-----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, GesKsmikyv2kXV3DwsiU1V7I/sxgI75Jlu2Y1Tpys/vSD/SPeDNbtIEwiZ6ZzD+U FPXzzTHgMuAFmSpo0yu23g== 0000950135-96-002482.txt : 19960606 0000950135-96-002482.hdr.sgml : 19960606 ACCESSION NUMBER: 0000950135-96-002482 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19960605 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTHSOURCE INC CENTRAL INDEX KEY: 0000855587 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 020387748 STATE OF INCORPORATION: NH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-05223 FILM NUMBER: 96576941 BUSINESS ADDRESS: STREET 1: 2 COLLEGE PARK DRIVE CITY: HOOKSETT STATE: NH ZIP: 03302-2041 BUSINESS PHONE: 6032687000 S-3 1 HEALTHSOURCE, INC. 1 REGISTRATION NO. 33-__________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 HEALTHSOURCE, INC. (Exact Name of Registrant as Specified in Its Charter) NEW HAMPSHIRE 02-0387748 (State or Other Jurisdiction of Incorporation or (I.R.S. Employer Organization) Identification No.) TWO COLLEGE PARK DRIVE HOOKSETT, NEW HAMPSHIRE 03106 (603) 268-7000 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) NORMAN C. PAYSON, M.D. PRESIDENT AND CHIEF EXECUTIVE OFFICER HEALTHSOURCE, INC. TWO COLLEGE PARK DRIVE HOOKSETT, NEW HAMPSHIRE 03106 (603) 268-7000 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service) Copy to: DANIEL N. GREGOIRE, ESQ. SHEEHAN PHINNEY BASS + GREEN PROFESSIONAL ASSOCIATION 1000 ELM STREET MANCHESTER, NH 03105-3701 (603) 668-0300 1 2 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. 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 statement 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
Proposed Title of Each Maximum Proposed Class of Offering Maximum Amount of Securities to Amount to be Price Per Aggregate Registration be Registered Registered Security Offering Price Fee (1) - ------------- ---------- -------- -------------- ------- 5% Convertible Subordinated Notes Due 2003 $247,250,000 100% $247,250,000 $85,259 Common Stock, par value $.10 5,264,558 sh (2) -- -- -- per share
(1) Calculated pursuant to Rule 457(i) under the Securities Act of 1933, as amended. (2) Based on a conversion price of $46.965 per share, and is deemed to include any additional shares of Common Stock that may be issuable upon conversion of the Notes as a result of the antidilution provisions thereof. Pursuant to Rule 457(i), no registration fee is required for these shares. 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 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 HEALTHSOURCE, INC. $247,250,000 5% CONVERTIBLE SUBORDINATED NOTES DUE 2003 The 5% Convertible Subordinated Notes Due 2003 (the "Notes") of Healthsource, Inc., a New Hampshire corporation ("Healthsource" or the "Company"), and the shares of the Company's Common Stock, par value $.10 per share (the "Common Stock" and together with the Notes, the "Securities"), issuable upon conversion thereof, may be offered for sale from time to time for the account of certain holders of the Securities (the "Selling Holders") as described under "Selling Holders." The Selling Holders may from time to time sell the Securities offered hereby directly to other purchasers or through agents in ordinary brokerage transactions, in negotiated transactions or otherwise, at market prices prevailing at the time of sale, at prices related to then prevailing market prices or at negotiated prices. See "Plan of Distribution." The Notes will mature on March 1, 2003, unless previously redeemed or converted. Interest on the Notes is payable semi-annually on March 1 and September 1 of each year commencing September 1, 1996. The Notes bear interest from March 6, 1996. Holders of the Notes (the "Holders") are entitled through March 1, 2003, subject to prior redemption, to convert any Notes or portions thereof into Common Stock at a conversion price of $46.965 per share, subject to certain adjustments. See "Description of the Notes - Conversion of Notes." The Notes have been designated for trading in the Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") market and the Company has applied to list the Notes for trading on the New York Stock Exchange (the "NYSE"). The Common Stock is traded on the NYSE under the symbol "HS." On June 3, 1996, the last reported sale price of the Common Stock on the NYSE was $22 1/2 per share. The Notes are redeemable, in whole or in part, at the option of the Company, at any time on or after March 1, 1999, at the declining redemption prices set forth herein plus accrued interest. In the event of a Change of Control (as defined herein), each Holder of Notes may require the Company to repurchase such Holder's Notes in whole or in part at a repurchase price of 101% of the principal amount thereof plus accrued interest. See "Description of Notes - - Change of Control." The Notes represent unsecured obligations of the Company and will be subordinated in right of payment to all existing and future Senior Indebtedness (as defined herein) of the Company. In addition, because the Company's operations are conducted primarily through its operating subsidiaries, including regulated insurance companies and health maintenance organizations ("HMOs"), claims of regulators, creditors and holders of indebtedness of such subsidiaries will have priority with respect to the assets and earnings of such subsidiaries over the claims of creditors of the Company, including Holders of the Notes. The Notes were originally issued by the Company on March 6 and 8, 1996 to the Initial Purchasers (as defined herein) and were simultaneousy sold by the Initial Purchasers in transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), in the United States to persons reasonably believed to be "qualified institutional buyers" as defined in Rule 144A under the Securities Act, to certain qualified institutional buyers acting on behalf of institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and outside the United States to non-U.S. persons in offshore transactions in reliance on Regulation S under the Securities Act. 1 4 The Company will not receive any of the proceeds from the sale of any of the Notes or the Common Stock issuable upon conversion thereof offered by the Selling Holders hereunder. SEE "RISK FACTORS" ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED HEREBY. 