to the Debt Securities of that series, (ii) the Holders of at least 25% in aggregate principal amount of the Outstanding Debt Securities of that series have made written request, and such Holder or Holders have offered reasonable indemnity, to the Trustee to institute such proceeding and (iii) the Trustee has failed to institute such proceeding, and has not received from the Holders of a majority in aggregate principal amount of the Outstanding Debt Securities of that series a direction inconsistent with such request, within 60 days after such notice, request and offer. (Section 507). However, such limitations do not apply to a suit instituted by a Holder of a Debt Security for the enforcement of payment of the principal of or any premium or interest on such Debt Security on or after the applicable due date specified in such Debt Security. (Section 508). The Company will be required to furnish to the Trustee annually a statement by certain of its officers as to whether or not the Company, to their knowledge, is in default in the performance or observance of any of the terms, provisions and conditions of the Indenture and, if so, specifying all such known defaults. (Section 1004). SUBSIDIARY GUARANTEES If provided in an applicable Prospectus Supplement, the obligations of the Company to pay the principal of, premium, if any, and interest on any series of Debt Securities will be guaranteed by PacifiCare Operations, Inc. ("PACO") and FHP, each a direct, wholly-owned subsidiary of the Company and, under circumstances described in the Indenture, other Subsidiaries (the "Subsidiary Guarantors"). PACO and FHP have also guaranteed the obligations of the Company under the Credit Facility. The terms of the Subsidiary Guarantees will be substantially the same as the guarantees provided by PACO and FHP with respect to the Company's obligations under the Credit Facility and are intended solely to cause the Company's obligations to pay principal, premium, if any, and interest on any series of Debt Securities to be pari passu with the Company's obligations under the Credit Facility. Accordingly, the Subsidiary Guarantees will terminate when the guarantees relating to the Credit Facility (and if there should be any, guarantees of any other Debt of the Company) terminate or are released for any reason. The termination date of the guarantees of the Credit Facility is January 1, 2002, which date may be extended under certain circumstances. The Subsidiary Guarantors have not guaranteed any other obligations of the Company, nor have any other subsidiaries of the Company provided guarantees with respect to the Company's obligations under the Credit Facility or with respect to any series of Debt Securities. The Subsidiary Guarantees are intended to be general unsecured joint and several obligations of each respective Subsidiary Guarantor ranking pari passu in right of payment with all existing and future senior unsecured indebtedness of such Subsidiary Guarantor. (Section 1502). The Indenture provides that if any direct or indirect Subsidiary of the Company guarantees or becomes primarily obligated with respect to any Debt of the Company, other than the Debt Securities, at any time subsequent to the date on which any Debt Securities are originally issued, then the Company will cause the Debt Securities to be equally and ratably guaranteed by such Subsidiary, which will thereupon become a Subsidiary Guarantor. (Section 1506(a)) The Indenture also provides that a Subsidiary Guarantor may be 13 31 released from its Subsidiary Guarantee obligations if such Subsidiary Guarantor is not a guarantor of, or primary obligor under any Debt of the Company other than the Debt Securities, provided that no Event of Default under the Indenture has occurred and is continuing. (Section 1507). Although Holders of the Debt Securities will be direct creditors of the Subsidiary Guarantors by virtue of the Subsidiary Guarantees, existing or future creditors of the Subsidiary Guarantors, a trustee in bankruptcy, or a Subsidiary Guarantor as debtor-in-possession could seek to avoid or subordinate the Subsidiary Guarantees under federal or state fraudulent conveyance laws if it were successful in establishing that (i) the Subsidiary Guarantees were incurred with intent to hinder, delay or defraud any present or future creditor, or (ii) the Subsidiary Guarantor did not receive fair consideration or reasonably equivalent value for issuing the Subsidiary Guarantees and that it (a) was insolvent at the time of the issuance, (b) was rendered insolvent by reason of the issuance, (c) was engaged in a business or a transaction for which it had unreasonably small capital, or (d) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured. Among other things, a legal challenge of the Subsidiary Guarantees on fraudulent conveyance grounds may focus on the benefits, if any, realized by a Subsidiary Guarantor as a result of the issuance by the Company of the Debt Securities guaranteed. To the extent the Subsidiary Guarantees were avoided as fraudulent conveyances or held unenforceable for any other reason, the Holders of the Debt Securities guaranteed would cease to have any claim in respect of a Subsidiary Guarantor, would be creditors solely of the Company, and might be required to return all amounts received pursuant to the avoided Subsidiary Guarantees. The measure of insolvency for purposes of the foregoing will vary depending upon the law of the jurisdiction that is being applied. Generally, however, a company may be considered insolvent for such purposes if the sum of its debts is greater than all of its property at a fair valuation, or if the present fair saleable value of its assets is less than the amount that will be required to pay its probable liability on its existing debts as they become absolute and matured. The obligations of each Subsidiary Guarantor are limited to such maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to its contribution obligations under the Indenture, result in the obligations of such Subsidiary Guarantor under the Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal, state or foreign law. (Section 1503) Rights of subrogation under the Subsidiary Guarantees will be subordinated to the prior right of holders of the Securities to be paid in full. (Section 1502(e)) The Company has provided in its Current Report on Form 8-K filed June 4, 1998 and incorporated herein by reference certain consolidating condensed financial statements relating to the Subsidiary Guarantors (on an aggregate basis) but has not provided full financial statements of the Subsidiary Guarantors because management has determined that such information would not be material to investors in view of (i) the limited purpose for which the Subsidiary Guarantees are to be provided and (ii) the fact that the aggregate consolidated assets, liabilities, earnings and equity of the Subsidiary Guarantors comprise substantially all of the Company's consolidated assets, liabilities, earnings and equity. The Subsidiary Guarantors are themselves holding companies, rather than operating companies, and most of their subsidiaries are subject to HMO or insurance regulations. The subsidiaries that are subject to regulation may be required to satisfy minimum equity, capital, deposit and/or reserve requirements. These requirements, which limit the ability of the subsidiaries of the Subsidiary Guarantors to transfer funds to the Subsidiary Guarantors, may impact the amount of funds that may be paid by the subsidiaries to the Subsidiary Guarantors. In addition, the rights of the Subsidiary Guarantors and the rights of their creditors, including Holders of the Debt Securities, to participate in any distribution of the assets of a subsidiary upon the liquidation or recapitalization of such subsidiary will be subject to the prior claims of the subsidiary's creditors, except to the extent that a Subsidiary Guarantor itself may be a creditor with recognized claims against the subsidiary. Accordingly, Holders of the Debt Securities may, notwithstanding the existence of the Subsidiary Guarantees, be deemed to be effectively subordinated to such claims. 14 32 AMENDMENT, MODIFICATION AND WAIVER Modifications and amendments of the Indenture may be made by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Outstanding Debt Securities of each series affected by such modification or amendment; provided, however, that no such modification or amendment may, without the consent of the Holder of each Outstanding Debt Security affected thereby, (a) change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Debt Security, (b) reduce the principal amount of, or any premium or interest on, any Debt Security, (c) reduce the amount of principal of an Original Issue Discount Security or any other Debt Security payable upon acceleration of the maturity thereof, (d) change the place or currency of payment of principal, of or any premium or interest on, any Debt Security, (e) impair the right to institute suit for the enforcement of any payment on, or with respect to, any Debt Security, (f) reduce the percentage in principal amount of Outstanding Debt Securities of any series, the consent of whose Holders is required for modification or amendment of the Indenture, (g) reduce the percentage in principal amount of Outstanding Debt Securities of any series necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults, or (h) make certain modifications to such provisions with respect to modification and waiver. (Section 902). The Holders of a majority in aggregate principal amount of the Outstanding Debt Securities of any series may waive any past default or compliance with certain restrictive provisions under the Indenture, except a default in the payment of principal, premium or interest and certain covenants and provisions of the Indenture which cannot be amended without the consent of the Holder of each Outstanding Debt Security of such series affected. (Sections 513 and 1010). The Indenture provides that in determining whether the Holders of the requisite principal amount of the Outstanding Debt Securities have given or taken any direction, notice, consent, waiver or other action under the Indenture as of any date, (i) the principal amount of Original Issue Discount Security that will be deemed to be Outstanding will be the amount or the principal thereof that would be due and payable as of such date upon acceleration of the maturity thereof to such date, (ii) if, as of such date, the principal amount payable at the Stated Maturity or a Debt Security is not determinable (for example, because it is based on an index), the principal amount of such Debt Security deemed to be Outstanding as of such date will be an amount determined in the manner prescribed for such Debt Security and (iii) the principal amount of a Debt Security denominated in one or more foreign currencies or currency units that will be deemed to be Outstanding will be the U.S. dollar equivalent, determined as of such date in the manner prescribed for such Debt Security, of the principal amount of such Debt Security (or, in the case of a Debt Security described in clause (i) or (ii) above, of the amount described in such clause). Certain Debt Securities, including those for whom payment or redemption money has been deposited or set aside in trust for the Holders and those that have been fully defeased pursuant to Section 1402, will not be deemed to be Outstanding. (Section 101). Except in certain limited circumstances, the Company will be entitled to set any day as a record date for the purpose of determining the Holders of Outstanding Debt Securities of any series entitled to give or take any direction, notice, consent, waiver or other action under the Indenture, in the manner and subject to the limitations provided in the Indenture. In certain limited circumstances, the Trustee will be entitled to set a record date for action by Holders. If a record date is set for any action to be taken by Holders of a particular series, such action may be taken only by persons who are Holders of Outstanding Debt Securities of that series on the record date. To be effective, such action must be taken by Holders of the requisite principal amount of such Debt Securities within a specified period following the record date. For any particular record date, this period will be 180 days or such shorter period as may be specified by the Company (or the Trustee, if the Trustee set the record date) and may be shortened or lengthened (but not beyond 180 days) from time to time. (Section 104). DEFEASANCE AND COVENANT DEFEASANCE Unless otherwise provided in the applicable Prospectus Supplement, the provisions of Section 1402, relating to defeasance and discharge of indebtedness, or Section 1403, relating to defeasance of certain 15 33 restrictive covenants in the Indenture, shall apply to the Debt Securities of any series or to any specified part of a series. (Section 1401). Defeasance and Discharge. Section 1402 of the Indenture provides that the Company and the Subsidiary Guarantors will be discharged from all of its obligations with respect to such Debt Securities (except for certain obligations to exchange or register the transfer of Debt Securities, to replace stolen, lost or mutilated Debt Securities, to maintain paying agencies and to hold monies for payment in trust) upon the deposit in trust for the benefit of the Holders of such Debt Securities of money or U.S. Government Obligations, or both, which, through the payment of principal and interest in respect thereof in accordance with their terms, will provide money in an amount sufficient to pay the principal of and any premium and interest on such Debt Securities on the respective Stated Maturities in accordance with the terms of the Indenture and such Debt Securities. Such defeasance or discharge may occur only if, among other things, the Company has delivered to the Trustee an Opinion of Counsel to the effect that the Company has received from, or there has been published by, the United States Internal Revenue Service a ruling, or there has been a change in tax law, in either case to the effect that Holders of such Debt Securities will not recognize gain or loss for federal income tax purposes as a result or such deposit, defeasance and discharge and will be subject to federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge were not to occur. (Sections 1402 and 1404). Defeasance of Certain Covenants. Section 1403 of the Indenture provides that, in certain circumstances, the Company and the Subsidiary Guarantors may omit to comply with certain restrictive covenants, including those described under "Certain Covenants," and any that may be described in the applicable Prospectus Supplement, and that in those circumstances the occurrence of certain Events of Default, which are described above (with respect to such restrictive covenants) in clause (d) in the first paragraph under "Events of Default" and any that may be described in the applicable Prospectus Supplement, will be deemed not to be or result in an Event of Default, in each case with respect to such Debt Securities. The Company, in order to exercise such option, will be required to deposit, in trust for the benefit of the Holders of such Debt Securities, money or U.S. Government Obligations, or both, which, through the payment of principal and interest in respect thereof in accordance with their terms, will provide money in an amount sufficient to pay the principal of and any premium and interest on such Debt Securities on the respective Stated Maturities in accordance with the terms of the Indenture and such Debt Securities. The Company will also be required, among other things, to deliver to the Trustee an Opinion of Counsel to the effect that Holders of such Debt Securities will not recognize gain or loss for federal income tax purposes as a result of such deposit and defeasance of certain obligations and will be subject to federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit and defeasance were not to occur. In the event that the Company were to exercise this option with respect to any Debt Securities and such Debt Securities were declared due and payable because of the occurrence of any Event of Default, the amount of money and U.S. Government Obligations so deposited in trust would be sufficient to pay amounts due on such Debt Securities at the time of their respective Stated Maturities but might not be sufficient to pay amounts due on such Debt Securities upon any acceleration resulting from such Event of Default. In such case, the Company would remain liable for such payments. (Sections 1403 and 1404). NOTICES Notice to Holders of Debt Securities will be given by mail to the addresses of such Holders as they may appear in the Security Register. (Sections 101 and 106). CERTAIN DEFINITIONS "Attributable Debt" means, as to any particular lease under which any person is liable as lessee, and at any date as of which the amount thereof is to be determined, the total net amount of rent required to be paid by such Person under such lease during the remaining term thereof, discounted from the respective due dates thereof to such date at a rate per annum equivalent to the rate inherent in such lease compounded semi-annually, including any termination penalty in the case of a lease terminable by the lessee. 16 34 "Business Day", when used with respect to any Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law or executive order to close. "Consolidated Net Tangible Assets" means, with respect to the Company, the total amount of assets (less applicable valuation allowances) after deducting (a) all current liabilities (excluding the amount of liabilities which are by their terms extendable or renewable at the option of the obligor to a date more than 12 months after the date as of which the amount is being determined) and (b) all goodwill, tradenames, trademarks, patents, unamortized debt discount and expense and other like intangible assets, all as set forth on the most recent balance sheet of the Company and its consolidated Subsidiaries and determined on a consolidated basis in accordance with generally accepted accounting principles. "Debt" means indebtedness for money borrowed. "Lien" means any mortgage, pledge, lien or any other encumbrance. "Maturity", when used with respect to any Debt Security, means the date on which the principal of such Debt Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Restricted Subsidiary" means, at any time, each Subsidiary which has guaranteed any series of Securities and any Subsidiary having at such time either (i) gross revenues for the preceding four fiscal quarter periods in excess of 5% of the consolidated gross revenues of the Company and its Subsidiaries or (ii) total assets, as of the last day of the preceding fiscal quarter, in excess of 5% of the consolidated total assets of the Company and its Subsidiaries, in each case, based upon the Company's most recent annual or quarterly financial statements. "Sale and Leaseback Transaction" means any arrangement with any person pursuant to which the Company or any Subsidiary leases any material property that has been or is to be sold or transferred by the Company or the Subsidiary to such person, other than (a) leases for a term, including renewals at the option of the lessee, of not more than three years, (b) leases between the Company and a Subsidiary or between Subsidiaries, and (c) leases of material property executed by the time of, or within 12 months after the latest of, the acquisition, the completion of construction or improvement, or the commencement of commercial operation, of such material property. "Stated Maturity", when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable." "Subsidiary" means (i) a corporation more than 50% of the outstanding securities having ordinary voting power 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 and (ii) any partnership, limited liability company or other entity more than 50% of the ownership interest having ordinary voting power of which is at the time so owned. For the purposes of this definition, "securities having ordinary voting power" means stock and other securities which ordinarily have voting power for the election of directors, or persons having management power with respect to such entity, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Subsidiary Guarantee" means any guarantee of Debt Securities by any Subsidiary Guarantor in accordance with the provisions described under "Subsidiary Guarantees" above. "Subsidiary Guarantor" means each of PACO and FHP, any other direct or indirect Subsidiary of the Company that may become required to deliver a Subsidiary Guarantee pursuant to the provisions described under "Subsidiary Guarantees" above and each of their respective successors and assigns, but excluding any Subsidiary released from its Subsidiary Guarantee pursuant to the terms of the Indenture. 17 35 TITLE The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name a Debt Security is registered as the absolute owner thereof (whether or not such Debt Security may be overdue) for the purpose of making payment and for all other purposes. (Section 309). GOVERNING LAW The Indenture and the Debt Securities will be governed by, and construed in accordance with, the laws or the State of New York. (Section 112). INFORMATION REGARDING THE TRUSTEE Affiliates of the Trustee, Chase Manhattan Bank and Trust Company, National Association, have lending and other customary banking relationships with the Company. PLAN OF DISTRIBUTION The Company may sell the Debt Securities (i) through an underwriter or underwriters, (ii) through dealers, (iii) through agents, (iv) directly to purchasers, including affiliates of the Company, or (v) through a combination of any such methods of sale. The applicable Prospectus Supplement will set forth the terms of the offerings of any Debt Securities, including the method of distribution, the name or names of any underwriters, dealers or agents, any managing underwriter or underwriters, the purchase price of the Debt Securities and the proceeds to the Company from the sale, any underwriting discounts, agency fees and other items constituting underwriters' compensation and any discount or concessions allowed or reallowed to dealers which may be changed from time to time. The expected time of delivery of the Debt Securities in respect of which this Prospectus is delivered will be set forth in the applicable Prospectus Supplement. If underwriters are used in the sale of the Debt Securities, the underwriting agreement will provide that the obligations of the underwriters are subject to certain conditions precedent and that the underwriters with respect to a sale of Debt Securities will be obligated to purchase all such Debt Securities if any are purchased. In connection with the sale of Debt Securities, underwriters may receive compensation from the Company or from purchasers of Debt Securities for whom they may act as agents in the form of discounts, concessions or commissions. Underwriters may sell Debt Securities to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers for whom they may act as agent. Underwriters, agents or dealers participating in the distribution of Debt Securities may be deemed to be underwriters, and any discounts and commissions received by them and any profit realized by them on resale of the Debt Securities may be deemed to be underwriting discounts and commissions under the Securities Act. The Debt Securities may be sold in one or more transactions either at a fixed price or prices which may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. The Company may also offer and sell the Debt Securities in exchange for one or more of its outstanding issues of debt or convertible debt securities or in the satisfaction of indebtedness. Underwriters, agents or dealers who participate in the distribution of Debt Securities may be entitled, under agreements which may be entered into with the Company, to indemnification by the Company against certain liabilities, including liabilities under the Act, or to contribution by the Company to payments that such underwriters, dealers or agents or any of their controlling persons may be required to make in respect thereof. Underwriters, agents or dealers may be customers of, engage in transactions with or perform services for the Company or subsidiaries of the Company in the ordinary course of business. If so indicated in the Prospectus Supplement, the Company will authorize underwriters, dealers and agents to solicit offers by certain institutions to purchase Debt Securities from the Company pursuant to delayed delivery contracts providing for payment and delivery on the date stated in the Prospectus 18 36 Supplement. Such contracts will be subject only to those conditions set forth in the Prospectus Supplement. The Prospectus Supplement will also set forth the commissions payable for solicitation of such contracts. Offers to purchase Debt Securities may be solicited directly by the Company and sales thereof may be made by the Company directly to institutional investors or others who may be deemed to be underwriters within the meaning of the Act with respect to any resale thereof. The terms of any such sales will be described in the Prospectus Supplement relating thereto. Except as set forth in the applicable Prospectus Supplement, no director, officer or employee of the Company will solicit or receive a commission with direct sales by the Company of the Debt Securities, although such persons may respond to inquiries by potential purchasers and perform ministerial and clerical work in connection with any such direct sales. LEGAL MATTERS The validity of the issuance of the Debt Securities offered by PacifiCare hereby will be passed upon for the Company by Cooley Godward LLP, Palo Alto, California. Certain matters in connection with the issuance of the Debt Securities will be passed upon for the underwriters, dealers or agents, if any, by Mayer, Brown & Platt, Los Angeles, California. EXPERTS The consolidated financial statements of PacifiCare included in PacifiCare's Annual Report on Form 10-K for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 19 37 ========================================================= NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THIS PROSPECTUS NOR ANY PROSPECTUS SUPPLEMENT SHALL CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE OFFERED DEBT SECURITIES IN ANY JURISDICTION OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AND AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT OR IN THE AFFAIRS OF THE COMPANY OR ANY OF ITS SUBSIDIARIES SINCE THE RESPECTIVE DATES OF THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT. ------------------------ TABLE OF CONTENTS PROSPECTUS SUPPLEMENT