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. JUNE 4, 1996 2 5 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 and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's Regional Offices at Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material also can be obtained from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Common Stock is listed on the New York Stock Exchange and, in connection with such listing, the Company also files reports, proxy statements and other information with the NYSE. Such reports, proxy statements and other information filed by the Company can be inspected at the offices of the NYSE, 20 Broad Street, New York, NY 10005. The Company has filed with the Commission a Registration Statement on Form S-3 (together with any amendments or supplements thereto, the "Registration Statement") under the Securities Act with respect to the Securities to be offered and sold by means of this Prospectus. This Prospectus omits certain of the information contained in the Registration Statement and the exhibits and schedules thereto in accordance with the rules and regulations of the Commission. For further information regarding the Company and the Securities offered hereby, reference is made to the Registration Statement and the exhibits and schedules filed therewith, which may be inspected without charge at the offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and copies of which may be obtained from the Commission at prescribed rates. Statements contained in this Prospectus as to the contents of any contract or other document referred to herein are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents heretofore filed with the Commission by the Company are incorporated by reference in their entirety in this Prospectus: 1. The Company's Annual Report on Form 10-K for the year ended December 31, 1995. 2. The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. 3. The Company's Current Reports on Form 8-K dated June 14, 1995, as amended August 4, 1995, January 26, 1996, February 23, 1996, February 27, 1996, March 20, 1996, April 17, 1996 and June 4, 1996. 4. The Company's Proxy Statement for the Annual Meeting to be held on May 14, 1996. All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering of the Securities shall be deemed to be incorporated by reference in this Prospectus and to be a part of this Prospectus from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference in this Prospectus shall 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 deemed to be incorporated by reference in this Prospectus modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company hereby undertakes to provide without charge to each person to whom this Prospectus is delivered, upon the request of such person, a copy of any or all of the documents referred to above, other than exhibits to such documents unless such exhibits are specifically incorporated by reference herein or any incorporated document. Requests should be directed to Healthsource, Inc., Two College Park Drive, Hooksett, New Hampshire 03106, attention: Chief Financial Officer, telephone (603) 268-7000. 3 6 SUMMARY The following summary does not purport to be complete and is qualified in its entirety by the more detailed information and consolidated financial statements and related notes included in and incorporated by reference in this Prospectus. In addition to other information in this Prospectus, the factors set forth under "Risk Factors" below should be considered carefully in evaluating an investment in the Securities offered hereby. THE OFFERING Issuer........................... Healthsource, INC. Securities Offered............... $247,250,000 of 5% Convertible Subordinated Notes Due 2003 issued under an indenture (the "Indenture") between Healthsource and The Bank of New York, as trustee (the "Trustee"), and Common Stock issuable upon conversion thereof. Interest Payment Dates........... March 1 and September 1 of each year. The Notes bear interest from March 6, 1996. Maturity......................... March 1, 2003 Conversion Price................. Convertible into Common Stock, par value $.10 per share, of the Company at $46.965 per share, subject to adjustment as set forth herein. Redemption....................... The Notes are redeemable, in whole or in part, at the option of the Company, at any time on or after March 1, 1999, at the declining redemption prices set forth herein plus accrued interest. Change of Control................ In the event of a Change of Control (as defined herein), Holders of the Notes will have the right to require that the Company repurchase the Notes in whole or in part at a redemption price of 101% of the principal amount thereof plus accrued interest. See "Description of the Notes -- Change of Control." Ranking......................... The Notes are general unsecured obligations of the Company and are subordinated in right to payment to all existing and future Senior Indebtedness (as defined herein) of the Company. As of March 31, 1996, the Company had approximately $10 million of Senior Indebtedness outstanding. In addition, because the Company's operations are conducted primarily through its operating subsidiaries, including regulated insurance companies and HMOs, claims of holders of indebtedness of such subsidiaries, as well as claims of regulators and creditors of such subsidiaries, have priority with respect to the assets and earnings of such subsidiaries over the claims of creditors of the Company, including Holders of the Notes. As of March 31, 1996, the aggregate liabilities of such subsidiaries were approximately $306 million. The Indenture does not limit the amount of additional indebtedness which the Company can create, incur, assume or guarantee, nor does the Indenture limit the amount of indebtedness which any subsidiary can create, incur, assume or guarantee. See "Description of the Notes -- Subordination." Use of Proceeds................. The Company will not receive any of the proceeds from the sale of any of the Notes or the Common Stock issuable upon conversion thereof. Trading......................... The Notes have been designated for trading in the PORTAL market and the Company has applied to list the Notes for trading on the NYSE. The Common Stock issuable upon conversion of the Notes has been listed for trading on the NYSE. The Common Stock is traded on the NYSE under the symbol "HS." On June 3, 1996, the last reported sale price of the Common Stock on the NYSE was $22 1/2 per share. 4 7 THE COMPANY Healthsource, a New Hampshire corporation established in 1985, is a geographically diversified provider of a broad range of managed healthcare services. Healthsource is a leading managed care provider with HMOs in North Carolina, South Carolina, New Hampshire, Massachusetts, Indiana, Maine, Tennessee, Arkansas, Syracuse, New York, Louisville, Kentucky, Georgia, north central Texas, southwestern Ohio and Connecticut. In a joint venture with Chubb Life Insurance Company, Healthsource also operates an HMO in the New York City and northern New Jersey areas. Healthsource acquired the group health, HMO and third-party administration ("TPA") business of Provident Life and Accident Insurance Company of America of Chattanooga, Tennessee ("Provident") in May 1995 (the "Provident Transaction"). The national indemnity insurance and TPA business acquired from Provident (collectively referred to as "Healthsource Provident") is concentrated in the Southeast and serves a total of over 2 million members. In February 1996, the Company completed the acquisition of substantially all of the HMO assets of Central Massachusetts Health Care, Inc. ("CMHC"), an 83,400 member HMO in