PAGE ---- Business................................. S-4 Use of Proceeds.......................... S-9 Capitalization........................... S-10 Selected Historical and Operating Data... S-11 Description of Notes..................... S-13 Underwriting............................. S-15 Legal Matters............................ S-15 PROSPECTUS Available Information.................... 2 Incorporation of Certain Documents by Reference.............................. 2 The Company.............................. 4 Use of Proceeds.......................... 4 Ratio of Earnings to Fixed Charges....... 5 Description of Debt Securities........... 6 Plan of Distribution..................... 18 Legal Matters............................ 19 Experts.................................. 19
========================================================= ====================================================== PacifiCare Logo $250,000,000 % SENIOR NOTES DUE 2008 ----------------- PROSPECTUS SUPPLEMENT JUNE , 1998 ----------------- BANCAMERICA ROBERTSON STEPHENS CHASE SECURITIES INC. CITICORP SECURITIES, INC. SBC WARBURG DILLON READ INC. ====================================================== 38 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Securities and Exchange Commission Registration Fee......... $ 73,750 Rating Agency Fees.......................................... 162,500 Printing and Engraving...................................... 70,000 Legal Fees and Expenses (other than Blue Sky)............... 100,000 Blue Sky Fees and Expenses.................................. 20,000 Accounting Fees and Expenses................................ 40,000 Trustee Fees and Expenses................................... 10,000 Miscellaneous............................................... 30,000 -------- Total............................................. $506,250 ========
All of the above items except the registration fee are estimated. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Under Section 145 of the Delaware General Corporation Law, the Registrant, PACO and FHP (together, the "Additional Registrants") have broad powers to indemnify their directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the "Act"). The Registrant's and the Additional Registrants' bylaws provide that the Registrant and the Additional Registrants will indemnify their respective directors and officers to the maximum extent consistent with the provisions of the Delaware General Corporation Law. In addition, the Registrant's and PacifiCare Operations, Inc.'s Certificate of Incorporation provides that, and, in the case of FHP International Corporation its Bylaws provide that, pursuant to Delaware law, their directors shall not be liable for monetary damages for breach of the directors' fiduciary duty of care to the Registrant and the Additional Registrants and their stockholders. This provision in the Certificates of Incorporation or Bylaws, as the case may be, does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of such director's duty of loyalty to the Registrant and the Additional Registrants, for acts or omissions not in good faith or involving intentional misconduct or a knowing violation of law, for actions leading to improper personal benefit to such director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director's responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. The Registrant maintains a policy providing directors' and officers' liability insurance, which insures directors and officers of the Registrant and the Additional Registrants in certain circumstances. Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers or persons controlling the Registrant and the Additional Registrants pursuant to the foregoing provisions, the Registrant and the Additional Registrants have been informed that in the opinion of the Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. II-1 39 ITEM 16. EXHIBITS (a) EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1.1 Form of Underwriting Agreement* 4.1 Form of Indenture to be dated as of June 1, 1998, between PacifiCare Health Systems, Inc., the Subsidiary Guarantors named therein and Chase Manhattan Bank and Trust Company, National Association, as trustee 5.1 Opinion of Cooley Godward LLP 12.1 Statement re: Computation of Ratio of Earnings to Fixed Charges* 23.1 Consent of Ernst & Young LLP 23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1) 24.1 Power of Attorney of the Registrant* 24.2 Power of Attorney of PacifiCare Operations, Inc. (appears on signature page) 24.3 Power of Attorney of FHP International Corporation (appears on signature page) 25.1 Statement of Eligibility and Qualification on Form T-1 of Chase Manhattan Bank and Trust Company, National Association, as trustee, under the Trust Indenture Act*
- --------------- * Previously filed ITEM 17. UNDERTAKINGS (a) The undersigned registrant hereby undertakes: (1) To file during any period in which offers or sales are being made a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any fact or events arising after the effective date of the registrations statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (ii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3 and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities II-2 40 offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (d) The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 41 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Ana, State of California, on this 3rd day of June, 1998. PACIFICARE HEALTH SYSTEMS, INC. By: /s/ ALAN R. HOOPS ------------------------------------ Alan R. Hoops Title: President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Chairman of the Board June 3, 1998 - ------------------------------------------ Terry O. Hartshorn /s/ ALAN R. HOOPS President and Chief Executive Officer and June 3, 1998 - ------------------------------------------ Director (Principal Executive Officer) Alan R. Hoops * Executive Vice President and Chief June 3, 1998 - ------------------------------------------ Financial Officer (Principal Financial Wayne B. Lowell Officer) * Vice President and Corporate Controller June 3, 1998 - ------------------------------------------ (Principal Accounting Officer) Mary C. Langsdorf * Director June 3, 1998 - ------------------------------------------ Jack R. Anderson * Director June 3, 1998 - ------------------------------------------ Craig T. Beam * Director June 3, 1998 - ------------------------------------------ Richard M. Burdge * Director June 3, 1998 - ------------------------------------------ Bradley C. Call * Director June 3, 1998 - ------------------------------------------ David R. Carpenter * Director June 3, 1998 - ------------------------------------------ Gary L. Leary * Director June 3, 1998 - ------------------------------------------ David A. Reed
II-4 42
SIGNATURE TITLE DATE --------- ----- ---- * Director June 3, 1998 - ------------------------------------------ Warren E. Pinckert II Director June 3, 1998 - ------------------------------------------ Lloyd E. Ross * Director June 3, 1998 - ------------------------------------------ Jean Bixby Smith *By: /s/ ALAN HOOPS June 3, 1998 ------------------------------------ Alan Hoops Attorney-in-fact
II-5 43 Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Ana, State of California on this 3rd day of June 1998. PACIFICARE OPERATIONS, INC. By: /s/ ALAN R. HOOPS ------------------------------------ Alan R. Hoops Title: President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENT, that each of the undersigned whose signature appears below constitutes and appoints Alan R. Hoops, Wayne B. Lowell and Joseph S. Konowiecki and each of them (with full power of each of them to act alone), his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and on his behalf, and in his name, place and stead, in any all capacities to execute and sign any and all amendments or post-effective amendments to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission granting unto said attorneys-in fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof and the Registrant hereby confers like authority on its behalf. Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ ALAN R. HOOPS President and Chief Executive Officer and June 3, 1998 - ------------------------------------------ Director (Principal Executive Officer) Alan R. Hoops /s/ WAYNE B. LOWELL Executive Vice President, June 3, 1998 - ------------------------------------------ Chief Financial Officer and Director Wayne B. Lowell (Principal Financial Officer) /s/ MARY C. LANGSDORF Vice President and Corporate Controller June 3, 1998 - ------------------------------------------ (Principal Accounting Officer) Mary C. Langsdorf /s/ JOSEPH S. KONOWIECKI General Counsel, Secretary and Director June 3, 1998 - ------------------------------------------ Joseph S. Konowiecki
II-6 44 Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Ana, State of California on this 3rd day of June 1998. FHP INTERNATIONAL CORPORATION By: /s/ ALAN R. HOOPS ------------------------------------ Alan R. Hoops Title: President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENT, that each of the undersigned whose signature appears below constitutes and appoints Alan R. Hoops, Wayne B. Lowell and Joseph S. Konowiecki and each of them (with full power of each of them to act alone), his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and on his behalf, and in his name, place and stead, in any all capacities to execute and sign any and all amendments or post-effective amendments to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission granting unto said attorneys-in fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof and the Registrant hereby confers like authority on its behalf. Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ ALAN R. HOOPS President and Chairman of the Board June 3, 1998 - ------------------------------------------ (Principal Executive Officer) Alan R. Hoops /s/ WAYNE B. LOWELL Chief Financial Officer and Director June 3, 1998 - ------------------------------------------ (Principal Financial Officer) Wayne B. Lowell /s/ MARY C. LANGSDORF Corporate Controller June 3, 1998 - ------------------------------------------ (Principal Accounting Officer) Mary C. Langsdorf /s/ JOSEPH S. KONOWIECKI Secretary and Director June 3, 1998 - ------------------------------------------ Joseph S. Konowiecki
II-7 45 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1.1 Form of Underwriting Agreement.* 4.1 Form of Indenture, to be dated as of June 1, 1998, between PacifiCare Health Systems, Inc., the Subsidiary Guarantors named therein and Chase Manhattan Bank and Trust Company, National Association, as trustee. 5.1 Opinion of Cooley Godward LLP. 12.1 Statement re: Computation of Ratio of Earnings to Fixed Charges.* 23.1 Consent of Ernst & Young LLP. 23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1). 24.1 Power of Attorney of the Registrant*. 24.2 Power of Attorney of Pacific Operations, Inc. (appears on the signature page). 24.3 Power of Attorney of FHP International Corporation (appears on the signature page). 25.1 Statement of Eligibility and Qualifications on Form T-1 of Chase Manhattan Bank and Trust Company, National Association, as trustee under the Trust Indenture Act.*
- --------------- * Previously filed EX-4.1 2 FORM OF INDENTURE 1 EXHIBIT 4.1 ================================================================================ PACIFICARE HEALTH SYSTEMS, INC. Issuer, SUBSIDIARY GUARANTORS NAMED HEREIN and CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION Trustee INDENTURE Dated as of June 1, 1998 --------------- ================================================================================ 2 CERTAIN SECTIONS OF THIS INDENTURE RELATING TO SECTIONS 310 THROUGH 318, INCLUSIVE, OF THE TRUST INDENTURE ACT OF 1939:
TRUST INDENTURE ACT SECTION INDENTURE SECTION - --------------- ------------------ ss. 310(a)(1) .............................................................. 609 (a)(2) .............................................................. 609 (a)(3) .............................................................. Not Applicable (a)(4) .............................................................. Not Applicable (b) .............................................................. 608 610 ss. 311(a) .............................................................. 613 (b) .............................................................. 613 ss. 312(a) .............................................................. 701 702 (b) .............................................................. 702 (c) .............................................................. 702 ss. 313(a) .............................................................. 703 (b) .............................................................. 703 (c) .............................................................. 703 (d) .............................................................. 703 ss. 314(a) .............................................................. 704 (a)(4) .............................................................. 101 1004 (b) .............................................................. Not Applicable (c)(1) .............................................................. 102 (c)(2) .............................................................. 102 (c)(3) .............................................................. Not Applicable (d) .............................................................. Not Applicable (e) .............................................................. 102 ss. 315(a) .............................................................. 601 (b) .............................................................. 602 (c) .............................................................. 601 (d) .............................................................. 601 (e) .............................................................. 514
- ------------------------- NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. 3
TRUST INDENTURE ACT SECTION INDENTURE SECTION - --------------- ------------------ ss. 316(a) .............................................................. 101 (a)(1)(A) .............................................................. 502 512 (a)(1)(B) .............................................................. 513 (a)(2) .............................................................. Not Applicable (b) .............................................................. 508 (c) .............................................................. 104 ss. 317(a)(1) .............................................................. 503 (a)(2) .............................................................. 504 (b) .............................................................. 1003 ss. 318(a) .............................................................. 107
- ----------------- NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. 4 TABLE OF CONTENTS PAGE ---- ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions...................................................................1 SECTION 102. Compliance Certificates and Opinions..........................................9 SECTION 103. Form of Documents Delivered to Trustee.......................................10 SECTION 104. Acts of Holders; Record Dates................................................10 SECTION 105. Notices, Etc., to Trustee and Company and Subsidiary Guarantors..............12 SECTION 106. Notice to Holders; Waiver....................................................13 SECTION 107. Conflict with Trust Indenture Act............................................13 SECTION 108. Effect of Headings and Table of Contents.....................................13 SECTION 109. Successors and Assigns.......................................................13 SECTION 110. Separability Clause..........................................................14 SECTION 111. Benefits of Indenture........................................................14 SECTION 112. Governing Law................................................................14 SECTION 113. Legal Holidays...............................................................14 SECTION 114. Counterparts.................................................................14 ARTICLE TWO SECURITY FORMS SECTION 201. Forms Generally..............................................................14 SECTION 202. Form of Face of Security.....................................................15 SECTION 203. Form of Reverse of Security..................................................17 SECTION 204. Form of Legend for Global Securities.........................................22 SECTION 205. Form of Trustee's Certificate of Authentication..............................23 SECTION 206. Form of Notation Relating to Subsidiary Guarantees...........................23 ARTICLE THREE THE SECURITIES SECTION 301. Amount Unlimited; Issuable in Series.........................................23 SECTION 302. Denominations................................................................26 SECTION 303. Execution, Authentication, Delivery and Dating...............................26 SECTION 304. Temporary Securities.........................................................28
i 5 SECTION 305. Registration, Registration of Transfer and Exchange..........................29 SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.............................30 SECTION 307. Payment of Interest; Interest Rights Preserved; Optional Interest Reset......31 SECTION 308. Optional Extension of Maturity...............................................33 SECTION 309. Persons Deemed Owners........................................................34 SECTION 310. Cancellation.................................................................35 SECTION 311. Computation of Interest......................................................35 ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 401. Satisfaction and Discharge of Indenture......................................35 SECTION 402. Application of Trust Money...................................................36 ARTICLE FIVE REMEDIES SECTION 501. Events of Default............................................................37 SECTION 502. Acceleration of Maturity; Rescission and Annulment...........................39 SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee..............40 SECTION 504. Trustee May File Proofs of Claim.............................................40 SECTION 505. Trustee May Enforce Claims Without Possession of Securities..................41 SECTION 506. Application of Money Collected...............................................41 SECTION 507. Limitation on Suits..........................................................41 SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest..........................................................42 SECTION 509. Restoration of Rights and Remedies...........................................42 SECTION 510. Rights and Remedies Cumulative...............................................42 SECTION 511. Delay or Omission Not Waiver.................................................43 SECTION 512. Control by Holders...........................................................43 SECTION 513. Waiver of Past Defaults......................................................43 SECTION 514. Undertaking for Costs........................................................44 SECTION 515. Waiver of Usury, Stay or Extension Laws......................................44 ARTICLE SIX THE TRUSTEE SECTION 601. Certain Duties and Responsibilities..........................................44 SECTION 602. Notice of Defaults...........................................................45 SECTION 603. Certain Rights of Trustee....................................................45 SECTION 604. Not Responsible for Recitals or Issuance of Securities.......................47
ii 6 SECTION 605. May Hold Securities..........................................................47 SECTION 606. Money Held in Trust..........................................................47 SECTION 607. Compensation and Reimbursement...............................................48 SECTION 608. Conflicting Interests........................................................48 SECTION 609. Corporate Trustee Required; Eligibility......................................48 SECTION 610. Resignation and Removal; Appointment of Successor............................49 SECTION 611. Acceptance of Appointment by Successor.......................................50 SECTION 612. Merger, Conversion, Consolidation or Succession to Business..................51 SECTION 613. Preferential Collection of Claims Against Company............................52 SECTION 614. Appointment of Authenticating Agent..........................................52 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. Company to Furnish Trustee Names and Addresses of Holders....................53 SECTION 702. Preservation of Information; Communications to Holders.......................54 SECTION 703. Reports by Trustee...........................................................54 SECTION 704. Reports by Company...........................................................54 ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.........................55 SECTION 802. Company Successor Substituted................................................56 SECTION 803. Subsidiary Guarantors May Consolidate, Etc. Only on Certain Terms............56 SECTION 804. Subsidiary Guarantor Successor Substituted...................................57 ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 901. Supplemental Indentures Without Consent of Holders...........................57 SECTION 902. Supplemental Indentures With Consent of Holders..............................59 SECTION 903. Execution of Supplemental Indentures.........................................60 SECTION 904. Effect of Supplemental Indentures............................................60 SECTION 905. Conformity with Trust Indenture Act..........................................61 SECTION 906. Reference in Securities to Supplemental Indentures...........................61
iii 7 ARTICLE TEN COVENANTS SECTION 1001. Payment of Principal, Premium and Interest..................................61 SECTION 1002. Maintenance of Office or Agency.............................................61 SECTION 1003. Money for Securities Payments to Be Held in Trust...........................62 SECTION 1004. Statement by Officers as to Default.........................................63 SECTION 1005. Existence...................................................................63 SECTION 1006. Limitation on Liens.........................................................63 SECTION 1007. Limitation on Sale and Leaseback Transactions...............................64 SECTION 1008. Waiver of Certain Covenants.................................................65 ARTICLE ELEVEN REDEMPTION OF SECURITIES SECTION 1101. Applicability of Article....................................................65 SECTION 1102. Election to Redeem; Notice to Trustee.......................................65 SECTION 1103. Selection by Trustee of Securities to Be Redeemed...........................66 SECTION 1104. Notice of Redemption........................................................66 SECTION 1105. Deposit of Redemption Price.................................................67 SECTION 1106. Securities Payable on Redemption Date.......................................67 SECTION 1107. Securities Redeemed in Part.................................................68 ARTICLE TWELVE SINKING FUNDS SECTION 1201. Applicability of Article....................................................68 SECTION 1202. Satisfaction of Sinking Fund Payments with Securities.......................68 SECTION 1203. Redemption of Securities for Sinking Fund...................................69 ARTICLE THIRTEEN REPAYMENT AT THE OPTION OF THE HOLDERS SECTION 1301. Applicability of Article....................................................69 SECTION 1302. Repayment of Securities.....................................................69 SECTION 1303. Exercise of Option..........................................................70 SECTION 1304. When Securities Presented for Repayment Become Due and Payable..............70 SECTION 1305. Securities Repaid in Part...................................................71
iv 8 ARTICLE FOURTEEN DEFEASANCE AND COVENANT DEFEASANCE SECTION 1401. Company's Option to Effect Defeasance or Covenant Defeasance................71 SECTION 1402. Defeasance and Discharge....................................................71 SECTION 1403. Covenant Defeasance.........................................................72 SECTION 1404. Conditions to Defeasance or Covenant Defeasance.............................72 SECTION 1405. Acknowledgment of Discharge By Trustee......................................74 SECTION 1406. Deposited Money and U.S. Government Obligations to Be Held in Trust; Miscellaneous Provisions.............................................74 SECTION 1407. Reinstatement...............................................................75 ARTICLE FIFTEEN GUARANTEES OF SECURITIES SECTION 1501. Applicability of Article....................................................75 SECTION 1502. Unconditional Guarantees....................................................76 SECTION 1503. Limitation of Subsidiary Guarantors' Liability..............................79 SECTION 1504. Contribution................................................................79 SECTION 1505. Execution and Delivery of Subsidiary Guarantees.............................79 SECTION 1506. Addition of Secondary Subsidiary Guarantors.................................80 SECTION 1507. Release of Subsidiary Guarantee.............................................80 ARTICLE SIXTEEN IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS AND EMPLOYEES SECTION 1601. Exemption from Individual Liability.........................................81
v 9 INDENTURE, dated as of June 1, 1998, between PACIFICARE HEALTH SYSTEMS, INC., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), having its principal office at 3120 Lake Center Drive, Santa Ana, California 92704, the Primary Subsidiary Guarantors (as defined hereinafter) and CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association duly organized and existing under the laws of the United States of America, as Trustee (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its debentures, notes or other evidences of indebtedness (herein called the "Securities"), to be issued in one or more series as in this Indenture provided. Each of the Subsidiary Guarantors (as defined hereinafter) initially a party hereto is a direct wholly-owned subsidiary of the Company. Such Subsidiary Guarantors will derive direct and indirect benefits from the issuance of the Securities. Accordingly, such Subsidiary Guarantors have authorized the guarantee of the Company's obligations under this Indenture and the Securities, and to provide therefor such Subsidiary Guarantors have each duly authorized the execution and delivery of this Indenture. All things necessary to make this Indenture a valid agreement of the Company and of each of the Subsidiary Guarantors initially a party hereto, in accordance with its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities (together with the related Subsidiary Guarantees) by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Securities or of a series thereof (together with the related Subsidiary Guarantees), as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. 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; 1 10 (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, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; (4) 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 Indenture; and (5) 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 104. "Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean the amount by which the fair value of the assets of such Subsidiary Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), but excluding liabilities under the Subsidiary Guarantee given by such Subsidiary Guarantor, of such Subsidiary Guarantor at such date. "Attributable Debt" means, as to any particular lease under which any Person is liable as lessee, and at any date as of which the amount thereof is to be determined, the total net amount of rent required to be paid by such Person under such lease during the remaining term thereof, discounted from the respective due dates thereof to such date at a rate per annum equivalent to the rate inherent in such lease compounded semi-annually, including any termination penalty in the case of a lease terminable by the lessee. "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. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 614 to act on behalf of the Trustee to authenticate Securities of one or more series. 2 11 "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board or the board of directors of any Subsidiary or any duly authorized committee of such board. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company or a Subsidiary of the Company to have been duly adopted by the Board of Directors or any such Subsidiary, as the case may be, and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day", when used with respect to any Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law or executive order to close. "Commission" means the Securities and Exchange Commission, 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. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its Vice Chairman of the Board, its Chief Executive Officer, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Consolidated Net Tangible Assets" means, with respect to the Company, the total amount of assets (less applicable valuation allowances) after deducting (a) all current liabilities (excluding the amount of liabilities which are by their terms extendable or renewable at the option of the obligor to a date more than 12 months after the date as of which the amount is being determined) and (b) all goodwill, tradenames, trademarks, patents, unamortized debt discount and expense and other like intangible assets, all as set forth on the most recent balance sheet of the Company and its consolidated Subsidiaries and determined on a consolidated basis in accordance with generally accepted accounting principles. "Corporate Trust Office" means the office of the Trustee in San Francisco, California, at which at any particular time its corporate trust business shall be administered, which office at the date hereof is 101 California Street, Ste. 2725, San Francisco, California 94111, except that with respect to the presentation of Securities (or coupons, if any, representing an installment of interest) for payment or for registration of transfer and exchange, such term shall mean the office or the agency of the Trustee in New York, New York at which at any particular time its corporate agency business shall be conducted. 3 12 "Corporation" means a corporation, association, company, joint-stock company or business trust. "Covenant Defeasance" has the meaning specified in Section 1403. "Debt" means indebtedness for money borrowed. "Defaulted Interest" has the meaning specified in Section 307. "Defeasance" has the meaning specified in Section 1402. "Depositary" means, with respect to Securities of any series issuable in whole or in part in the form of one or more Global Securities, a clearing agency registered under the Exchange Act that is designated to act as Depositary for such Securities as contemplated by Section 301. "Event of Default" has the meaning specified in Section 501. "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 104. "Global Security" means a Security that evidences all or part of the Securities of any series and bears the legend set forth in Section 204 (or such legend as may be specified as contemplated by Section 301 for such Securities). "Guaranteed Securities" has the meaning specified in Section 1501. "Holder" means a Person in whose name a Security is registered in the Security Register. "Indenture" means this instrument as originally executed and 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, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. The term "Indenture" shall also include the terms of particular series of Securities established as contemplated by Section 301. "Interest", when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity. "Interest Payment Date", when used with respect to any Security, means the Stated Maturity of an instalment of interest on such Security." 4 13 "Internal Revenue Code" means the Internal Revenue Code of 1986 and any statute successor thereto, in each case as amended from time to time. "Investment Company Act" means the Investment Company Act of 1940 and any statute successor thereto, in each case as amended from time to time. "Issue Date" means the date on which Securities are originally issued under this Indenture. "Lien" means any mortgage, pledge, lien or any other encumbrance. "Maturity", when used with respect to any Security, means the date on which the principal of such Security or an instalment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Notice of Default" means a written notice of the kind specified in Section 501(4). "Officers' Certificate" means a certificate signed by the Chairman of the Board, a Vice Chairman of the Board, the Chief Executive Officer, the President or any Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company or a Subsidiary Guarantor, as the case may be, and delivered to the Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 1004 shall be the principal executive, financial or accounting officer of the Company. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, and who shall be acceptable to the Trustee. "Original Issue Discount Security" means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (1) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (2) Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given 5 14 pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (3) Securities as to which Defeasance has been effected pursuant to Section 1302; and (4) Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given, made or taken any request, demand, authorization, direction, notice, consent, waiver or other action hereunder as of any date, (A) the principal amount of an Original Issue Discount Security which shall be deemed to be Outstanding shall be the amount of the principal thereof which would be due and payable as of such date upon acceleration of the Maturity thereof to such date pursuant to Section 502, (B) if, as of such date, the principal amount payable at the Stated Maturity of a Security is not determinable, the principal amount of such Security which shall be deemed to be Outstanding shall be the amount as specified or determined as contemplated by Section 301, (C) the principal amount of a Security denominated in one or more foreign currencies or currency units which shall be deemed to be Outstanding shall be the U.S. dollar equivalent, determined as of such date in the manner provided as contemplated by Section 301, of the principal amount of such Security (or, in the case of a Security described in Clause (A) or (B) above, of the amount determined as provided in such Clause), and (D) Securities owned by the Company, any Subsidiary Guarantor, or any other obligor upon the Securities or any Affiliate of the Company, any Subsidiary Guarantor, or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, waiver or other action, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities 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 Securities and that the pledgee is not the Company, any Subsidiary Guarantor, or any other obligor upon the Securities or any Affiliate of the Company, any Subsidiary Guarantor, or of such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of or any premium or interest on any Securities on behalf of the Company. "Person" means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. 6 15 "Place of Payment", when used with respect to the Securities of any series, means the place or places where the principal of and any premium and interest on the Securities of that series are payable as specified as contemplated by Section 301. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Primary Subsidiary Guarantors" means PacifiCare Operations, Inc. and FHP International Corporation. "Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Regular Record Date" for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 301. "Repayment Date" means, when used with respect to any Security to be repaid at the option of the Holder, the date fixed for such repayment by or pursuant to this Indenture. "Responsible Officer", when used with respect to the Trustee, means the president, any vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers to a particular corporate trust matter hereunder, whom is referred because of his knowledge of and familiarity with the particular subject. "Restricted Subsidiary" means, at any time, each Subsidiary which has guaranteed any series of Securities and any Subsidiary having at such time either (i) gross revenues for the preceding four fiscal quarters in excess of 5% of the consolidated gross revenues of the Company and its Subsidiaries or (ii) total assets, as of the last day of the preceding fiscal quarter, in excess of 5% of the consolidated total assets of the Company and its Subsidiaries, in each case, based upon the Company's most recent annual or quarterly financial statements. "Sale and Leaseback Transaction" means any arrangement, transaction or series of transactions with any Person pursuant to which the Company or any Restricted Subsidiary leases any property, whether real, personal or intangible, that has been or is to be sold or transferred by 7 16 the Company or any Restricted Subsidiary to any such Person or any affiliate of such Person, other than (a) any such sales and leases between the Company and a Subsidiary or between Subsidiaries, (b) leases for a term, including renewals at the option of the lessee, of not more than three years, and (c) leases of property executed by the time of, or within 12 months after the latest of, the acquisition, the completion of construction or improvement, or the commencement of commercial operation of such property. "Secondary Subsidiary Guarantors" means any Subsidiary, whether direct or indirect, of the Company that is required to deliver a Subsidiary Guarantee pursuant to Section 1506 hereof, and in each case their respective successors and assigns. "Securities" has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture. "Securities Act" means the Securities Act of 1933 and any statute successor thereto, in each case as amended from time to time. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. "Stated Maturity", when used with respect to any Security or any instalment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such instalment of principal or interest is due and payable. "Subsidiary" means (i) a corporation more than 50% of the outstanding securities having ordinary voting power 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 and (ii) any partnership, limited liability company or other entity more than 50% of the ownership interest having ordinary voting power of which is at the time so owned. For the purposes of this definition, "securities having ordinary voting power" means stock and other securities which ordinarily have voting power for the election of directors, or persons having management power with respect to such entity, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Subsidiary Guarantee" means a guarantee required to be made by a Subsidiary of the Company pursuant to Section 1502 hereof. "Subsidiary Guarantor" means (i) each Primary Subsidiary Guarantor, and (ii) each Secondary Subsidiary Guarantor, if any, in each case only for so long as such Primary Subsidiary Guarantor or Secondary Subsidiary Guarantor remains obligated under a Subsidiary Guarantee. 8 17 "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. "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 each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series. "U.S. Government Obligation" has the meaning specified in Section 1404. "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". "Yield to Maturity" means the yield to maturity, computed at the time of issuance of a Security (or, if applicable, at the most recent redetermination of interest on such Security) and as set forth in such Security in accordance with generally accepted United States bond yield computation principles. SECTION 102. Compliance Certificates 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 shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company or of a Subsidiary Guarantor, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirements set forth in this Indenture. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture 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; 9 18 (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 103. Form 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 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 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 certificate or opinion is based are erroneous. Any such certificate or 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 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 104. Acts of Holders; Record Dates. 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 may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the 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 shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. 10 19 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 the Trustee deems sufficient. The ownership of Securities shall be proved by the Security Register. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer 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 Security. The Company may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series 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 Securities of such series, 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 Outstanding Securities of the relevant series 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 Outstanding Securities of such series 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 Outstanding Securities of the relevant series 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 Securities of the relevant series in the manner set forth in Section 106. The Trustee may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to join in the giving or making of (i) any Notice of Default, (ii) any declaration of acceleration referred to in Section 502, (iii) any request to institute proceedings referred to in Section 507(2) or (iv) any direction referred to in Section 512, in each case with respect to Securities of such series. If any record date is set pursuant to 11 20 this paragraph, the Holders of Outstanding Securities of such series on such record date, and no other Holders, 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 Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Trustee 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 Outstanding Securities of the relevant series 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 Securities of the relevant series in the manner set forth in Section 106. 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 Securities of the relevant series in the manner set forth in Section 106, 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, 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 paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the 180th day after the applicable record date. Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. SECTION 105. Notices, Etc., to Trustee and Company and Subsidiary Guarantors. 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 or by the Company or any Subsidiary Guarantor 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, Attention: Corporate Trust Administration, or 12 21 (2) the Company or any Subsidiary Guarantor by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company. SECTION 106. 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 or by overnight delivery service, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail or by overnight delivery service, neither the failure to mail or send such notice, nor any defect in any notice so mailed or sent, 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. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give notice by mail on overnight delivery service, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. SECTION 107. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act which is required under such Act to be a part of and govern this Indenture, the latter 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 to be excluded, as the case may be. SECTION 108. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 109. Successors and Assigns. All covenants and agreements in this Indenture by the Company and the Subsidiary Guarantors shall bind their respective successors and assigns, whether so expressed or not. 13 22 SECTION 110. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 111. Benefits of Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 112. Governing Law. This Indenture, the Subsidiary Guarantees and the Securities shall be governed by and construed in accordance with the law of the State of New York. SECTION 113. Legal Holidays. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of the Securities (other than a provision of any Security which specifically states that such provision shall apply in lieu of this Section)) payment of interest or principal (and premium, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity. SECTION 114. Counterparts. 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. ARTICLE TWO SECURITY FORMS SECTION 201. Forms Generally. The Securities of each series shall be in substantially the form set forth in this Article, or in such other form as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, 14 23 substitutions and other variations as are required or permitted by this Indenture (including the notations thereon relating to the Subsidiary Guarantees contemplated by Section 206, if applicable), 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 the rules of any securities exchange or Depositary therefor or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution thereof. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 303 for the authentication and delivery of such Securities. The definitive Securities shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities or notations of Subsidiary Guarantees, if applicable, as evidenced by their execution of such Securities or notations of Subsidiary Guarantees, if applicable. Neither the Company nor the Trustee shall have any responsibility for any defect in the CUSIP number that appears on any Security, check, advice of payment or redemption notice, and any such document may contain a statement to the effect that CUSIP numbers have been assigned by an independent service for convenience of reference and that neither the Company nor the Trustee shall be liable for any inaccuracy in such numbers. SECTION 202. Form of Face of Security. [INSERT ANY LEGEND REQUIRED BY THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER.] ------------------------------ ---------------------------------------- No. __________ $---------- PacifiCare Health Systems, Inc., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to _______________, or registered assigns, the principal sum of ____________________ Dollars on ____________________ [if the Security is to bear interest prior to Maturity, insert:, and to pay interest thereon from _______________ or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on __________ and __________ in each year, commencing __________, at the rate of _____% per annum, until the principal hereof is paid or made available for payment [if applicable, insert: , provided that any principal and premium, and any such instalment of interest, which is overdue shall bear interest at the rate of _____% per annum (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or made available for 15 24 payment, and such interest shall be payable on demand]. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the __________ or __________ (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture]. [If the Security is not to bear interest prior to Maturity, insert: The principal of this Security shall not bear interest except in the case of a default in payment of principal upon acceleration, upon redemption or at Stated Maturity and in such case the overdue principal and any overdue premium shall bear interest at the rate of _____% per annum (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or made available for payment. Interest on any overdue principal or premium shall be payable on demand. [Any such interest on overdue principal or premium which is not paid on demand shall bear interest at the rate of _____% per annum (to the extent that the payment of such interest on interest shall be legally enforceable), from the date of such demand until the amount so demanded is paid or made available for payment. Interest on any overdue interest shall be payable on demand.]] Payment of the principal of (and premium, if any) and [if applicable, insert: any such] interest on this Security will be made at the office or agency of the Company maintained for that purpose in __________, 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 [if applicable, insert: ; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register]. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. 16 25 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: - ------------------- ------------------------ By ________________________ Attest: - ------------------- SECTION 203. Form of Reverse of Security. This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of __________ (herein called the "Indenture", which term shall have the meaning assigned to it in such instrument), between the Company and _______________, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof [if applicable, insert: , limited in aggregate principal amount to $__________]. [If applicable, insert: The interest rate (or the spread or spread multiplier used to calculate such interest rate, if applicable) on this Security may be reset by the Company on ____________ (each an "Optional Reset Date"). The Company may exercise such option with respect to this Security by notifying the Trustee of such exercise at least 50 but not more than 60 days prior to an Optional Reset Date for this Security. Not later than 40 days prior to each Optional Reset Date, the Trustee shall transmit, in the manner provided for in Section 106 of the Indenture, to the Holder of this Security a notice (the "Reset Notice") indicating whether the Company has elected to reset the interest rate (or the spread or spread multiplier used to calculate such interest rate, if applicable), and if so (i) such new interest rate (or such new spread or spread multiplier, if applicable) and (ii) the provisions, if any, for redemption during the period from such Optional Reset Date to the next Optional Reset Date or if there is no such next Optional Reset Date, to the Stated Maturity of this Security (each such period a "Subsequent Interest Period"), including the date or dates on which or the period or periods during which and the price or prices at which such redemption may occur during the Subsequent Interest Period. Notwithstanding the foregoing, not later than 20 days prior to the Optional Reset Date, the Company may, at its option, revoke the interest rate (or the spread or spread multiplier used to calculate such interest rate, if applicable) provided for in the Reset Notice and establish an 17 26 interest rate (or a spread or spread multiplier used to calculate such interest rate, if applicable) that is higher than the interest rate (or the spread or spread multiplier, if applicable) provided for in the Reset Notice, for the Subsequent Interest Period by causing the Trustee to transmit, in the manner provided for in Section 106 of the Indenture, notice of such higher interest rate (or such higher spread or spread multiplier, if applicable) to the Holder of this Security. Such notice shall be irrevocable. All Securities of this series with respect to which the interest rate (or the spread or spread multiplier used to calculate such interest rate, if applicable) is reset on an Optional Reset Date, and with respect to which the Holders of such Securities have not tendered such Securities for repayment (or have validly revoked any such tender) pursuant to the next succeeding paragraph, will bear such higher interest rate (or such higher spread or spread multiplier, if applicable). The Holder of this Security will have the option to elect repayment by the Company of the principal of this Security on each Optional Reset Date at a price equal to the principal amount hereof plus interest accrued to such Optional Reset Date. In order to obtain repayment on an Optional Reset Date, the Holder must follow the procedures set forth in Article Thirteen of the Indenture for repayment at the option of Holders except that the period for delivery or notification to the Trustee shall be at least 25 but not more than 35 days prior to such Optional Reset Date and except that, if the Holder has tendered this Security for repayment pursuant to the Reset Notice, the Holder may, by written notice to the Trustee, revoke such tender or repayment until the close of business on the tenth day before such Optional Reset Date. [If applicable, insert: The Stated Maturity of this Security may be extended at the option of the Company for _______________ (each an "Extension Period") up to but not beyond ____________ (the "Final Maturity"). The Company may exercise such option with respect to this Security by notifying the Trustee of such exercise at least 50 but not more than 60 days prior to the Stated Maturity of this Security in effect prior to the exercise of such option (the "Original Stated Maturity"). If the Company exercises such option, the Trustee shall transmit, in the manner provided for in Section 106 of the Indenture, to the Holder of this Security not later than 40 days prior to the Original Stated Maturity a notice (the "Extension Notice") indicating (i) the election of the Company to extend the Maturity, (ii) the new Stated Maturity, (iii) the interest rate applicable to the Extension Period and (iv) the provisions, if any, for redemption during such Extension Period. Upon the Trustee's transmittal of the Extension Notice, the Stated Maturity of this Security shall be extended automatically and, except as modified by the Extension Notice and as described in the next paragraph, this Security will have the same terms as prior to the transmittal of such Extension Notice. Notwithstanding the foregoing, not later than 20 days before the Original Stated Maturity of this Security, the Company may, at its option, revoke the interest rate provided for in the Extension Notice and establish a higher interest rate for the Extension Period by causing the Trustee to transmit, in the manner provided for in Section 106, notice of such higher interest rate to the Holder of this Security. Such notice shall be irrevocable. All Securities of this series with respect to which the Stated Maturity is extended will bear such higher interest rate. 18 27 If the Company extends the Maturity of this Security, the Holder will have the option to elect repayment of this Security by the Company on the Original Stated Maturity at a price equal to the principal amount hereof, plus interest accrued to such date. In order to obtain repayment on the Original Stated Maturity once the Company has extended the Maturity hereof, the Holder hereof must follow the procedures set forth in Article Thirteen of the Indenture for repayment at the option of Holders, except that the period for delivery or notification to the Trustee shall be at least 25 but not more than 35 days prior to the Original Stated Maturity and except that, if the Holder has tendered this Security for repayment pursuant to an Extension Notice, the Holder may, by written notice to the Trustee, revoke such tender for repayment until the close of business on the tenth day before the Original Stated Maturity. [If applicable, insert: The Securities of this series are subject to redemption upon not less than 30 days' notice by mail, [if applicable, insert: (1) on __________ in any year commencing with the year _____ and ending with the year _____ through operation of the sinking fund for this series at a Redemption Price equal to 100% of the principal amount, and (2)] at any time [if applicable, insert: on or after ____________, ____], as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount): If redeemed [if applicable, insert: on or before __________, _____%, and if redeemed] during the 12-month period beginning __________ of the years indicated,
Redemption Redemption Year Price Year Price - ---- ----- ---- -----
and thereafter at a Redemption Price equal to _____% of the principal amount, together in the case of any such redemption [if applicable, insert: (whether through operation of the sinking fund or otherwise)] with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.] [If applicable, insert: The Securities of this series are subject to redemption upon not less than 30 days' notice by mail, (1) on __________ in any year commencing with the year _____ and ending with the year _____ through operation of the sinking fund for this series at the Redemption Prices for redemption through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below, and (2) at any time [if applicable, insert: on or after __________], as a whole or in part, at the election of the Company, at the Redemption Prices for redemption otherwise than through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below: If redeemed during the 12-month period beginning __________ of the years indicated, 19 28
Redemption Price For Redemption Redemption Price for Redemption Otherwise Than Through Operation Year Through Operation of the Sinking Fund of the Sinking Fund - ---- ------------------------------------- --------------------------------
and thereafter at a Redemption Price equal to _____% of the principal amount, together in the case of any such redemption (whether through operation of the sinking fund or otherwise) with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.] [If applicable, insert: Notwithstanding the foregoing, the Company may not, prior to __________, redeem any Securities of this series as contemplated by [if applicable, insert: Clause (2) of] the preceding paragraph as a part of, or in anticipation of, any refunding operation by the application, directly or indirectly, of moneys borrowed having an interest cost to the Company (calculated in accordance with generally accepted financial practice) of less than _____% per annum.] [If applicable, insert: The sinking fund for this series provides for the redemption on __________ in each year beginning with the year _____ and ending with the year _____ of [if applicable, insert: not less than $__________ ("mandatory sinking fund") and not more than] $__________ aggregate principal amount of Securities of this series. Securities of this series acquired or redeemed by the Company otherwise than through [if applicable, insert: mandatory] sinking fund payments may be credited against subsequent [if applicable, insert: mandatory] sinking fund payments otherwise required to be made [if applicable, insert: , in the inverse order in which they become due].] [If the Security is subject to redemption of any kind, insert: In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.] [If applicable, insert: The Indenture contains provisions for defeasance at any time of [the entire indebtedness of this Security] [or] [certain restrictive covenants and Events of Default with respect to this Security] [, in each case] upon compliance with certain conditions set forth in the Indenture.] [If the Security is not an Original Issue Discount Security, insert: If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.] 20 29 [If the Security is an Original Issue Discount Security, insert: If an Event of Default with respect to Securities of this series shall occur and be continuing, an amount of principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. Such amount shall be equal to: insert formula for determining the amount. Upon payment (i) of the amount of principal so declared due and payable and (ii) of interest on any overdue principal, premium and interest (in each case to the extent that the payment of such interest shall be legally enforceable), all of the Company's obligations in respect of the payment of the principal of and premium and interest, if any, on the Securities of this series shall terminate.] The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, 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 Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. 21 30 As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $__________ and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, 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 Security 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 Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. SECTION 204. Form of Legend for Global Securities. Unless otherwise specified as contemplated by Section 301 for the Securities evidenced thereby, every Global Security authenticated and delivered hereunder shall bear a legend in substantially the following form: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. 22 31 SECTION 205. Form of Trustee's Certificate of Authentication. The Trustee's certificates of authentication shall be in substantially the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. -------------------------------- As Trustee By _____________________________ Authorized Officer SECTION 206. Form of Notation Relating to Subsidiary Guarantees. The form of notation to be set forth on each Guaranteed Security relating to the Subsidiary Guarantees shall be in substantially the following form: The obligations of the Company under the Indenture shall be guaranteed as set forth in the Indenture. Each Subsidiary Guarantor shall be deemed to have signed on each Guaranteed Security issued hereunder any required notation of guarantee to the same extent as if the signature of such Subsidiary Guarantor appeared on such Guaranteed Security. The notation of a guarantee set forth on any Guaranteed Security shall be null and void and of no further effect with respect to the Subsidiary Guarantee of any Subsidiary Guarantor which is released from such Subsidiary Guarantee pursuant to the Indenture. ARTICLE THREE THE SECURITIES SECTION 301. Amount Unlimited; Issuable in Series. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution and, subject to Section 303, set forth, or determined in the manner provided, in an Officers' Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series, 23 32 (1) the title of the Securities of the series (which shall distinguish the Securities of the series from Securities of any other series); (2) any limit upon the aggregate principal amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 304, 305, 306, 906 or 1107 and except for any Securities which, pursuant to Section 303, are deemed never to have been authenticated and delivered hereunder); (3) the date or dates on which the principal of any Securities of the series is payable, or the method by which such date or dates shall be determined or extended; (4) the rate or rates at which the Securities of the series shall bear interest, if any, or the method by which such rate or rates shall be determined, the date or dates from which such interest shall accrue, or the method by which such date or dates shall be determined, the Interest Payment Dates on which such interest shall be payable and the Regular Record Date, if any, for the interest payable on any Interest Payment Date, or the method by which such date or dates shall be determined, and the basis upon which interest shall be calculated if other than that of a 360-day year of twelve 30-day months; (5) the place or places where the principal of and any premium and interest on any Securities of the series shall be payable; (6) the period or periods within which, the price or prices at which and the term and conditions upon which any Securities of the series may be redeemed, in whole or in part, at the option of the Company and, if other than by a Board Resolution, the manner in which any election by the Company to redeem the Securities shall be evidenced; (7) the obligation, if any, of the Company to redeem or purchase any Securities of the series pursuant to any sinking fund or analogous provisions or at the option of the Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which any Securities of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; (8) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which any Securities of the series shall be issuable; (9) if the amount of principal of or any premium or interest on any Securities of the series may be determined with reference to an index or pursuant to a formula, the manner in which such amounts shall be determined; 24 33 (10) if other than the currency of the United States of America, the currency, currencies or currency units in which the principal of or any premium or interest on any Securities of the series shall be payable and the manner of determining the equivalent thereof in the currency of the United States of America for any purpose, including for purposes of the definition of "Outstanding" in Section 101; (11) if the principal of or any premium or interest on any Securities of the series is to be payable, at the election of the Company or the Holder thereof, in one or more currencies or currency units other than that or those in which such Securities are stated to be payable, the currency, currencies or currency units in which the principal of or any premium or interest on such Securities as to which such election is made shall be payable, the periods within which and the terms and conditions upon which such election is to be made and the amount so payable (or the manner in which such amount shall be determined); (12) the percentage of the principal amount at which such Securities will be issued and, if other than the principal amount thereof, the portion of the principal amount of Securities of the series that shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 502 or the method by which such portion shall be determined; (13) if the principal amount payable at the Stated Maturity of any Securities of the series will not be determinable as of any one or more dates prior to the Stated Maturity, the amount which shall be deemed to be the principal amount of such Securities as of any such date for any purpose thereunder or hereunder, including the principal amount thereof which shall be due and payable upon any Maturity other than the Stated Maturity or which shall be deemed to be Outstanding as of any date prior to the Stated Maturity (or, in any such case, the manner in which such amount deemed to be the principal amount shall be determined); (14) if applicable, that the Securities of the series, in whole or any specified part, shall not be defeasible or shall be defeasible in a manner varying from Section 1402 and Section 1403 and, if other than by a Board Resolution, the manner in which any election by the Company to defease such Securities shall be evidenced; (15) if applicable, that any Securities of the series shall be issuable in whole or in part in the form of one or more Global Securities and, in such case, the respective Depositaries for such Global Securities, the form of any legend or legends which shall be borne by any such Global Security in addition to or in lieu of that set forth in Section 204 and any circumstances in addition to or in lieu of those set forth in Clause (2) of the last paragraph of Section 305 in which any such Global Security may be exchanged in whole or in part for Securities registered, and any transfer of such Global Security in whole or in part may be registered, in the name or names of Persons other than the Depositary for such Global Security or a nominee thereof; 25 34 (16) if applicable, that the Securities of the series, in whole or any specified part, shall be subject to the optional interest reset provisions of Section 307(b); (17) if applicable, that the Securities of the series, in whole or any specified part, shall be subject to the optional extension of maturity provisions of Section 308; (18) any addition to or change in the Events of Default which applies to any Securities of the series and any change in the right of the Trustee or the requisite Holders of such Securities to declare the principal amount thereof due and payable pursuant to Section 502; (19) any addition to or change in the covenants set forth in Article Ten which applies to Securities of the series; (20) if applicable, that such series is to be guaranteed by one or more Subsidiary Guarantors; and (21) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture, except as permitted by Section 901(5)). All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to the Board Resolution referred to above and (subject to Section 303) set forth, or determined in the manner provided, in the Officers' Certificate referred to above or in any such indenture supplemental hereto. If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the series. SECTION 302. Denominations. The Securities of each series shall be issuable only in registered form without coupons and only in such denominations as shall be specified as contemplated by Section 301. In the absence of any such specified denomination with respect to the Securities of any series, the Securities of such series shall be issuable in denominations of $1,000 and any integral multiple thereof. SECTION 303. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman of the Board, its Chief Executive Officer, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its 26 35 Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company and, if applicable to such series, having the notation of Subsidiary Guarantees thereon, if applicable, to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities. If the form or terms of the Securities of the series have been established by or pursuant to one or more Board Resolutions as permitted by Sections 201 and 301, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating, (1) if the form of such Securities has been established by or pursuant to Board Resolution as permitted by Section 201, that such form has been established in conformity with the provisions of this Indenture, including its requirements for notations thereon relating to the Subsidiary Guarantees, if applicable; (2) if the terms of such Securities have been established by or pursuant to Board Resolution as permitted by Section 301, that such terms have been established in conformity with the provisions of this Indenture; and (3) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, and, if applicable, the Subsidiary Guarantees, will constitute valid and legally binding obligations of the Company and, if applicable, the Subsidiary Guarantors, if applicable, enforceable in accordance with their 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. If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee. Notwithstanding the provisions of Section 301 and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to 27 36 deliver the Officers' Certificate otherwise required pursuant to Section 301 or the Company Order and Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 309, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. SECTION 304. Temporary Securities. Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued, having the notations of Subsidiary Guarantees thereon, if applicable, and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities and notations of Subsidiary Guarantees, if applicable, may determine, as evidenced by their execution of such Securities and notations of Subsidiary Guarantees, if applicable. If temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor one or more definitive Securities of the same series, of any authorized denominations and of like tenor and aggregate principal amount and having the notations of Subsidiary Guarantees thereon, if applicable. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series and tenor. 28 37 SECTION 305. Registration, Registration of Transfer and Exchange. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company in a Place of Payment being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security of a series at the office or agency of the Company in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series, of any authorized denominations and of like tenor and aggregate principal amount, each such Security having a notation of Subsidiary Guarantees thereon, if applicable. At the option of the Holder, Securities of any series may be exchanged for other Securities of the same series, of any authorized denominations and of like tenor and aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities (including the notations thereon relating to the Subsidiary Guarantees contemplated by Section 206, if applicable) which the Holder making the exchange is entitled to receive. All Securities and the Subsidiary Guarantees noted thereon, if applicable, issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company and such Subsidiary Guarantors, if applicable, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, 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 registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 906 or 1107 not involving any transfer. If the Securities of any series (or of any series and specified tenor) are to be redeemed in part, the Company shall not be required (A) to issue, register the transfer of or exchange any Securities of that series (or of that series and specified tenor, as the case may be) during a period 29 38 beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of any such Securities selected for redemption under Section 1103 and ending at the close of business on the day of such mailing, or (B) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. The provisions of Clauses (1), (2), (3) and (4) below shall apply only to Global Securities: (1) registered in the name of the Depositary designated for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. (2) Notwithstanding any other provision in this Indenture, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Security or a nominee thereof unless (A) such Depositary (i) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or (ii) has ceased to be a clearing agency registered under the Exchange Act, (B) there shall have occurred and be continuing an Event of Default with respect to such Global Security or (C) there shall exist such circumstances, if any, in addition to or in lieu of the foregoing as have been specified for this purpose as contemplated by Section 301. (3) Subject to Clause (2) above, any exchange of a Global Security for other Securities may be made in whole or in part, and all Securities issued in exchange for a Global Security or any portion thereof shall be registered in such names as the Depositary for such Global Security shall direct. (4) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof, whether pursuant to this Section, Section 304, 306, 906 or 1107 or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Security (including the notations thereon relating to the Subsidiary Guarantees contemplated by Section 206, if applicable), unless such Security is registered in the name of a Person other than the Depositary for such Global Security or a nominee thereof. SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series (including the notations thereon relating to the Subsidiary Guarantees contemplated by Section 30 39 206, if applicable) and of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security of any series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, and the respective Subsidiary Guarantors, if any, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 307. Payment of Interest; Interest Rights Preserved; Optional Interest Reset. (1) Except as otherwise provided as contemplated by Section 301 with respect to any series of Securities, interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (A) or (B) below: 31 40 (A) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series 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 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 10 days prior to the date of the proposed payment and not less than 10 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 given to each Holder of Securities of such series in the manner set forth in Section 106, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (B). (B) The Company may make payment of any Defaulted Interest on the Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security . (2) The provisions of this Section 307(2) may be made applicable to any series of Securities pursuant to Section 301 (with such modifications, additions or substitutions as may be specified pursuant to such Section 301). The interest rate (or the spread or spread multiplier used to calculate such interest rate, if applicable) on any Security of such series may be reset by the Company on the date or dates specified on the face of such Security (each an "Optional Reset Date"). The Company may exercise such option with respect to such Security by notifying the Trustee of such exercise at least 50 but not more than 60 days prior to an Optional Reset Date for 32 41 such Security. Not later than 40 days prior to each Optional Reset Date, the Trustee shall transmit, in the manner provided for in Section 106, to the Holder of any such Security a notice (the "Reset Notice") indicating whether the Company has elected to reset the interest rate (or the spread or spread multiplier used to calculate such interest rate, if applicable), and if so (i) such new interest rate (or such new spread or spread multiplier, if applicable) and (ii) the provisions, if any, for redemption during the period from such Optional Reset Date to the next Optional Reset Date or if there is no such next Optional Reset Date, to the Stated Maturity of such Security (each such period a "Subsequent Interest Period"), including the date or dates on which or the period or periods during which and the price or prices at which such redemption may occur during the Subsequent Interest Period. Notwithstanding the foregoing, not later than 20 days prior to the Optional Reset Date, the Company may, at its option, revoke the interest rate (or the spread or spread multiplier used to calculate such interest rate, if applicable) provided for in the Reset Notice and establish an interest rate (or a spread or spread multiplier used to calculate such interest rate, if applicable) that is higher than the interest rate (or the spread or spread multiplier, if applicable) provided for in the Reset Notice, for the Subsequent Interest Period by causing the Trustee to transmit, in the manner provided for in Section 106, notice of such higher interest rate (or such higher spread or spread multiplier, if applicable) to the Holder of such Security. Such notice shall be irrevocable. All Securities with respect to which the interest rate (or the spread or spread multiplier used to calculate such interest rate, if applicable) is reset on an Optional Reset Date, and with respect to which the Holders of such Securities have not tendered such Securities for repayment (or have validly revoked any such tender) pursuant to the next succeeding paragraph, will bear such higher interest rate (or such higher spread or spread multiplier, if applicable). The Holder of any such Security will have the option to elect repayment by the Company of the principal of such Security on each Optional Reset Date at a price equal to the principal amount thereof plus interest accrued to such Optional Reset Date. In order to obtain repayment on an Optional Reset Date, the Holder must follow the procedures set forth in Article Thirteen for repayment at the option of Holders except that the period for delivery or notification to the Trustee shall be at least 25 but not more than 35 days prior to such Optional Reset Date and except that, if the Holder has tendered any Security for repayment pursuant to the Reset Notice, the Holder may, by written notice to the Trustee, revoke such tender or repayment until the close of business on the tenth day before such Optional Reset Date. Subject to the foregoing provisions of this Section and Section 305, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 308. Optional Extension of Maturity. The provisions of this Section 308 may be made applicable to any series of Securities pursuant to Section 301 (with such modifications, additions or substitutions as may be specified 33 42 pursuant to such Section 301). The Stated Maturity of any Security of such series may be extended at the option of the Company for the period or periods specified on the face of such Security (each an "Extension Period") up to but not beyond the date (the "Final Maturity") set forth on the face of such Security. The Company may exercise such option with respect to any Security by notifying the Trustee of such exercise at least 50 but not more than 60 days prior to the Stated Maturity of such Security in effect prior to the exercise of such option (the "Original Stated Maturity"). If the Company exercises such option, the Trustee shall transmit, in the manner provided for in Section 106, to the Holder of such Security not later than 40 days prior to the Original Stated Maturity a notice (the "Extension Notice") indicating (i) the election of the Company to extend the Maturity, (ii) the new Stated Maturity, (iii) the interest rate applicable to the Extension Period and (iv) the provisions, if any, for redemption during such Extension Period. Upon the Trustee's transmittal of the Extension Notice, the Stated Maturity of such Security shall be extended automatically and, except as modified by the Extension Notice and as described in the next paragraph, such Security will have the same terms as prior to the transmittal of such Extension Notice. Notwithstanding the foregoing, not later than 20 days before the Original Stated Maturity of such Security, the Company may, at its option, revoke the interest rate provided for in the Extension Notice and establish a higher interest rate for the Extension Period by causing the Trustee to transmit, in the manner provided for in Section 106, notice of such higher interest rate to the Holder of such Security. Such notice shall be irrevocable. All Securities with respect to which the Stated Maturity is extended will bear such higher interest rate. If the Company extends the Maturity of any Security, the Holder will have the option to elect repayment of such Security by the Company on the Original Stated Maturity at a price equal to the principal amount thereof, plus interest accrued to such date. In order to obtain repayment on the Original Stated Maturity once the Company has extended the Maturity thereof, the Holder must follow the procedures set forth in Article Thirteen for repayment at the option of Holders, except that the period for delivery or notification to the Trustee shall be at least 25 but not more than 35 days prior to the Original Stated Maturity and except that, if the Holder has tendered any Security for repayment pursuant to an Extension Notice, the Holder may, by written notice to the Trustee, revoke such tender for repayment until the close of business on the tenth day before the Original Stated Maturity. SECTION 309. Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Subsidiary Guarantors, the Trustee and any agent of the Company, the Subsidiary Guarantors, or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of and any premium and (subject to Section 307) any interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and none of the Company, the Subsidiary Guarantors, the Trustee nor any agent of the Company, the Subsidiary Guarantors, or the Trustee shall be affected by notice to the contrary. 34 43 SECTION 310. Cancellation. All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be disposed of as directed by a Company Order. SECTION 311. Computation of Interest. Except as otherwise specified as contemplated by Section 301 for Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months. ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 401. Satisfaction and Discharge of Indenture. This Indenture, and all Subsidiary Guarantees given pursuant hereto, shall upon Company Request cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities 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 1003) have been delivered to the Trustee for cancellation; or 35 44 (B) all such Securities 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, 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 (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose money in an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal and any premium and interest to the date of such deposit (in the case of Securities 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 607, the obligations of the Trustee to any Authenticating Agent under Section 614 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive. SECTION 402. Application of Trust Money. Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities 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 and any premium and interest for whose payment such money has been deposited with the Trustee. 36 45 ARTICLE FIVE REMEDIES SECTION 501. Events of Default. "Event of Default", wherever used herein with respect to Securities of any series, 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 any Security of that series when it becomes due and payable, and continuance of such default for a period of 30 days; or (2) default in the payment of the principal of or any premium on any Security of that series at its Maturity; or (3) default in the deposit of any sinking fund payment, when and as due by the terms of a Security of that series; or (4) default in the performance, or breach (including breach by repudiation), of any covenant, guaranty or warranty of the Company or any Subsidiary Guarantor in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has expressly been included in this Indenture solely for the benefit of series of Securities other than that series), and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail or overnight delivery service, to the Company (and, if applicable, the Subsidiary Guarantors) by the Trustee or to the Company, the Secondary Subsidiary Guarantor, if applicable, and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of that series 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 (5) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company or a Restricted Subsidiary in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company or such Subsidiary a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or such Subsidiary under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or such Subsidiary or of any substantial part of its or such Subsidiary's 37 46 property, or ordering the winding up or liquidation of its or such Subsidiary's affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 90 consecutive days; or (6) the commencement by the Company or a Restricted Subsidiary, as the case may be, of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it or such Subsidiary to the entry of a decree or order for relief in respect of the Company or such Subsidiary in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it or such Subsidiary, or the filing by it or such Subsidiary of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by it or such Subsidiary to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or such Subsidiary or of any substantial part of its or such Subsidiary's property, or the making by it or such Subsidiary of an assignment for the benefit of creditors, or the admission by it or such Subsidiary in writing of its or such Subsidiary's inability to pay its debts generally as they become due, or the taking of corporate action by the Company or such Subsidiary in furtherance of any such action; or (7) the rendering against the Company or any Subsidiary of a final judgment, decree or order for the payment of money in excess of $75,000,000 and the continuance of such judgment, decree or order unsatisfied and in effect for any period of 90 consecutive days without a stay of execution; or (8) (i) a default occurs under any instrument or instruments (including this Indenture) under which there is at the time outstanding, or by which there may be secured or evidenced, any Debt of the Company or any Subsidiary or any guarantee of payment by the Company or any Subsidiary of any obligation of any Person, which default results in acceleration of (whether by declaration or automatically), or the nonpayment at maturity (after giving effect to any applicable grace period) of, such Debt or guarantee in an aggregate amount exceeding $75,000,000, in which case the Company shall immediately give notice to the Trustee of such acceleration or nonpayment and (ii) there shall have been a failure to cure such default or to discharge all such defaulted Debt and guarantees or such default is not otherwise waived, and such acceleration has not been rescinded or annulled, within 30 days after receipt by the Company from the Trustee or by the Company and the Trustee from the Holders of at least 25% in principal amount of the Securities then Outstanding (excluding, if such defaulted Debt includes any series of Securities, such series of Securities) of a written notice thereof, by registered or certified mail, and stating that such notice is a "Notice of Default" hereunder; or 38 47 (9) any other Event of Default provided with respect to Securities of that series. SECTION 502. Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 501(4) or another Event of Default under Section 501(7) which is common to all Outstanding series of Securities) with respect to Securities of any series at the time Outstanding occurs and is continuing, then in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of that series may declare the principal amount of all the Securities of that series (or, if any Securities of that series are Original Issue Discount Securities, such portion of the principal amount of such Securities as may be specified by the terms thereof) to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal amount (or specified amount) shall become immediately due and payable. If an Event of Default specified in Section 501(4) or another Event of Default under Section 501(7) which is common to all Outstanding series of Securities occurs and is continuing, then in every such case, the Trustee or the Holders of not less than 25% in aggregate principal amount of all the Securities then Outstanding hereunder (treated as one class), by a notice in writing to the Company (and to the Trustee if given by Holders) may declare the principal amount (or, if any Securities are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms thereof) of all the Securities then Outstanding to be due and payable immediately, and upon any such declaration such principal amount (or specified amount) shall become immediately due and payable. At any time after such a declaration of acceleration with respect to Securities of any series has been made, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company or any Subsidiary Guarantor has paid or deposited with the Trustee a sum sufficient to pay all amounts due the Trustee under Section 607 hereof; (2) all Events of Default with respect to Securities of that series, other than the non-payment of the principal of Securities of that series which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513; and (3) such rescission and annulment would not conflict with any judgment or decree. No such rescission shall affect any subsequent default or impair any right consequent thereon. 39 48 SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (1) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and any premium and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and premium and on any overdue interest, at the rate or rates prescribed therefor in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series against the Company, any applicable Subsidiary Guarantor or any other obligor with respect to such Securities 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 504. Trustee May File Proofs of Claim. In case of any judicial proceeding relative to the Company or the Subsidiary Guarantors (or any other obligor upon the Securities), or the property or the creditors of the Company or any of the Subsidiary Guarantors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607. No provision of this Indenture 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, 40 49 adjustment or composition in any bankruptcy or similar proceeding affecting the Securities or the rights of any Holder thereof or the Subsidiary Guarantees 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 505. Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities or the Subsidiary Guarantees may be prosecuted and enforced by the Trustee without the possession of any of the Securities 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 the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 506. Application of Money Collected. Any money collected by the Trustee pursuant to this Article 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 on account of principal or any premium or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 607; and SECOND: To the payment, first, of the amounts then due and unpaid for principal of and, second, any premium and interest on, the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal and any premium and interest, respectively. THIRD: To the payment of the remainder, if any, to the Company or any other Person or Persons entitled thereto. SECTION 507. Limitation on Suits. No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series; 41 50 (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series 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 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 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 Securities of that series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and any premium and (subject to Section 307) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 509. Restoration of Rights and Remedies. If the Trustee or any Holder 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 or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Subsidiary Guarantors, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 510. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 306, no right or remedy herein 42 51 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 511. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 512. Control by Holders. The Holders of a majority in principal amount of the Outstanding Securities of any series 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, with respect to the Securities of such series; provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 513. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series waive any past default hereunder with respect to such series and its consequences, except a default (1) in the payment of the principal of or any premium or interest on any Security of such series, or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. 43 52 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 514. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the court may in its discretion require the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and such court may in its discretion assess reasonable costs including reasonable attorneys' fees, 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; provided, that the provisions of this Section 514 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 per cent in principal amount of the Outstanding Securities, or to any suit instituted by any Holder for the enforcement of the payment of the principal of or interest on any Security, on or after the respective due dates expressed in such Security. Neither this Section 514 nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or such an assessment in any proceeding instituted by the Company or the Subsidiary Guarantors. SECTION 515. Waiver of Usury, Stay or Extension Laws. Each of the Company and the Subsidiary Guarantors 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 each of the Company and the Subsidiary Guarantors (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 SIX THE TRUSTEE SECTION 601. Certain Duties and Responsibilities. Except as specifically provided herein, the duties and responsibilities of the Trustee shall be as provided by the Trust Indenture Act. The Trustee shall, prior to the occurrence of an Event of Default and after curing of all Events of Default which may have occurred, perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants, duties or obligations shall be 44 53 read into this Indenture against the Trustee. The Trustee shall, during the existence of an Event of Default (which has not been cured), 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 man would exercise or use under the circumstances in the conduct of his own affairs. SECTION 602. Notice of Defaults. If a default occurs hereunder with respect to Securities of any series, the Trustee shall give the Holders of Securities of such series notice of such default as and to the extent provided by the Trust Indenture Act; provided, however, that in the case of any default of the character specified in Section 501(4) with respect to Securities of such series, no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series. The Trustee shall not be deemed to have knowledge of any default or Event of Default hereunder unless and until a Responsible Officer shall have actual knowledge thereof, or shall have received written notice thereof at its Corporate Trust Office. In the absence of such actual knowledge or notice, the Trustee may conclusively assume that no default has occurred and is continuing under this Indenture. Except as otherwise expressly provided herein, the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein or of any of the documents executed in connection with the Securities, or as to the existence of a default or Event of Default hereunder. SECTION 603. Certain Rights of Trustee. Subject to the provisions of Section 601: (1) 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, 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; (2) 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 shall be sufficiently evidenced by a Board Resolution; (3) 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, request and rely upon an Officers' Certificate; 45 54 (4) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) 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; (6) 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, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and (7) 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 Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. (8) The permissive rights of the Trustee to do things enumerated in this Indenture shall not be construed as a duty unless so specified herein. (9) The Trustee may become the Holder of Securities with the same rights it would have if it were not Trustee and, to the extent permitted by law, may act as depositary for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Holders, whether or not such committee shall represent the Holders of a majority in principal amount of the Outstanding Securities (10) The Trustee shall not be liable for any error of judgment made by a Responsible Officer, unless the Trustee shall have been negligent in ascertaining the pertinent facts. (11) No provisions 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. 