Worcester, Massachusetts. As a result of the Provident Transaction and the membership of CMHC and strong enrollment gains in its existing plans, on January 1, 1996 Healthsource provided or administered healthcare benefits for approximately 3.5 million members. Healthsource also offers point of service ("POS") plans, preferred provider organization ("PPO") plans, utilization review ("UR") services, managed workers' compensation services, pharmacy benefit management services and other managed care consulting and administrative services to other healthcare payors including Provident and Liberty Mutual Insurance Company. The Company's principal executive offices are located at Two College Park Drive, Hooksett, New Hampshire 03106; telephone number (603) 268-7000. Healthsource seeks to enhance its position as a leader in providing quality and affordable healthcare in an expanding set of local markets. Healthsource's business strategy has three components: (i) to expand the number of geographic markets in which it offers HMOs and other services, (ii) to increase HMO enrollment in its existing markets by capitalizing on the historically low HMO penetration rate in most of those markets, emphasizing the conversion to HMO membership of members currently being served in the Company's indemnity and self-funded plans (especially those acquired in the Provident Transaction) and continuing to develop and offer new products for different segments of the population such as Medicare, and (iii) to continue positioning its HMOs to be less vulnerable to declining average premiums by linking a large portion of healthcare costs to premiums through global capitation arrangements or other suitable arrangements with healthcare providers. When entering new markets, Healthsource seeks to purchase existing plans or to seek strategic alliances with local providers to support start-up HMOs thereby lowering the risk of entry and enhancing the competitive position of such plans. In seeking to convert existing members to HMO membership, Healthsource continues to maintain close working relationships with local physicians and hospitals and, in certain markets, to provide operating and financial support to primary care practices in order to enhance the access to, and quality and cost effectiveness of, its managed care products. As part of its expansion strategy in all markets, Healthsource actively seeks opportunities to acquire, make significant investments in, or provide managed care services to HMOs, managed care companies, healthcare financing and administrative companies, healthcare providers and related businesses. The Company considers such opportunities in the ordinary course of its business. RECENT DEVELOPMENTS On May 31, 1996, the Company entered into an asset purchase agreement with Chubb Life Insurance Company of America ("Chubb Life") and various of its affiliates to acquire the remaining 85% interest in ChubbHealth, Inc. ("ChubbHealth"), a 45,000 member HMO operating in the New York City and northern New Jersey areas. The Company will acquire the stock of ChubbHealth for an estimated purchase price of $25 million, subject to adjustments. As part of the transition process, the Company will continue to manage ChubbHealth's operations and to plan the conversion to Healthsource systems. The Company has also agreed to provide certain guaranties relating to ChubbHealth's operating results during the transition period. Chubb Life and various of its affiliates have agreed to continue to write POS products for the benefit of ChubbHealth and to provide certain MIS and other services to ChubbHealth during the transition period. The transaction remains subject to the receipt of regulatory approvals and there can be no assurance as to when such approvals will be obtained. 5 8 On April 15, 1996, the Company announced that it had signed a letter of intent to pay an aggregate consideration of $27 million to acquire Health Direct, Inc., located in Des Plaines, Illinois, and to enter into a ten-year globally capitated provider agreement with Advocate Health Care, a leading eight-hospital health care system in the greater Chicago area, and its affiliates. Health Direct is a 25,000 member HMO serving the greater Chicago metropolitan area. The letter of intent is non-binding and subject to completion of due diligence, the negotiation of definitive stock purchase and provider agreements and the receipt of regulatory and other approvals. No assurance can be given that definitive agreements will be reached or that such approvals will be obtained. Effective February 1, 1996, the Company acquired substantially all of the HMO assets of CMHC, a not-for-profit HMO with 83,400 members located in Worcester, Massachusetts. The Company paid approximately $46.5 million in cash for such HMO assets, which after post-closing adjustments will have a closing net worth of approximately $7.2 million (the "CMHC Transaction"). The Company continues to operate this HMO under the name Healthsource CMHC from the headquarters in Worcester and provides additional support and integration from the Company's corporate staff and HMO in New Hampshire. On January 22, 1996, the Company entered into a definitive agreement to purchase substantially all of the operating assets of PACC HMO and PACC Health Plans (jointly "PACC") for a price of approximately $80 million in cash subject to significant accounting adjustments (the "PACC Transaction"). PACC is a 110,000 member not-for-profit managed care provider serving the greater Portland, Oregon area. The assets being acquired are required to have a consolidated net worth at closing of approximately $41 million. Due to the not- for-profit status of PACC, the transaction is subject to the approval of the Oregon Attorney General's Office. The transaction is also subject to regulatory approvals and certain other material closing conditions. Healthsource cannot predict when or if such approvals will be obtained or such closing conditions will be satisfied. 6 9 RISK FACTORS Prospective purchasers of the Securities should carefully consider the following factors, in addition to other information contained or incorporated by reference in this Prospectus. Control and Predictability of Healthcare Costs. The Company's profitability depends in large part on predicting and maintaining effective control of the healthcare costs of its HMOs. The future profitability of the Company's HMOs is dependent upon controlling future healthcare costs in part through appropriate benefit design, utilization control and negotiation of favorable provider contracts, including global capitation arrangements with major hospitals which effectively link healthcare costs for assigned members to the premiums received for such members. The Company may be unable to predict accurately or to control healthcare costs because of many factors, including the inherent unpredictability of rates of utilization of services in any given period and the volatility of such use particularly in quarterly periods; major epidemics; undetected increases in costs of units of services (in some cases implemented by providers without prior notice); changes in risk profile of a rapidly increasing membership due to pre-existing medical conditions, revised demographics and other factors; and increased utilization driven by changes in physician practice patterns and new techniques (i.e., use of bone marrow transplants for an increasing number of diagnostic categories). There can be no assurance that the Company will be successful in predicting or mitigating the effect of any of these factors. Competition and Premium Pricing. The managed healthcare industry is highly competitive at both the local HMO level and in the regional and national employer markets. The principal competitive factors affecting the Company's products are premium rates and fees, plan design and flexibility, and physician/hospital network and reputation. The Company competes in all of its markets with Blue Cross plans, indemnity insurers, HMOs, TPAs, PPOs and other managed care companies. The Company also faces competition in many of its markets from hospitals and other provider groups who have organized their own networks to contract directly with employer groups. The cost of providing benefits is in many instances the controlling factor in obtaining and retaining employer groups, and in certain markets some competitors are underpricing the Company's products. In many historically under-penetrated markets such as the Carolinas, many new HMOs have been recently licensed which is reflected in premium pressure for new and renewal business. As a result of this competition and the writing of significant low option business with appropriately lower premiums, the Company experienced a 6.5% decline in average premium yield per member during the first quarter of 1996. The Company expects that competition for all business (and related premium pressure) may become even more intense during the remainder of 1996 and beyond and that, as a result, the Company may not be able to secure adequate premium pricing. Accounting; MIS and Network Disruption Issues. Reserves for incurred but not reported claims ("IBNR") are a large component of the Company's medical claims payable reserve and represent an estimation of unreported claims using traditional actuarial techniques heavily influenced by historical claims experience; rapid growth and changing risk profiles could render the Company's IBNR estimates inaccurate and there can be no assurance as to the ultimate accuracy of such estimates or that subsequent adjustments will not cause fluctuations in the Company's operating results. The ability to predict IBNR, control costs in general and to manage increasingly complicated global capitation arrangements depends upon the use of sophisticated customized MIS systems; there can be no assurance that such systems can be developed quickly enough to effectively manage the increasing complexity of the Company's contractual arrangements nor that facility or equipment problems will not disrupt the Company's ability to effectively provide such MIS support. With the increasing complexity of contractual arrangements comes the potential for disagreements with major hospital providers over the reimbursement under such contracts, which disagreements (if not resolved) could disrupt relations with affiliated physician providers and could potentially affect the perception of the Company's plans in the affected markets. Acquisitions and New Products. A significant part of the Company's business strategy is to diversify into new geographic markets through acquisitions or start-up plans and to develop new products. Identifying and pursuing acquisition opportunities, integrating acquired businesses and managing growth requires a significant 7 10 amount of management time and skill. The Company may be unable to (i) negotiate acceptable terms with suitable acquisition candidates or ensure that, if negotiated, such acquisitions will be either approved by all relevant regulatory authorities or concluded, (ii) assimilate such acquired companies free from hidden risks undetected at the time of closing or (iii) manage future growth effectively. Until start-up HMOs reach a critical mass of membership, they generally produce operating losses (despite capitated provider contracts) and failure to generate sufficient membership in start-up markets could adversely affect operating results. The Company is expanding its product offerings, most notably by developing and seeking a license for Medicare risk products in most of its markets. The Company will expend approximately $5 million in 1996 in developing such Medicare products which will still require a substantial marketing program before the Company generates revenues from such products in any market; the failure to achieve Medicare membership quickly in various markets may further impact operating results as such development expenses are relatively fixed. There can be no assurance that the Company will successfully mitigate any of the foregoing risks. Impact of Healthcare Reform. Many federal and state proposals have been made in the past to reform the healthcare system. The Company anticipates that federal and state legislatures will continue to assess alternative healthcare systems and payment methodologies as well as mandated coverages, capitation limits, underwriting constraints and other measures that could affect the Company's business. The Company is unable to predict which, if any, of these healthcare reform proposals may be adopted. While the Company does not believe it would be materially adversely impacted by most of the proposed reforms, certain proposals could have such an impact; for example the imposition of a single-payor system in any state could potentially eliminate the Company's business in that state. See "Business - Governmental Regulation" in the Company's Form 10-K. Governmental Regulation. The Company's HMOs, insurance companies and certain of its other subsidiaries are licensed by and subject to periodic examination and extensive regulation by the states in which they operate and by the federal government. Such state and federal statutes and regulations are subject to change and such changes could adversely impact the Company's operations in the future. There can be no assurance that the Company will be able to obtain any regulatory approvals required to enter new markets or to offer new products. See "Business - Governmental Regulation" in the Company's Form 10-K. Subordination of Notes; Restricted Subsidiaries. The indebtedness evidenced by the Notes is subordinate to the prior payment in full of all Senior Indebtedness (as defined herein). As of March 31, 1996, the Company had approximately $10 million of Senior Indebtedness outstanding. In addition, because the Company's operations are conducted primarily through its operating subsidiaries, including regulated insurance companies and HMOs, claims of holders of indebtedness of such subsidiaries, as well as claims