46 55 (12) The Trustee shall not be liable for any action taken, suffered or omitted 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; the Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. (13) Whether or not expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of the Trustee shall be subject to the provisions of this Article Six and shall extend to the Authenticating Agent, Securities Registrar, Paying Agents, and employees and agents of the Trustee. SECTION 604. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities and the notations of Subsidiary Guarantees thereon, if any, except the Trustee's certificates of authentication, shall be taken as the statements of the Company or the Subsidiary Guarantors, as the case may be, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity, sufficiency or priority of this Indenture or of the Securities, including the notations of Subsidiary Guarantees thereon, if any. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 605. May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company or any Subsidiary Guarantor, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal with the Company and the Subsidiary Guarantors with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent. SECTION 606. 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 with the Company or any Subsidiary Guarantor. 47 56 SECTION 607. Compensation and Reimbursement. The Company agrees (1) to pay to the Trustee from time to time reasonable compensation 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) except as otherwise expressly provided herein, 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 and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or wilful misconduct; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or wilful misconduct or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts 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. SECTION 608. Conflicting Interests. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the 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 Indenture. To the extent permitted by such Act, the Trustee shall not be deemed to have a conflicting interest by virtue of being a trustee under this Indenture with respect to Securities of more than one series. SECTION 609. Corporate Trustee Required; Eligibility. There shall at all times be one (and only one) Trustee hereunder with respect to the Securities of each series, which may be Trustee hereunder for Securities of one or more other series. Each 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 (or, in the case of a corporation included in a bank holding company system, the related bank holding company shall have) 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 and to the extent permitted by the Trust Indenture Act, the combined capital and surplus of such Person or such bank holding company 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 with respect to the Securities of any series shall cease to be eligible in accordance with the provisions 48 57 of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 610. Resignation and Removal; Appointment of Successor. No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 611. The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 611 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 with respect to the Securities of such series. The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company. If at any time: (1) the Trustee shall fail to comply with Section 608 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 609 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, or (4) the Trustee increases fees to the Company and such increases result in fees for services that are materially higher than commercially available to the Company from other entities qualifying under Section 609 and at the time of removal no Default or Event of Default exists, then, in any such case, (A) the Company by a Board Resolution may remove the Trustee with respect to all Securities, or (B) with respect to items (i), (ii) and (iii) only, subject to Section 514, any Holder who has been a bona fide Holder of a Security 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 with respect to all Securities and the appointment of a successor Trustee or Trustees. 49 58 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, with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 611. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 611, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 611, any Holder who has been a bona fide Holder of a Security of such series 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 Trustee with respect to the Securities of such series. The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series to all Holders of Securities of such series in the manner provided in Section 106. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. SECTION 611. Acceptance of Appointment by Successor. In case of the appointment hereunder of a successor Trustee with respect to all Securities, 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. In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and 50 59 to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each 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 with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. 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 such rights, powers and trusts referred to in the first or second preceding paragraph, as the case may be. 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. SECTION 612. 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 consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all 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, without the execution or filing of any paper or any further act on the part of any, of the parties hereto. In case any Securities 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 Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. 51 60 SECTION 613. Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company or any Subsidiary Guarantor (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company or any Subsidiary Guarantor (or any such other obligor). SECTION 614. Appointment of Authenticating Agent. The Trustee may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon original issue and upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 306, and Securities 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 Securities 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 and a certificate of authentication executed 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, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus (or, in the case of a corporation included in a bank holding company system, the related bank holding company shall have) 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, the combined capital and surplus of such Authenticating Agent or such bank holding company 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, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. 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 the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, 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 52 61 any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, 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 106 to all Holders of Securities of the series with respect to which such Authenticating Agent will serve. 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 provisions of this Section. The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 607. If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series 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 Securities of the series designated therein referred to in the within-mentioned Indenture. -------------------------------- As Trustee By _____________________________ Authenticating Agent By _____________________________ Authorized Officer ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee (1) semi-annually, not later than June 15 and December 15 in each year, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Securities of each series as of the preceding June 1 or December 1 as the case may be, and 53 62 (2) 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 Security Registrar. SECTION 702. Preservation of Information; Communications to Holders. 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 701 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished. The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and privileges of the Trustee, shall be as provided by the Trust Indenture Act. Every Holder of Securities, by receiving and holding the same, agrees with the Company, the Subsidiary Guarantors and the Trustee that neither the Company nor the Subsidiary Guarantors nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act. SECTION 703. Reports by Trustee. 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. 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 Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when any Securities are listed on any stock exchange. SECTION 704. Reports by Company. The Company, and the Subsidiary Guarantors, if applicable, shall file with the Trustee and the Commission, and transmit to the Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of 54 63 the Exchange Act shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 801. Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless: (1) the Company shall be the surviving and continuing entity, or 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, trust or other entity, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of and any premium and interest on all the Securities and the performance or observance of every covenant and condition of this Indenture on the part of the Company to be performed or observed; (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or any Subsidiary as a result of such transaction as having been incurred by the Company or such Subsidiary at the time of 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 occurred and be continuing; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with; provided, however, that the delivery of an Officers' Certificate or an Opinion of Counsel is not required with respect to any consolidation, merger, conveyance, transfer or lease involving the Company and any wholly-owned subsidiary of the Company. 55 64 SECTION 802. Company Successor Substituted. Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 801, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. SECTION 803. Subsidiary Guarantors May Consolidate, Etc., Only on Certain Terms. A Subsidiary Guarantor may consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person if (A) such transaction would otherwise be permitted pursuant to this Indenture and would permit the concurrent release of the Subsidiary Guarantee of such Subsidiary Guarantor (or its successor) pursuant to Section 1507, or (B) such transaction is with, between or among such Subsidiary Guarantor and the Company or any other Subsidiary Guarantor, or (C) each of the following requirements is complied with: (1) the Subsidiary Guarantor shall be the surviving and continuing entity, or in case the Subsidiary Guarantor 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 Subsidiary Guarantor is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Subsidiary Guarantor substantially as an entirety shall be a corporation, partnership, trust or other entity, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all the Securities required by this Indenture to be guaranteed by the Subsidiary Guarantor and the performance or observance of every covenant and condition of this Indenture on the part of the Subsidiary Guarantor to be performed or observed, in each case equally with obligations of such Subsidiary Guarantor then existing with respect to other Debt of the Company assumed by such Person; (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Subsidiary Guarantor, the Company or any other Subsidiary as a result of such transaction as having been incurred by the Subsidiary Guarantor, the Company or any such Subsidiary at the time of 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 occurred and be continuing; and 56 65 (3) the Subsidiary Guarantor has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. SECTION 804. Subsidiary Guarantor Successor Substituted. Upon any consolidation of a Subsidiary Guarantor with, or merger of a Subsidiary Guarantor into, any other Person or any conveyance, transfer or lease of the properties and assets of a Subsidiary Guarantor substantially as an entirety, in each case, in accordance with clause (C) of Section 803, the successor Person formed by such consolidation or into which the Subsidiary Guarantor 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, a Subsidiary Guarantor under this Indenture with the same effect as if such successor Person had been named as a Subsidiary Guarantor herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 901. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, the Subsidiary Guarantors, when authorized by applicable Board Resolutions, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company or a Subsidiary Guarantor and the assumption by any such successor of the covenants of the Company or the Subsidiary Guarantor herein and in the Securities or in the Subsidiary Guarantee, as applicable; or (2) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or 57 66 (3) to add any additional Events of Default for the benefit of the Holders of all or any series of Securities (and if such additional Events of Default are to be for the benefit of less than all series of Securities, stating that such additional Events of Default are expressly being included solely for the benefit of such series), provided, however, that in respect of any such additional Events of Default such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default or may limit the right of the Holders of a majority in aggregate principal amount of that or those series of Securities to which such additional Events of Default apply to waive such default; or (4) to add to or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to permit or facilitate the issuance of Securities in uncertificated form; or (5) to add to, change or eliminate any of the provisions of this Indenture in respect of one or more series of Securities, provided that any such addition, change or elimination (A) shall neither (i) apply to any Security of any series created prior to the execution of such supplemental indenture and entitled to the benefit of such provision nor (ii) modify the rights of the Holder of any such Security with respect to such provision or (B) shall become effective only when there is no such Security Outstanding; or (6) to secure the Securities pursuant to the requirements of Section 1006 or otherwise; or (7) to establish the form or terms of Securities of any series as permitted by Sections 201 and 301; or (8) to provide for uncertificated securities in addition to certificated securities; or (9) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series 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 trusts hereunder by more than one Trustee, pursuant to the requirements of Section 611; or (10) 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 (9) shall not adversely affect the rights of the Holders of Securities of any series in any material respect; or 58 67 (11) to supplement any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the defeasance and discharge of any series of Securities pursuant to Section 401, 1402 and 1403; provided that any such action shall not adversely affect the interests of the holders of Securities of such series or any other series of Securities in any material respect; or (12) to evidence the succession of another corporation to the Company, or successive successions, and the assumption by the successor corporation of the covenants, agreements and obligations of the Company pursuant to Article Eight; or (13) to comply with the rules or regulations of any securities exchange on which any of the Securities may be listed; or (14) to add to, change or eliminate any of the provisions of this Indenture as shall be necessary or desirable in accordance with any amendments to the Trust Indenture Act, provided that such action does not adversely affect the rights of any Holder of Securities in any material respect; or (15) to add any Person as a Secondary Subsidiary Guarantor as provided in Section 1506 hereof, or to limit the ability of a Secondary Subsidiary Guarantor to be released from its obligations under the Indenture or the Subsidiary Guarantee of such Secondary Subsidiary Guarantor pursuant to Section 1507 hereof; or (16) to release a Subsidiary Guarantor from its Subsidiary Guarantee pursuant to Section 1507. SECTION 902. Supplemental Indentures With Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, the Subsidiary Guarantors, 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 of Securities of such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (1) change the Stated Maturity of the principal of, or any instalment of principal of or interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or reduce the amount of the principal of an Original Issue Discount Security or any other Security which would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502, or change any Place of Payment where, or the coin or 59 68 currency in which, any Security or any premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or (2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders 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, or (3) modify any of the provisions of this Section, Section 513 or Section 1010, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; provided, however, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to "the Trustee" and concomitant changes in this Section and Section 1010, or the deletion of this proviso, in accordance with the requirements of Sections 611 and 901(9). A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 903. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. 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 904. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, 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 Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. 60 69 SECTION 905. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. SECTION 906. Reference in Securities to Supplemental Indentures. Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company with the notations of Subsidiary Guarantees thereon, if applicable, and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series. ARTICLE TEN COVENANTS SECTION 1001. Payment of Principal, Premium and Interest. The Company covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay the principal of and any premium and interest on the Securities of that series in accordance with the terms of the Securities and this Indenture. SECTION 1002. Maintenance of Office or Agency. The Company will maintain in each Place of Payment for any series of Securities an office or agency where Securities of that series may be presented or surrendered for payment, where Securities of that series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of that series, the related Subsidiary Guarantees and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required 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 and each of the Subsidiary Guarantors from time to time, 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 Securities of one or more series may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such 61 70 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 Securities of any series for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. SECTION 1003. Money for Securities Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of or any premium or interest on any of the Securities of that series, segregate to the extent required by law and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal and any premium and interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for any series of Securities, it will provide to a Paying Agent a sum sufficient to pay the principal of or any premium or interest on any Securities of that series, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent for any series of Securities 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, that such Paying Agent will (1) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent and (2) during the continuance of any default by the Company (or any other obligor upon the Securities of that series) in the making of any payment in respect of the Securities of that series, upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent for payment in respect of the Securities of that series. 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 sums were held by the Company or such Paying Agent; and, upon such payment by 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 or any premium or interest on any Security of any series and remaining unclaimed for two years after such principal, premium or interest has become due and payable shall be paid to the Company within 60 days of such date and upon such payment all liability of the Trustee or any Paying Agent with respect to such funds shall thereupon cease and the holders shall be entitled to look only to the Company for payment thereof; provided, however, that the Trustee or such Paying Agent, before being required to 62 71 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. The Company shall have no right, title or interest in or to any moneys held by the Trustee pursuant to this Section. The Trustee shall not be liable to the Company or any Holder for interest in funds held by it for the payment and discharge of the principal, interest, or premium on any of the Securities to any Holder. SECTION 1004. Statement by Officers as to Default. The Company will 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, stating whether or not to the best knowledge of the signers thereof, after due inquiry, the Company or any Subsidiary Guarantor is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company or any Subsidiary Guarantor shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. SECTION 1005. Existence. Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 1006. Limitation on Liens. The Company will not, and will not permit any Restricted Subsidiary to, create or suffer to exist any Lien, assignment or transfer upon or of any of its properties or its assets, whether real, personal or intangible, and now owned or hereafter acquired, to secure any indebtedness for money borrowed without making effective provision whereby all of the Securities shall be directly secured equally and ratably with the indebtedness secured by such Lien, assignment or transfer; excluding, however, from the operation of the foregoing provision: (1) Liens (which term for purposes of this Section 1006 shall include conditional sale agreements or other title retention agreements and leases in the nature of title retention agreements) upon the property acquired, or Liens existing in such property at the time of acquisition thereof, or, in the case of any corporation or other entity which 63 72 hereafter becomes a Subsidiary, Liens upon or in its property, existing at the time such corporation or other entity becomes a Subsidiary, provided, that no such Lien extends or shall extend to or cover any property of the Company or any Subsidiary, other than the property or Subsidiary, as the case may be, then being acquired, including fixed improvements then or thereafter to be erected upon any such property being acquired; (2) Liens created by any Restricted Subsidiary as security for Debt owing to the Company or any other Restricted Subsidiary. (3) with respect to any series of Securities, Liens existing on the date of issuance of such series; (4) Liens otherwise prohibited by this covenant securing Debt which, together with the aggregate outstanding principal amount of all other Debt of the Company and its Restricted Subsidiaries which is secured by Liens that would otherwise be prohibited by this covenant and the Attributable Debt of Sale and Leaseback Transactions effected in accordance with this clause (4), does not exceed the greater of (A) $50,000,000 and (B) 15% of Consolidated Net Tangible Assets; (5) Liens resulting from the deposit of funds or evidences of indebtedness in trust for the purpose of defeasing indebtedness of the Company or any of its Subsidiaries; (6) Liens securing obligations pursuant to hedging transactions, including rate swaps, basis swaps, forward rate transactions, commodity swaps and options, foreign exchange transaction, cap, collar and floor transactions, currency swap transactions and the like; and (7) any extension, renewal or refunding of any Liens referred to in the foregoing clauses; provided, however, that in the case of this clause (7), the principal amount of Debt secured thereby shall not exceed the principal amount of Debt, plus any premium or fee payable in connection with any such extension, renewal, replacement or refunding, so secured at the time of such extension, renewal, replacement or refunding. SECTION 1007. Limitation on Sale and Leaseback Transactions. The Company will not, and the Company will not permit any Restricted Subsidiary to, enter into any Sale and Leaseback Transaction, directly or indirectly, unless (i) immediately prior to entering into such Sale and Leaseback Transaction, the Company or such Subsidiary could create a Lien on the property that is to be the subject of the Sale and Leaseback Transaction in an amount equal to the Attributable Debt with respect to the Sale and Leaseback Transaction without thereby causing an Event of Default, or (ii) an amount equal to the greater of the net proceeds of such Sale and Leaseback Transaction or the fair value (as determined by the Board of Directors) of the property to be the subject thereof is used to (x) reduce Debt of the Company or any Subsidiary having an original term to maturity of twelve months or greater or 64 73 (y) purchase assets for use in the same line of business as that in which the property that is the subject of the Sale and Leaseback Transaction was used by the Company or the Subsidiary, in each case within 180 days after the effective date of the sale of the property in the Sale and Leaseback Transaction. SECTION 1008. Waiver of Certain Covenants. Except as otherwise specified as contemplated by Section 301 for Securities of such series, the Company may, with respect to the Securities of any series, omit in any particular instance to comply with any term, provision or condition set forth in any covenant provided pursuant to Section 301(19), 901(2) or 901(7) for the benefit of the Holders of such series or in Sections 1006 or 1007 or Article 15, if the Holders of at least a majority in principal amount of the Outstanding Securities of such series shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. ARTICLE ELEVEN REDEMPTION OF SECURITIES SECTION 1101. Applicability of Article. Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 301 for such Securities) in accordance with this Article. SECTION 1102. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities shall be evidenced by a Board Resolution or in another manner specified as contemplated by Section 301 for such Securities. In case of any redemption at the election of the Company of less than all the Securities of any series (including any such redemption affecting only a single Security), the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date, of the principal amount of Securities of such series to be redeemed and, if applicable, of the tenor of the Securities to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction. 65 74 SECTION 1103. Selection by Trustee of Securities to Be Redeemed. If less than all the Securities of any series are to be redeemed (unless all the Securities of such series and of a specified tenor are to be redeemed or unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series not previously called for redemption, by such 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 Security of such series, provided that the unredeemed portion of the principal amount of any Security shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Security. If less than all the Securities of such series and of a specified tenor are to be redeemed (unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series and specified tenor not previously called for redemption in accordance with the preceding sentence. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption as aforesaid and, in case of any Securities selected for partial redemption as aforesaid, the principal amount thereof to be redeemed. The provisions of the two preceding paragraphs shall not apply with respect to any redemption affecting only a single Security, whether such Security is to be redeemed in whole or in part. In the case of any such redemption in part, the unredeemed portion of the principal amount of the Security shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Security. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. SECTION 1104. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price, 66 75 (3) if less than all the Outstanding Securities of any series consisting of more than a single Security are to be redeemed, the identification (and, in the case of partial redemption of any such Securities, the principal amounts) of the particular Securities to be redeemed and, if less than all the Outstanding Securities of any series consisting of a single Security are to be redeemed, the principal amount of the particular Security to be redeemed, (4) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date, (5) the place or places where each such Security is to be surrendered for payment of the Redemption Price, and (6) that the redemption is for a sinking fund, if such is the case. Notice of redemption of Securities 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 be irrevocable. SECTION 1105. Deposit of Redemption Price. Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date. SECTION 1106. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that, unless otherwise specified as contemplated by Section 301, installments of interest whose Stated Maturity is on or prior to the Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. 67 76 If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and any premium shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security. SECTION 1107. Securities Redeemed in Part. Any Security which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series and of like tenor, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. ARTICLE TWELVE SINKING FUNDS SECTION 1201. Applicability of Article. The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of any series except as otherwise specified as contemplated by Section 301 for such Securities. The minimum amount of any sinking fund payment provided for by the terms of any Securities is herein referred to as a "mandatory sinking fund payment", and any payment in excess of such minimum amount provided for by the terms of such Securities is herein referred to as an "optional sinking fund payment". If provided for by the terms of any Securities, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 1202. Each sinking fund payment shall be applied to the redemption of Securities as provided for by the terms of such Securities. SECTION 1202. Satisfaction of Sinking Fund Payments with Securities. The Company (1) may deliver Outstanding Securities of a series (other than any previously called for redemption) and (2) may apply as a credit Securities of a series which have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, in each case in satisfaction of all or any part of any sinking fund payment with respect to any Securities of such series required to be made pursuant to the terms of such Securities as and to the extent provided for by the terms of such Securities; provided that the Securities to be so credited have not been previously so credited. The Securities to be so credited 68 77 shall be received and credited for such purpose by the Trustee at the Redemption Price, as specified in the Securities so to be redeemed, for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. SECTION 1203. Redemption of Securities for Sinking Fund. Not less than 60 days prior to each sinking fund payment date for any Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for such Securities pursuant to the terms of such Securities, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities pursuant to Section 1202 and will also deliver to the Trustee any Securities to be so delivered. Not less than 45 days prior to each such sinking fund payment date, the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1103 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 1104. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 1106 and 1107. ARTICLE THIRTEEN REPAYMENT AT THE OPTION OF THE HOLDERS SECTION 1301. Applicability of Article. Repayment of Securities of any series before their Stated Maturity at the option of Holders thereof shall be made in accordance with the terms of such Securities and (except as otherwise specified as contemplated by Section 301 for Securities of any series) in accordance with this Article. SECTION 1302. Repayment of Securities. Securities of any series subject to repayment in whole or in part at the option of the Holders thereof will, unless otherwise provided in the terms of such Securities, be repaid at a price equal to the principal amount thereof, together with interest and/or premium, if any, thereon accrued to the Repayment Date specified in or pursuant to the terms of such Securities. The Company covenants that on or before the Repayment Date it will deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the principal (or, if so provided by the terms of the Securities of any series, a percentage of the principal) of, the premium, if any, and (except if the Repayment Date shall be an Interest Payment Date) accrued interest on, all the Securities or portions thereof, as the case may be, to be repaid on such date. 69 78 SECTION 1303. Exercise of Option. Securities of any series subject to repayment at the option of the Holders thereof will contain an "Option to Elect Repayment" form on the reverse of such Securities. To be repaid at the option of the Holder, any Security so providing for such repayment, with the "Option to Elect Repayment" form on the reverse of such Security duly completed by the Holder (or by the Holder's attorney duly authorized in writing), must be received by the Company at the Place of Payment therefor specified in the terms of such Security (or at such other place or places of which the Company shall from time to time notify the Holders of such Securities) not earlier than 45 days nor later than 30 days prior to the Repayment Date. If less than the entire principal amount of such Security is to be repaid in accordance with the terms of such Security, the principal amount of such Security to be repaid, in increments of the minimum denomination for Securities of such series, the premium, if any, to be paid, and the denomination or denominations of the Security or Securities to be issued to the Holder for the portion of the principal amount of such Security surrendered that is not to be repaid, must be specified. The principal amount of any Security providing for repayment at the option of the Holder thereof may not be repaid in part if, following such repayment, the unpaid principal amount of such Security would be less than the minimum authorized denomination of Securities of the series of which such Security to be repaid is a part. Except as otherwise may be provided by the terms of any Security providing for repayment at the option of the Holder thereof and as provided in Sections 307(b) and 308, exercise of the repayment option by the Holder shall be irrevocable unless waived by the Company. SECTION 1304. When Securities Presented for Repayment Become Due and Payable. If Securities of any series providing for repayment at the option of the Holders thereof shall have been surrendered as provided in this Article and as provided by or pursuant to the terms of such Securities, such Securities or the portions thereof, as the case may be, to be repaid shall become due and payable and shall be paid by the Company on the Repayment Date therein specified, and on and after such Repayment Date (unless the Company shall default in the payment of such Securities on such Repayment Date) such Securities shall, if the same were interest-bearing, cease to bear interest. Upon surrender of any such Security for repayment in accordance with such provisions, the principal amount of such Security so to be repaid shall be paid by the Company, together with accrued interest and/or premium, if any, to the Repayment Date; provided, however, that installments of interest, if any, whose Stated Maturity is on or prior to the Repayment Date shall be payable (but without interest thereon, unless the Company shall default in the payment thereof) to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. If the principal amount of any Security surrendered for repayment shall not be so repaid upon surrender thereof, such principal amount (together with interest, if any, thereon accrued to such Repayment Date) shall, until paid, bear interest from the Repayment Date at the rate of 70 79 interest or Yield to Maturity (in the case of Original Issue Discount Securities) set forth in such Security. SECTION 1305. Securities Repaid in Part. Upon surrender of any Security which is to be repaid in part only, the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge and at the expense of the Company, a new Security or Securities of the same series, of any authorized denomination specified by the Holder, in an aggregate principal amount equal to and in exchange for the portion of the principal of such Security so surrendered which is not to be repaid. ARTICLE FOURTEEN DEFEASANCE AND COVENANT DEFEASANCE SECTION 1401. Company's Option to Effect Defeasance or Covenant Defeasance. The Company may elect, at its option at any time, to have Section 1402 or Section 1403 applied to any Securities or any series of Securities, as the case may be (unless designated pursuant to Section 301 as not being defeasible pursuant to such Section 1402 or 1403), in accordance with any applicable requirements provided pursuant to Section 301 and upon compliance with the conditions set forth below in this Article. Any such election shall be evidenced by a Board Resolution or in another manner specified as contemplated by Section 301 for such Securities. SECTION 1402. Defeasance and Discharge. Upon the Company's exercise of its option (if any) to have this Section applied to any Securities or any series of Securities, as the case may be, the Company and the Subsidiary Guarantors shall be deemed to have been discharged from their respective obligations with respect to such Securities as provided in this Section on and after the date the conditions set forth in Section 1404 are satisfied (hereinafter called "Defeasance"). For this purpose, such Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by such Securities and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), subject to the following which shall survive until otherwise terminated or discharged hereunder: (1) the rights of Holders of such Securities to receive, solely from the trust fund described in Section 1404 and as more fully set forth in such Section, payments in respect of the principal of and any premium and interest on such Securities when payments are due, (2) the Company's and, to the extent applicable, the Subsidiary Guarantors' respective obligations with respect to such Securities under Sections 304, 305, 306, 1002 and 1003, (3) the rights, powers, trusts, duties and 71 80 immunities of the Trustee hereunder and (4) this Article. Subject to compliance with this Article, the Company may exercise its option (if any) to have this Section applied to any Securities notwithstanding the prior exercise of its option (if any) to have Section 1403 applied to such Securities. SECTION 1403. Covenant Defeasance. Upon the Company's exercise of its option (if any) to have this Section applied to any Securities or any series of Securities, as the case may be, (1) the Company shall be released from its obligations under Section 801(3), Sections 1006 and 1007 and any covenants provided pursuant to Section 301(19), 901(2) or 901(7) for the benefit of the Holders of such Securities and (2) the Subsidiary Guarantors shall be released from all their obligations with respect to the Securities of such series under this Indenture, and (3) the occurrence of any event specified in Sections 501(4) (with respect to any of Section 801(3), Sections 1006 and 1007, inclusive, and any such covenants provided pursuant to Section 301(19), 901(2) or 901(7)), and 501(7) shall be deemed not to be or result in an Event of Default, in each case with respect to such Securities as provided in this Section on and after the date the conditions set forth in Section 1404 are satisfied (hereinafter called "Covenant Defeasance"). For this purpose, such Covenant Defeasance means that, with respect to such Securities, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such specified Section (to the extent so specified in the case of Section 501(4)), whether directly or indirectly by reason of any reference elsewhere herein to any such Section or by reason of any reference in any such Section to any other provision herein or in any other document, but the remainder of this Indenture and such Securities shall be unaffected thereby. SECTION 1404. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to the application of Section 1402 or Section 1403 to any Securities or any series of Securities, as the case may be: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee which satisfies the requirements contemplated by Section 609 and agrees to comply with the provisions of this Article applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefits of the Holders of such Securities, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, in each case sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or any such other qualifying trustee) to pay and discharge, the principal of and any premium and interest on such Securities on the respective Stated Maturities, in accordance with the terms of this Indenture and such Securities. As used 72 81 herein, "U.S. Government Obligation" means (x) any security which is (i) a direct obligation of the United States of America for the payment of which the full faith and credit of the United States of America is pledged or (ii) an obligation of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case (i) or (ii), is not callable or redeemable at the option of the issuer thereof, and (y) any depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any U.S. Government Obligation which is specified in Clause (x) above and held by such bank for the account of the holder of such depositary receipt, or with respect to any specific payment of principal of or interest on any U.S. Government Obligation which is so specified and held, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal or interest evidenced by such depositary receipt. (2) In the event of an election to have Section 1402 apply to any Securities or any series of Securities, as the case may be, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this instrument, there has been a change in the applicable Federal income tax law, in either case (A) or (B) to the effect that, and based thereon such opinion shall confirm that, the Holders of such Securities will not recognize gain or loss for Federal income tax purposes as a result of the deposit, Defeasance and discharge to be effected with respect to such Securities and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit, Defeasance and discharge were not to occur. (3) In the event of an election to have Section 1403 apply to any Securities or any series of Securities, as the case may be, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of such Securities will not recognize gain or loss for Federal income tax purposes as a result of the deposit and Covenant Defeasance to be effected with respect to such Securities and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit and Covenant Defeasance were not to occur. (4) The Company shall have delivered to the Trustee an Officer's Certificate to the effect that neither such Securities nor any other Securities of the same series, if then listed on any securities exchange, will be delisted as a result of such deposit. (5) No event which is, or after notice or lapse of time or both would become, an Event of Default with respect to such Securities or any other Securities shall have occurred and be continuing at the time of such deposit or, with regard to any such event 73 82 specified in Sections 501(5) and (6), at any time on or prior to the 90th day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until after such 90th day). (6) Such Defeasance or Covenant Defeasance shall not cause the Trustee to have a conflicting interest within the meaning of the Trust Indenture Act (assuming all Securities are in default within the meaning of such Act). (7) Such Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which it is bound. (8) Such Defeasance or Covenant Defeasance shall not result in the trust arising from such deposit constituting an investment company within the meaning of the Investment Company Act unless such trust shall be registered under such Act or exempt from registration thereunder. (9) The Company shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent with respect to such Defeasance or Covenant Defeasance have been complied with. SECTION 1405. Acknowledgment of Discharge By Trustee. Subject to Section 1407 below and after the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent referred to in Section 1404, as the case may be, relating to the defeasance or satisfaction and discharge of this Indenture have been complied with, the Trustee upon request of the Company or any applicable Subsidiary Guarantor shall acknowledge in writing the defeasance or the satisfaction and discharge, as the case may be, of this Indenture and the discharge of the Company's obligations and those of such Subsidiary Guarantors under this Indenture, including the provisions of Article Fifteen. SECTION 1406. Deposited Money and U.S. Government Obligations to Be Held in Trust; Miscellaneous Provisions. Subject to the provisions of the last paragraph of Section 1003, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee or other qualifying trustee (solely for purposes of this Section and Section 1406, the Trustee and any such other trustee are referred to collectively as the "Trustee") pursuant to Section 1404 in respect of any Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any such Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities, of all sums due and to become due thereon in respect of principal 74 83 and any premium and interest, but money so held in trust need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 1404 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of Outstanding Securities. Anything in this Article to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 1404 with respect to any Securities which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect the Defeasance or Covenant Defeasance, as the case may be, with respect to such Securities. SECTION 1407. Reinstatement. If the Trustee or the Paying Agent is unable to apply any money in accordance with this Article with respect to any Securities by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the obligations under this Indenture and such Securities and the related Subsidiary Guarantees from which the Company or any Subsidiary Guarantor has been discharged or released pursuant to Section 1402 or 1403 shall be revived and reinstated as though no deposit had occurred pursuant to this Article with respect to such Securities, until such time as the Trustee or Paying Agent is permitted to apply all money held in trust pursuant to Section 1405 with respect to such Securities in accordance with this Article; provided, however, that if the Company or any Subsidiary Guarantor makes any payment of principal of or any premium or interest on any such Security following such reinstatement of its obligations, the Company or the Subsidiary Guarantor, as the case may be, shall be subrogated to the rights (if any) of the Holders of such Securities to receive such payment from the money so held in trust. ARTICLE FIFTEEN GUARANTEES OF SECURITIES SECTION 1501. Applicability of Article. The provisions of this Article shall be applicable to any series of Securities which is to be guaranteed by one or more Subsidiary Guarantors (the "Guaranteed Securities"). 