of regulators and creditors of such subsidiaries, have priority with respect to the assets and earnings of such subsidiaries over the claims of creditors of the Company, including Holders of the Notes. As of March 31, 1996, the aggregate liabilities of such subsidiaries were approximately $306 million. The Indenture does not limit the amount of additional indebtedness, including Senior Indebtedness, which the Company or any of its subsidiaries can create, incur, assume or guarantee. During the continuance beyond any applicable grace period of any default in the payment of principal, premium, interest or any other payment due on the Senior Indebtedness, no payment of principal or interest on the Notes may be made by the Company. In addition, upon any distribution of assets of the Company upon any dissolution, winding up, liquidation or reorganization, the payment of the principal and interest on the Notes is subordinated to the extent provided in the Indenture to the prior payment in full of all Senior Indebtedness and structurally subordinated to claims of regulators and creditors of each HMO and insurance subsidiary. By reason of these subordinations, in the event of the Company's dissolution, holders of Senior Indebtedness may receive more, ratably, and Holders of the Notes may receive less, ratably, than the other creditors of the Company. The Company's cash flow and ability to service debt, including the Notes, are heavily dependent upon the earnings of its subsidiaries and the distribution of those earnings to, or upon payments by those subsidiaries to, the Company. The subsidiaries are in many cases regulated HMO and insurance companies and the ability to make such distributions or payments may be substantially limited by, or subject to continuing approval of, the respective state insurance departments. See "Description of the Notes -- Subordination." Repurchase of Notes at the Option of Holders Upon a Change of Control; Availability of Funds. In the event of a Change of Control (as defined herein), each Holder will have the option to require the Company to 8 11 repurchase all or any part of the Holder's Notes for a purchase price equal to 101% of the principal amount thereof, plus accrued interest to the date of purchase. If a Change of Control were to occur, there can be no assurance that the Company would have sufficient funds to pay the Change of Control purchase price for all Notes tendered by the Holders thereof. See "Subordination of Notes; Restricted Subsidiaries" above. The Company's ability to pay the Change of Control purchase price is, and may in the future be, limited by the terms of the Company's bank credit facility or other agreements relating to borrowings which constitute Senior Indebtedness. Absence of Public Market; Possible Volatility of Prices. The Notes have been designated for trading in the PORTAL market and the Company has applied to list the Notes for trading on the NYSE; and the Common Stock is traded on the NYSE. There can be no assurance that an active trading market will develop for the Notes and, as a result, there can be no assurance as to the liquidity of investments in the Notes. Also, there can be no assurance as to the price Holders may realize upon the sale of the Notes and the Common Stock into which the Notes are convertible. These prices are determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for the Notes and Common Stock, the market price of the Common Stock, interest rates, investor perception of the Company, general economic and market conditions, fluctuations in quarterly earnings, general trends in the healthcare market, and by regulatory developments especially at the federal level. Accordingly, the market price of the Notes and Common Stock has been and in the future may be highly volatile. 9 12 SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA (UNAUDITED) In June 1996, the Company announced that it had signed an asset purchase agreement with Chubb Life to acquire the remaining 85% interest in ChubbHealth (the "Chubb Transaction"). The Company will acquire the stock of ChubbHealth for an estimated purchase price of $25 million, subject to adjustments. The agreement is subject to regulatory approvals. In April 1996, the Company announced that it had signed a letter of intent to pay an aggregate consideration of $27 million to acquire Health Direct, Inc. The letter of intent is non-binding and subject to completion of due diligence, the negotiation of definitive stock purchase and provider agreements and the receipt of regulatory and other approvals. In February 1996, the Company acquired substantially all of the HMO assets of CMHC for approximately $46.5 million cash, subject to post-closing purchase price adjustments. The purchase price was funded with borrowings under the Chase Facility. In January 1996, the Company announced that it had signed a definitive agreement to purchase substantially all of the operating assets of PACC for an estimated price of $80 million, subject to significant adjustments. The definitive agreement is subject to regulatory approvals and other conditions. Effective as of May 1, 1995, the Company acquired the medical services operations of Provident for $231 million in cash and newly issued preferred stock. The Company has formed two subsidiaries, Healthsource Provident Administrators, Inc. and Healthsource Provident Insurance Company to operate the acquired business. The following pro forma financial information has been prepared giving effect to the Provident Transaction, the CMHC Transaction, the pending Chubb Transaction, the pending Health Direct transaction and the pending PACC Transaction as if each acquisition had taken place as of January 1, 1995 for the pro forma consolidated income statements and as if the pending Chubb Transaction, the pending Health Direct transaction and the pending PACC Transaction had taken place as of March 31, 1996 for the pro forma condensed consolidated balance sheet. All five acquisitions have been accounted for as purchases. The carrying values of assets and liabilities for each entity have been estimated to approximate fair market value. Accordingly, no pro forma adjustments to these amounts were made to reflect the allocation and amount of the purchase price, the determination of which will be based upon final appraisals and valuations of all transferred assets and liabilities. Any adjustments to the allocation of the purchase price have been or will be made within one year from the acquisition date and are not expected to be material to the pro forma financial information taken as a whole. The pro forma financial information is not necessarily indicative of the results of operations or the financial position which would have been attained had the acquisitions been consummated at either of the foregoing dates or which may be attained in the future. The pro forma financial information should be read in conjunction with the historical consolidated financial statements of Healthsource. HEALTHSOURCE, INC. Pro Forma Condensed Consolidated Balance Sheet (unaudited) March 31, 1996 (all amounts in thousands)
Historical Pro Forma ---------- Pro Forma Financial Health Pro Forma Healthsource PACC Adjustments Statements Direct Adjustments ------------------------------------------- ---------------------------------------- Cash & cash equivalents $132,153 $ 0 $ 132,153 $ 5,897 Marketable securities 27,429 51,092 78,521 0 Premiums and administrative fees receivable 115,204 2,358 117,562 1,099 Restricted investments 119,594 10,794 130,388 Other current assets 39,639 106 39,745 306 ------------------------- ---------------------------- Total current assets 434,019 64,350 498,369 7,302 ------------------------- ---------------------------- Long term marketable securities 116,028 0 116,028 Property & leasehold improvements, net 114,747 2,374 117,121 1,251 Restricted investments 8,844 8,844 0 Intangible assets, net 299,568 27,451 (A) 327,019 24,860 (A) Other assets 17,030 0 17,030 0 ------------------------------------------- ------------------------------------------- Total assets 990,236 66,724 27,451 1,084,411 8,553 24,860 =========================================== =========================================== Medical claims payable $180,864 $17,881 $ 198,745 $ 4,502 Accounts payable & accrued expenses 125,843 2,887 128,730 1,161 Deferred revenue 12,371 907 13,278 0 Other current liabilities 6,620 254 6,874 0 ------------------------- ---------------------------- Total current liabilities 325,698 21,929 347,627 5,663 ------------------------- ---------------------------- Revolving note payable 10,000 71,500 (B) 81,500 27,750 (B) Convertible subordinated notes 247,250 247,250 Other liabilities 6,237 746 6,983 0 ------------------------- ---------------------------- Total liabilities 589,185 22,675 683,360 5,663 ------------------------- ---------------------------- Common stock 6,368 11,520 (11,520)(C) 6,368 1 (1)(C) Additional paid in capital 222,551 222,551 9,817 (9,817)(C) Retained earnings 173,981 31,351 (31,351)(C) 173,981 (6,928) 6,928 (C) Unrealized loss on marketable securities (1,849) 1,178 (1,178)(C) (1,849) 0 0 (C) ------------------------- ---------------------------- Total equity 401,051 44,049 401,051 2,890 ------------------------------------------- ------------------------------------------- Total liabilities & equity 990,236 66,724 27,451 1,084,411 8,553 24,860 =========================================== =========================================== Pro Forma Pro Forma Financial Chubb- Pro Forma Financial Statements Health Adjustments Statements ---------------------------------------- ---------- Cash & cash equivalents $ 138,050 $ 3,097 $ 141,147 Marketable securities 78,521 0 78,521 Premiums and administrative fees receivable 118,661 1,370 120,031 Restricted investments 130,388 130,388 Other current assets 40,051 902 40,953 -------------------------- ----------- Total current assets 505,671 5,369 511,040 -------------------------- ----------- Long term marketable securities 116,028 7,852 123,880 Property & leasehold improvements, net 118,372 780 119,152 Restricted investments 8,844 2,800 11,644 Intangible assets, net 351,879 22,097 (A) 373,976 Other assets 17,030 2,292 (2,250)(C) 17,072 ---------------------------------------- ----------- Total assets 1,117,824 19,093 19,847 1,156,764 ======================================== =========== Medical claims payable $ 203,247 $ 3,846 $ 207,093 Accounts payable & accrued expenses 129,891 9,554 139,445 Deferred revenue 13,278 1,395 14,673 Other current liabilities 6,874 0 6,874 -------------------------- ----------- Total current liabilities 353,290 14,795 368,085 -------------------------- ----------- Revolving note payable 109,250 25,750 (B) 135,000 Convertible subordinated notes 247,250 247,250 Other liabilities 6,983 0 6,983 -------------------------- ----------- Total liabilities 716,773 14,795 757,318 -------------------------- ----------- Common stock 6,368 1,000 (1,000)(C) 6,368 Additional paid in capital 222,551 16,500 (16,500)(C) 222,551 Retained earnings 173,981 (13,202) 11,597 (C) 172,376 Unrealized loss on marketable securities (1,849) 0 0 (C) (1,849) -------------------------- ----------- Total equity 401,051 4,298 399,446 ---------------------------------------- ----------- Total liabilities & equity 1,117,824 19,093 19,847 1,156,764 ======================================== ===========
SEE NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ON PAGE 12. 10 13 HEALTHSOURCE, INC. Pro Forma Condensed Consolidated Statement of Operations (unaudited) For the Quarter Ended March 31, 1996 (all amounts in thousands, except per share data)
Historical Pro Forma ------------ Pro Forma Financial Pro Forma Healthsource CMHC Adjustments Statements PACC Adjustments ------------------------------------------- ---------------------------------------- Medical premiums $358,867 $10,423 $369,290 $33,058 Administrative and managed care fees 60,225 0 60,225 0 -------------------------- ------------------------ Total Revenue 419,092 10,423 429,515 33,058 Expenses: Cost of medical premiums 285,561 10,638 (750)(D) 295,449 28,596 Selling, general & administrative 104,926 1,721 106,647 5,730 Depreciation & amortization 8,709 0 111 (D) 8,820 0 229 (A) -------------------------- ------------------------ Total Expenses 399,196 12,359 410,916 34,326 Operating Income 19,896 (1,936) 18,599 (1,268) Interest & Other Income 6,461 127 6,588 1,096 Interest expense (2,373) (241)(D) (2,614) (1,073)(B) -------------------------- ------------------------ Income before taxes 23,984 (1,809) 22,573 (172) Provision for taxes (8,422) 0 564 (D) (7,858) 0 589 (E) -------------------------- ------------------------ Net Income $ 15,562 $(1,809) $14,715 $ (172) -------------------------- ------------------------ Preferred dividends (1,128) 0 (1,128) 0 -------------------------- ------------------------ Net Income applicable to common shareholders $ 14,434 $(1,809) $13,587 $ (172) ========================== ======================== Shares used to compute net income per share 65,953 Net income per share $0.22 Pro Forma Pro Forma Pro Forma Financial Health Pro Forma Financial Chubb- Pro Forma Financial Statements Direct Adjustments Statements Health Adjustments Statements ------------------------------------------ ---------------------------------------- ---------- Medical premiums $402,348 $11,967 $414,315 $12,886 $427,201 Administrative and managed care fees 60,225 60,225 60,225 --------------------------- ------------------------- ---------- Total Revenue 462,573 11,967 474,540 12,886 487,426 Expenses: Cost of medical premiums 324,045 8,915 332,960 10,418 343,378 Selling, general & administrative 112,377 2,939 115,316 4,531 119,847 Depreciation & amortization 9,049 127 207 (A) 9,383 319 184 (A) 9,886 --------------------------- ------------------------- ---------- Total Expenses 445,471 11,981 457,659 15,268 473,111 Operating Income 17,102 (14) 16,881 (2,382) 14,315 Interest & Other Income 7,684 80 7,764 199 7,963 Interest expense (3,687) (416)(B) (4,103) (386)(B) (4,489) --------------------------- ------------------------- ---------- Income before taxes 21,099 66 20,542 (2,183) 17,789 Provision for taxes (7,269) 140 (E) (7,129) 757 228 (E) (6,143) --------------------------- ------------------------- ---------- Net Income 13,830 $ 66 $13,413 $(1,426) $11,646 --------------------------- ------------------------- ---------- Preferred dividends (1,128) 0 (1,128) 0 (1,128) --------------------------- ------------------------- ---------- Net Income applicable to common shareholders $12,702 $ 66 $12,285 $(1,426) $10,518 =========================== ========================= ========== Shares used to compute net income per share 65,953 Net income per share $0.16