75 84 SECTION 1502. Unconditional Guarantees. (a) For value received, the Subsidiary Guarantors, jointly and severally, hereby fully, unconditionally and absolutely guarantee to the Holders and to the Trustee the due and punctual payment, subject to any applicable grace period provided for such payment by the terms of this Indenture or the specific terms of such Guaranteed Securities, of the principal of, and premium, if any, and interest on the Guaranteed Securities and all other amounts due and payable under this Indenture and the Guaranteed Securities by the Company when and as such principal, premium, if any, and interest shall become due and payable, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise, according to the terms of the Guaranteed Securities and this Indenture. (b) Each Subsidiary Guarantee hereunder is intended to be a general, unsecured, senior obligation of each Subsidiary Guarantor, ranking pari passu in right of payment with all indebtedness of each such Subsidiary Guarantor that is not, by its terms, expressly subordinated in right of payment to the Subsidiary Guarantee of such Subsidiary Guarantor. Each of the Subsidiary Guarantors hereby agrees that its obligations hereunder shall be full, unconditional and absolute, irrespective of the validity, regularity or enforceability of the Guaranteed Securities, any of the Subsidiary Guarantees or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Guaranteed Securities with respect to any provisions hereof or thereof, any release of any other Subsidiary Guarantor, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Subsidiary Guarantor. Each of the Subsidiary Guarantors hereby agrees that in the event of a default in payment of the principal of, or premium, if any, or interest on the Guaranteed Securities, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise, legal proceedings may be instituted by the Trustee on behalf of the Holders or, subject to the Section 507, by the Holders, on the terms and conditions set forth in this Indenture, directly against each of the Subsidiary Guarantors to enforce the Subsidiary Guarantees without first proceeding against the Company. (c) Subject to the terms of this Indenture, the obligations of each Subsidiary Guarantor under this Article Fifteen shall be, as aforesaid, full, unconditional and absolute and shall not be impaired, modified, released or limited by any occurrence or condition whatsoever, including, without limitation, (i) any compromise, settlement, release, waiver, renewal, extension, indulgence or modification of, or any change in, any of the obligations and liabilities of the Company or any Subsidiary Guarantor contained in the Securities or this Indenture, (ii) any impairment, modification, release or limitation of the liability of the Company, any Subsidiary Guarantor or any of their estates in bankruptcy, or any remedy for the enforcement thereof, resulting from the operation of any present or future provision of any applicable bankruptcy law, as the same may be amended from time to time, or other statute or from the decision of any court, (iii) the assertion or exercise by the Company, any Subsidiary Guarantor or the Trustee of any rights or remedies under any of the Securities or this Indenture or their delay in or failure to assert or exercise any such rights or remedies, (iv) the assignment or the 76 85 purported assignment of any property as security for any of the Securities, including all or any part of the rights of the Company or any Subsidiary Guarantor under this Indenture, (v) the extension of the time for payment by the Company or any Subsidiary Guarantor of any payments or other sums or any part thereof owing or payable under any of the terms and provisions of any of the Securities or this Indenture or of the time for performance by the Company or any Subsidiary Guarantor of any other obligations under or arising out of any such terms and provisions or the extension or the renewal of any thereof, (vi) the modification or amendment (whether material or otherwise) of any duty, agreement or obligation of the Company or any Subsidiary Guarantor set forth in this Indenture, except in accordance with this Indenture, (vii) the voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all of the assets, marshalling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of, or other similar proceeding affecting, the Company or any of the Subsidiary Guarantors or any of their respective assets, or the disaffirmance of any of the Securities, the Subsidiary Guarantees or this Indenture in any such proceeding, (viii) the release or discharge of the Company or any Subsidiary Guarantor from the performance or observance of any agreement, covenant, term or condition contained in any of such instruments by operation of law, (ix) the unenforceability of any of the Securities, the Subsidiary Guarantees or this Indenture or (x) any other circumstance which might otherwise constitute a legal or equitable discharge of a surety or guarantor. (d) Each of the Subsidiary Guarantors hereby (i) waives diligence, presentment, demand of payment, filing of claims with a court in the event of the merger, insolvency or bankruptcy of the Company or a Subsidiary Guarantor, all demands whatsoever, all benefits of any otherwise applicable statutes of limitations, all suretyship defenses and rights of every nature that might otherwise be asserted to be available under California law or the laws of any other jurisdiction, including without limitation all defenses arising under Sections 2787 through 2855, inclusive, and Sections 2899 and 3433 of the California Civil Code and any successor provisions of those Sections, and all other rights and defenses the assertion or exercise of which would in any way diminish the liability of the Subsidiary Guarantors or the Company pursuant to the Securities and (ii) acknowledges that any agreement, instrument or document evidencing the Subsidiary Guarantees may be transferred and that the benefit of its obligations hereunder shall extend to each holder of any agreement, instrument or document evidencing the Subsidiary Guarantees without notice to them and (iii) acknowledges and covenants that the Subsidiary Guarantees will not be discharged except by complete performance of the Subsidiary Guarantees or otherwise in accordance with this Indenture. Each Subsidiary Guarantor and the Company further agrees that if at any time all or any part of any payment theretofore applied by any Person to any Subsidiary Guarantee is, or must be, rescinded or returned for any reason whatsoever, including without limitation, the insolvency, bankruptcy or reorganization of the Company or any Subsidiary Guarantor, such Subsidiary Guarantee shall, to the extent that such payment is or must be rescinded or returned, be deemed to have continued in existence notwithstanding such application, and the Subsidiary Guarantees shall continue to be effective or be reinstated, as the case may be, as though such application had not been made. 77 86 (e) Each Subsidiary Guarantor shall be subrogated to all rights of the Holders and the Trustee against the Company in respect of any amounts paid by such Subsidiary Guarantor pursuant to the provisions of this Indenture, provided, however, that no Subsidiary Guarantor shall be entitled to enforce or to receive any payments arising out of, or based upon, such right of subrogation until all of the Guaranteed Securities and the Subsidiary Guarantees shall have been paid in full or discharged. (f) A director, officer, employee or stockholder, as such, of any Subsidiary Guarantor shall not have any liability for any obligations of such Subsidiary Guarantor under this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. (g) (i) In the event the obligations of the Company or any Subsidiary Guarantor pursuant to any Securities or hereunder becomes secured by real or personal property, each Subsidiary Guarantor authorizes the Trustee, at its sole option, without notice or demand and without affecting the liability of the Subsidiary Guarantors hereunder, to release and reconvey (with or without the receipt of any consideration) any Lien against any or all real or personal property security for such obligations, to foreclose any or all deeds of trust, mortgages, security agreements or other instruments or agreements by judicial or nonjudicial sale, and to exercise any other remedy against the Company, any security or any Subsidiary Guarantor or any other guarantor, all without affecting the liability of the Subsidiary Guarantors hereunder; (ii) each Subsidiary Guarantor waives any defenses or benefits that may be derived from California Code of Civil Procedure Sections 580a, 580b, 580d or 726, or comparable provisions of the laws of the State of California or any other jurisdiction, and each Subsidiary Guarantor waives any right to receive notice of any judicial or nonjudicial sale or foreclosure of any real property, and any failure to receive such notice shall not impair or affect Guarantor's liability hereunder; (iii) each Subsidiary Guarantor waives all rights and defenses arising out of any election of remedies by the Trustee, even if such election of remedies, including nonjudicial foreclosure with respect to security for a guaranteed obligation, may destroy such Subsidiary Guarantor's rights of subrogation and reimbursement against the Company or any other principal by operation of Section 580d of the California Code of Civil Procedure or otherwise; (iv) each Subsidiary Guarantor acknowledges that it has hereby waived (to the extent stated herein) any and all rights of subrogation and reimbursement and any other rights and defenses available to such Subsidiary Guarantor by reason of Sections 2787 to 2855, inclusive, of the California Civil Code, including (A) any defenses such Subsidiary Guarantor may have to its guaranty obligations by reason of an election of remedies by the Trustee and (B) any rights or defenses such Subsidiary Guarantor may have by reason of protection afforded to the Company or any other principal with respect to the obligation so guaranteed pursuant to the antideficiency or other laws of the State of California limiting or discharging the Company's indebtedness, including, without limitation, Sections 580a, 580b, 580d, or 726 of the California Code of Civil Procedure. 78 87 SECTION 1503. Limitation of Subsidiary Guarantors' Liability. Each Subsidiary Guarantor, and by its acceptance hereof each Holder, hereby confirms that it is the intention of all such parties that the guarantee by such Subsidiary Guarantor pursuant to its Subsidiary Guarantee not constitute a fraudulent transfer or conveyance for purposes of any federal or state law. To effectuate the foregoing intention, the Holders and each Subsidiary Guarantor hereby irrevocably agree that the obligations of each Subsidiary Guarantor under its Subsidiary Guarantee shall be limited to such maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to Section 1504, result in the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. SECTION 1504. Contribution. In order to provide for just and equitable contribution among the Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the event any payment or distribution is made by any Subsidiary Guarantor (a "Funding Guarantor") under its Subsidiary Guarantee, such Funding Guarantor shall be entitled to a contribution from each other Subsidiary Guarantor in a pro rata amount based on the Adjusted Net Assets of each Subsidiary Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by the Funding Guarantor in discharging the Company's obligations with respect to the Securities or any other Subsidiary Guarantor's obligations with respect to its Subsidiary Guarantee. SECTION 1505. Execution and Delivery of Subsidiary Guarantees. To further evidence the Subsidiary Guarantees set forth in Section 1502, each Subsidiary Guarantor hereby agrees that a notation relating to such Subsidiary Guarantees shall be endorsed on each Guaranteed Security authenticated and delivered by the Trustee in the form provided for in Section 206. Each Subsidiary Guarantor shall be deemed to have signed on each Guaranteed Security issued hereunder any required notation of guarantee to the same extent as if the signature of such Subsidiary Guarantor appeared on such Guaranteed Security. The notation of a guarantee set forth on any Guaranteed Security shall be null and void and of no further effect with respect to the Subsidiary Guarantee of any Subsidiary Guarantor which, pursuant to Section 1507, is released from such Subsidiary Guarantee. Each of the Subsidiary Guarantors hereby agrees that its Subsidiary Guarantee set forth in Section 1502 shall remain in full force and effect notwithstanding any failure to endorse on each Guaranteed Security a notation relating to such Subsidiary Guarantee. 79 88 The delivery of any Guaranteed Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of any Subsidiary Guarantee set forth in this Indenture on behalf of the Subsidiary Guarantor. SECTION 1506. Addition of Secondary Subsidiary Guarantors. (a) If any Restricted Subsidiary of the Company guarantees or becomes primarily obligated with respect to any Debt of the Company, other than the Guaranteed Securities and other than any Debt owed to a Subsidiary, at any time subsequent to the Issue Date (including, without limitation, following release of such Restricted Subsidiary pursuant to Section 1507 from any Subsidiary Guarantee previously provided by it pursuant to this Indenture), and prior to the first date on which all Subsidiary Guarantors have been released from their Subsidiary Guarantees pursuant to Section 1507, provided that there shall not then exist any agreement or understanding for any renewal or replacement of such Subsidiary Guarantees, then the Company shall (i) cause the Guaranteed Securities to be equally and ratably guaranteed by such Subsidiary, but only to the extent that the Securities are not already guaranteed by such Subsidiary on reasonably comparable terms and (ii) cause such Subsidiary to execute and deliver a supplemental indenture evidencing its provision of a Subsidiary Guarantee in accordance with clause (b) below. (b) Any Person that was not a Subsidiary Guarantor on the Issue Date may become a Subsidiary Guarantor, whether or not required to do so by Section 1506(a), by executing and delivering to the Trustee (i) a supplemental indenture in form and substance satisfactory to the Trustee, which subjects such Person to the provisions (including the representations and warranties) of this Indenture as a Subsidiary Guarantor and (ii) an Opinion of Counsel and Officers' Certificate to the effect that such supplemental indenture has been duly authorized and executed by such Person and constitutes the legal, valid, binding and enforceable obligation of such Person (subject to such customary exceptions concerning creditors' rights and equitable principles as may be acceptable to the Trustee in its discretion). In the case of any Person not required to become a Subsidiary Guarantor pursuant to Section 1506(a), such election to become a Subsidiary Guarantor may be conditional or for a limited period of time. SECTION 1507. Release of Subsidiary Guarantee. Notwithstanding anything to the contrary in this Indenture, in the event that any Subsidiary Guarantor shall no longer be a guarantor of or primary obligor under any Debt of the Company other than the Securities (or shall cease to be a guarantor or primary obligor under any such Debt simultaneously with the release of its obligations under this Indenture), or in the event of a transaction described in Section 803(B) and so long as no Event of Default shall have occurred and be continuing, such Subsidiary Guarantor, upon the Trustee's receipt of an Officers' Certificate to the foregoing effect, shall be deemed to be released from all of its obligations under this Indenture and the Subsidiary Guarantee of such Subsidiary Guarantor shall be of no further force or effect. Following the receipt by the Trustee of any such Officers' Certificate, the Company shall cause this Indenture to be amended as provided in Section 901 80 89 hereof; provided, however, that the failure to so amend this Indenture shall not affect the validity of the termination of the Subsidiary Guarantee of such Subsidiary Guarantor. ARTICLE SIXTEEN IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS AND EMPLOYEES SECTION 1601. Exemption from Individual Liability. No recourse under or upon any obligation, covenant or agreement of this Indenture, or of any Security and the related Subsidiary Guarantees, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, stockholder, officer, director or employee, as such, past, present or future, of the Company or any Subsidiary Guarantor or of any successor corporation, either directly or through the Company or any Subsidiary Guarantor, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations of the Company and the Subsidiary Guarantors, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, stockholders, officers, directors, or employees, as such, of the Company or any Subsidiary Guarantor or of any successor corporation, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Securities and the related Subsidiary Guarantees or implied therefrom; and that any and all such personal liability, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against, every such incorporator, stockholder, officer, director or employee, as such, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Securities and the related Subsidiary Guarantees or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of such Securities and the related Subsidiary Guarantees. 81 90 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. Attest: PACIFICARE HEALTH SYSTEMS, INC. _____________________________ By:__________________________________ Attest: PACIFICARE OPERATIONS, INC. _____________________________ By:__________________________________ Attest: FHP INTERNATIONAL CORPORATION _____________________________ By:__________________________________ CHASE MANHATTAN BANK AND TRUST Attest: COMPANY, NATIONAL ASSOCIATION _____________________________ By:__________________________________ 82 91 STATE OF _________________________ ) ) ss.: COUNTY OF ________________________ ) On the ___ day of ________, 1998, before me personally came ___________________ to me known, who being by me duly sworn, did depose and say that he is ________________ of ____________________, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. - ----------------------------------------- STATE OF _________________________ ) ) ss.: COUNTY OF ________________________ ) On the ___ day of ________, 1998, before me personally came ___________________ to me known, who being by me duly sworn, did depose and say that he is ________________ of ____________________, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. - ----------------------------------------- 83 92 STATE OF _________________________ ) ) ss.: COUNTY OF ________________________ ) On the ___ day of ________, 1998, before me personally came ___________________ to me known, who being by me duly sworn, did depose and say that he is ________________ of ____________________, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. - ----------------------------------------- STATE OF _________________________ ) ) ss.: COUNTY OF ________________________ ) On the ___ day of ________, 1998, before me personally came ___________________ to me known, who being by me duly sworn, did depose and say that he is ________________ of ____________________, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. - ----------------------------------------- 84 EX-5.1 3 OPINION OF COOLEY GODWARD LLP. 1 EXHIBIT 5.1 [COOLEY GODWARD LLP LETTERHEAD] June 3, 1998 PacifiCare Health Systems, Inc. 3120 Lake Center Drive Santa Ana, CA 92704 RE: PACIFICARE HEALTH SYSTEMS, INC. REGISTRATION STATEMENT ON FORM S-3 Ladies and Gentlemen: You have requested our opinion with respect to certain matters in connection with the filing by PacifiCare Health Systems, Inc. (the "Company") and two of its wholly-owned subsidiaries, PacifiCare Operations, Inc. and FHP International Corporation (the "Subsidiary Guarantors") of a Registration Statement on Form S-3 (the "Registration Statement") with the Securities and Exchange Commission with respect to up to $250,000,000 of debt securities (the "Debt Securities") of the Company and certain guarantees provided by each Subsidiary Guarantor (the "Guarantees"), each to be issued pursuant to the Indenture filed as Exhibit 4.1 to the Registration Statement (the "Indenture") between the Company and Chase Manhattan Bank & Trust Company, National Association, as trustee. In connection with this opinion, we have examined the Indenture, the Registration Statement and related Prospectus, the Certificate of Incorporation and Bylaws of the Company and each Subsidiary Guarantor, and such other documents, records, certificates, memoranda and other instruments as we deem necessary as a basis for this opinion. We have assumed the genuineness and authenticity of all documents submitted to us as originals, the conformity to originals of all documents submitted to us as copies thereof, the due execution, delivery and binding effect of all documents where due execution and delivery are a prerequisite to the effectiveness thereof, and that there are no extrinsic agreements or understandings among the parties that would modify or interpret the terms of the agreements or the respective rights or obligations of the parties thereunder. Our opinion is expressed only with respect to the federal laws of the United States of America, the General Corporation Law of the State of Delaware and the laws of the State of California. We express no opinion as to whether the laws of any particular jurisdiction other than those identified above are applicable to the subject matter hereof; accordingly, our opinions in paragraphs 1, 2 and 3 below as to the validity, binding effect and enforceability of the Indenture, Debt Securities and Guarantees are premised on the result that would obtain if a California court were to apply the internal laws of the State of California (notwithstanding the designation of the laws of the State of New York) to the interpretation and enforcement of the Indenture, Debt Securities and Guarantees. 2 [COOLEY GODWARD LLP LETTERHEAD] PacificCare Health Systems, Inc. June 3, 1998 Page Two On the basis of the foregoing, and in reliance thereon, we are of the opinion that: 1. The Indenture, when duly executed and delivered by the Company, the Subsidiary Guarantors, and the Trustee in the form filed as Exhibit 4.1 to the Registration Statement, will constitute a valid and binding obligation of the Company, subject to (a) applicable bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, suretyship, dissolution, moratorium, receivership or other similar laws affecting creditors' rights generally; (b) general equity principles and the limitations on the availability of equitable relief, including, without limitation, specific performance; (c) limitations created by or arising under statute or case law on a debtor's or guarantor's ability to waive rights or benefits; (d) limitations imposed by law and public policy on indemnification and contribution; (e) limitations on the right of a lender to impose added charges for late payments or defaults by a borrower or guarantor where it is determined that such charges bear no reasonable relation to the damage suffered by the lender as a result of such late payments or defaults; and (f) limitations on corporate distributions to stockholders. 2. When each series of Debt Securities is duly executed and authenticated by the Trustee in the manner provided in the Indenture and delivered against payment to the Company of the purchase price of such series of Securities in accordance with authorization of the Company's Board of Directors, each such series of Debt Securities will have been legally issued and will constitute valid and binding obligations of the Company, subject to (a) applicable bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, suretyship, dissolution, moratorium, receivership or other similar laws affecting creditors' rights generally; (b) general equity principles and the limitations on the availability of equitable relief, including, without limitation, specific performance; (c) limitations created by or arising under statute or case law on a debtor's or guarantor's ability to waive rights or benefits; (d) limitations imposed by law and public policy on indemnification and contribution; (e) limitations on the right of a lender to impose added charges for late payments or defaults by a borrower or guarantor where it is determined that such charges bear no reasonable relation to the damage suffered by the lender as a result of such late payments or defaults; and (f) limitations on corporate distributions to stockholders. 3. The Guarantees have been duly authorized and when notated in the manner provided in the Indenture, will have been legally issued and will constitute valid and binding obligations of such Subsidiary Guarantor, subject to (a) applicable bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, suretyship, dissolution, moratorium, receivership or other similar laws affecting creditors' rights generally; (b) general equity principles and the limitations on the availability of equitable relief, including, without limitation, specific performance; (c) limitations created by or arising under statute or case law on a debtor's or guarantor's ability to waive rights or benefits; (d) limitations imposed by law and public policy on indemnification and contribution; (e) limitations on the right of a lender to impose added charges for late payments or defaults by a borrower or guarantor where it is determined that such charges bear no reasonable relation to the damage suffered by the lender as a result of such late payments or defaults; and (f) limitations on corporate distributions to stockholders. 3 COOLEY GODWARD LLP PacifiCare Health Systems, Inc. June 3, 1998 Page Three We consent to the reference to our firm under the caption "Legal Matters" in the Prospectus included in the Registration Statement and to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours, Cooley Godward LLP By: /s/ MICHAEL R. JACOBSON ------------------------- Michael R. Jacobson EX-23.1 4 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in Amendment No. 1 to the Registration Statement (Form S-3) and related Prospectus of PacifiCare Health Systems, Inc. for the registration of $250,000,000 of Debt Securities and to the incorporation by reference therein of (i) our report dated February 24, 1998 with respect to the consolidated financial statements and schedule of PacifiCare Health Systems, Inc., included in the Annual Report on Form 10-K for the year ended December 31, 1997, and (ii) our report dated February 24, 1998 [except for Note 11, as to which the date is June 2, 1998] with respect to the consolidated financial statements of PacifiCare Health Systems, Inc. included in its Current Report on Form 8-K dated June 4, 1998, filed with the Securities and Exchange Commission. ERNST & YOUNG LLP Los Angeles, California May 29, 1998 -----END PRIVACY-ENHANCED MESSAGE-----