SEE NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ON PAGE 12. 11 14 HEALTHSOURCE, INC. NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (A) - Represents the recording of the excess of purchase price over the fair value of the net assets acquired along with the related amortization for each acquisition:
Health PACC Direct ChubbHealth ------ ------ ----------- Total purchase price: 70,000 27,000 25,000 Estimated acquisition costs: 1,500 750 750 ------ ------ ------ 71,500 27,750 25,750 Net assets acquired 44,049 2,890 3,653 ------ ------ ------ 27,451 24,860 22,097 Estimated useful life: 30 30 30 ------ ------ ------ Annual amortization: 915 829 737 Pro-rated for quarter 229 207 184
(B) - Represents the amount borrowed in conjunction with the purchase and the related expense calculated as follows for each acquisition:
Health PACC Direct ChubbHealth ------ ------ ----------- Amount borrowed: 71,500 27,750 25,750 Interest rate: 6.00% 6.00% 6.00% ------ ------ ------ Annual interest expense 4,290 1,665 1,545 Pro-rated for quarter 1,073 416 386
(C) - Represents the elimination of existing PACC, Health Direct and ChubbHealth equity in connection with the transactions. (D) - Represents pro-forma adjustments for the one month during the first quarter that Healthsource did not own CMHC. (E) - Represents the tax impact of adjustments calculated as follows for each acquisition:
Health PACC Direct ChubbHealth ------ ------ ----------- Adjustment A 229 0 184 Adjustment B 1,073 416 386 PACC loss 172 Health Direct income (66) ----- --- --- 1,473 350 570 Effective tax rate: 40% 40% 40% ----- --- --- 589 140 228
12 15 HEALTHSOURCE, INC. Pro Forma Condensed Consolidated Statement of Operations (unaudited) For the Year Ended December 31, 1995 (all amounts in thousands except per share data)
Historical Pro Forma Pro Forma ------------ Pro Forma Financial Pro Forma Financial Healthsource Provident Adjustments Statements CMHC Adjustments Statements PACC ------------ --------- ----------- ---------- -------- ----------- ---------- ---------- Medical premiums $ 996,464 $ 94,768 $1,091,232 $129,389 $1,220,621 $126,188 Administrative and managed care fees 170,233 48,887 219,120 0 219,120 ---------- -------- ---------- -------- ---------- -------- Total Revenue 1,166,697 143,655 1,310,352 129,389 1,439,741 126,188 Expenses: Cost of medical premiums 771,284 76,519 847,803 112,056 3,200 (B) 963,059 106,539 Selling, general & administrative 299,666 57,052 (1,729)(A) 354,989 16,384 (403)(C) 370,970 20,595 Depreciation & amortization 24,129 11,305 1,896 (A) 33,613 1,682 1,333 (D) 36,628 (3,717)(A) ---------- -------- ---------- -------- ---------- -------- Total Expenses 1,095,079 144,876 1,236,405 130,122 1,370,657 127,134 Operating Income 71,618 (1,221) 73,947 (733) 69,084 (946) Interest & Other (880)(A) Income 20,823 4,897 (700)(A) 24,140 2,223 26,363 4,255 Interest expense (5,392) (2,266)(A) (7,658) (2,898)(E) (10,556) ---------- -------- ---------- -------- ---------- -------- Income before taxes 87,049 3,676 90,429 1,490 84,891 3,309 Provision for taxes (30,778) (1,170) 48 (A) (31,900) 0 2,213 (F) (29,687) ---------- -------- ---------- -------- ---------- -------- Net Income $ 56,271 $ 2,506 $ 58,529 $ 1,490 $ 55,204 $ 3,309 ---------- -------- ---------- -------- ---------- -------- Preferred dividends (4,167) 0 (2,083)(A) (6,250) 0 (6,250) 0 ---------- -------- ---------- -------- ---------- -------- Net income applicable to common shareholders $ 52,104 $ 2,506 $ 52,279 $ 1,490 $ 48,954 $ 3,309 ========== ======== ========== ======== ========== ======== Shares used to compute net income per share: 64,195 Net income per share: $0.81 Pro Forma Pro Forma Pro Forma Pro Forma Financial Health Pro Forma Financial Pro Forma Financial Adjustments Statements Direct Adjustments Statements ChubbHealth Adjustments Statements ------------ ---------- ------- ----------- ---------- ----------- ------------ ---------- Medical premiums $1,346,809 $21,423 $1,368,232 $ 35,788 $1,404,020 Administrative and managed care fees 219,120 7,888 227,008 227,008 ---------- ------- ---------- -------- ---------- Total Revenue 1,565,929 29,311 1,595,240 35,788 1,631,028 Expenses: Cost of medical premiums 1,069,598 19,048 1,088,646 29,572 1,118,218 Selling, general & administrative 391,565 11,077 402,642 14,942 417,584 Depreciation & amortization 915 (D) 37,543 584 828 (D) 38,955 2,098 737 (D) 41,790 ---------- ------- ---------- -------- ---------- Total Expenses 1,498,706 30,709 1,530,243 46,612 1,577,592 Operating Income 67,223 (1,398) 64,997 (10,824) 53,436 Interest & Other Income 30,618 306 30,924 942 31,866 Interest expense (4,290)(E) (14,846) (1,665)(E) (16,511) (1,545)(E) (18,056) ---------- ------- ---------- -------- ---------- Income before taxes 82,995 (1,092) 79,410 (9,882) 67,246 Provision for taxes 758 (F) (28,929) 1,434 (F) (27,495) 3,447 912 (F) (23,135) ---------- ------- ---------- -------- ---------- Net Income $54,066 $(1,092) $ 51,915 $ (6,435) 44,111 ---------- ------- ---------- -------- ---------- Preferred dividends (6,250) 0 (6,250) 0 (6,250) ---------- ------- ---------- -------- ---------- Net income applicable to common shareholders $ 47,816 $(1,092) $ 45,665 $ (6,435) $ 37,861 ========== ======= ========== ======== ========== Shares used to compute net income per share: 64,195 Net income per share: $0.59
SEE NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ON PAGE 14. 13 16 HEALTHSOURCE, INC. NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (A)-Effective May 1, 1995, Healthsource acquired the group health, HMO and third party administration business of Provident Life and Accident Insurance Company of America, Inc. In connection with the agreement, Healthsource paid $131 million in cash and issued $100 million in preferred stock. Pro forma adjustments include savings expected from economies of scale ($1,729); amortization of goodwill created in the transaction ($1,896); interest expense associated with debt incurred as a result of the transaction ($2,266); elimination of amortization expense associated with goodwill eliminated in the transaction ($3,717); lost interest ($880); the incremental reduction in interest income due to Provident's historical return being higher than Healthsource's expected return ($700); and the related tax impact of these adjustments. Additionally, an adjustment of $2,083 was made to reflect the preferred stock dividend for the entire year. (B)-Represents the payment of certain physician withhold amounts in accordance with the terms of the purchase and sale agreement which was not reflected in the CMHC financial statements. (C)-Represents the elimination of non-recurring acquisition related expenses. (D)-Represents the recording of the excess of purchase price over the fair value of the net assets acquired along with the related amortization for each acquisition:
HEALTH CMHC PACC DIRECT CHUBBHEALTH ------ ------ ------- ----------- Total purchase price: 46,500 70,000 27,000 25,000 Estimated acquisition costs: 1,800 1,500 750 750 ------ ------ ------ ------ 48,300 71,500 27,750 25,750 Net assets acquired: 8,320 44,049 2,890 3,653 ------ ------ ------ ------ 39,980 27,451 24,860 22,097 Estimated useful life: 30 30 30 30 ------ ------ ------ ------ Annual amortization: 1,333 915 828 737
(E)-Represents the amount borrowed in conjunction with the purchase and the related interest expense calculated as follows for each acquisition:
HEALTH CMHC PACC DIRECT CHUBBHEALTH ------ ------ ------- ----------- Amount borrowed: 48,300 71,500 27,750 25,750 Interest rate: 6.00% 6.00% 6.00% 6.00% ------ ------ ------ ------ Annual interest expense 2,898 4,290 1,665 1,545
(F)-Represents the tax impact of adjustments calculated as follows for each acquisition:
HEALTH CMHC PACC DIRECT CHUBBHEALTH ------ ------ ------- ---------- Adjustment B 3,200 Adjustment C (403) Adjustment D 1,333 915 828 737 Adjustment E 2,898 4,290 1,665 1,545 CMHC income (1,490) PACC income (3,309) Health Direct income 1,092 ------- ------ ------ ----- 5,538 1,896 3,585 2,282 Effective tax rate: 40% 40% 40% 40% ------ ----- ----- ----- 2,213 758 1,434 912
14 17 RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth the Company's ratio of earnings to fixed charges on a historical basis in each of the five years in the period ended December 31, 1995, and for the quarterly periods ended March 31, 1996 and 1995.
Three Months Year Ended December 31, Ended March 31, ------------------------------------------------ ---------------- 1995 1994 1993 1992 1991 1996 1995 ------------------------------------------------ --------------- Ratio of earnings to fixed charges 7.8 -- -- -- -- 6.4 --
The following table sets forth the Company's ratio of earnings to fixed charges on a pro forma basis for the year ended December 31, 1995 and the quarter ended March 31, 1996:
December 31, 1995 March 31, 1996 ----------------- -------------- Ratio of earnings to fixed charges 3.1 3.6
For purposes of computing the ratio of earnings to fixed charges, earnings include pre-tax operating income and fixed charges include the total of interest expense and preferred stock dividends. For periods prior to March 31, 1995, the Company had no fixed charges. USE OF PROCEEDS The Company will not receive any proceeds from the sale of the Notes or the Common Stock issuable upon conversion thereof by the Selling Holders. DESCRIPTION OF THE NOTES The Notes were issued under an Indenture dated as of March 6, 1996 (as proposed to be amended by the First Supplemental Indenture) (the "Indenture"), between the Company and The Bank of New York, as trustee (the "Trustee"). A copy of the form of Indenture (and the proposed form of First Supplemental Indenture) is being filed with the Commission as an exhibit to the Registration Statement. The following summaries of certain provisions of the Notes and the Indenture do not purport to be complete and are subject to, and are qualified in their entirety by reference to, the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and all the provisions of the Notes and the Indenture, including the definitions therein of certain terms which are not otherwise defined in this Prospectus. Wherever particular provisions or defined terms of the Indenture (or of the form of Notes which is a part thereof) are referred to, such provisions or defined terms are incorporated herein by reference. As used in this "Description of the Notes," the "Company" refers to Healthsource, Inc. and does not, unless the context otherwise indicates, include its subsidiaries. 15 18 GENERAL The Notes are general unsecured subordinated obligations of the Company and are convertible into Common Stock as described below under the subheading "Conversion of Notes." The Notes are limited to $247,250,000 aggregate principal amount, have been issued in fully registered form only in denominations of $1,000 in principal amount or any multiple thereof, and will mature on March 1, 2003, unless earlier redeemed at the option of the Company or at the option of the Holder upon a Change of Control. The Indenture does not contain any financial covenants or any restrictions on the payment of dividends, the repurchase of securities of the Company or the incurrence of debt by the Company or any of its subsidiaries. The Notes bear interest from March 6, 1996 at the annual rate set forth on the cover page hereof, payable semi-annually on March 1 and September 1, commencing on September 1, 1996, to Holders of record at the close of business on the preceding February 15 and August 15, respectively. Interest is computed on the basis of a 360-day year composed of twelve 30-day months. Unless other arrangements are made, interest will be paid by check mailed to Holders entitled thereto. Principal will be payable, and the Notes may be presented for conversion, registration of transfer and exchange, without service charge, at the office of the Trustee in New York, New York. Reference is made to the information set forth below under the subheading "Form, Denomination and Registration" for information as to Notes held by "qualified institutional buyers" or by Holders outside of the United States in reliance upon Regulation S. The Notes are issued in fully registered form, without coupons, in denominations of $1,000 in principal amount and integral multiples thereof. CONVERSION OF NOTES The Holders of Notes are entitled at any time after 60 days following the latest date of original issuance thereof (March 8, 1996) through the close of business on March 1, 2003, subject to prior redemption, to convert any Notes or portions thereof (in denominations of $1,000 in principal amount or multiples thereof) into Common Stock at a conversion price of $46.965, subject to adjustment as described below; provided that in the case of Notes called for redemption, conversion rights will expire at the close of business on the last Trading Day prior to the date fixed for redemption, unless the Company defaults in payment of the redemption price. A Note (or portion thereof) in respect of which a Holder is exercising its option to require redemption upon a Change of Control may be converted only if such Holder withdraws its election to exercise such redemption option in accordance with the terms of the Indenture. Except as described below, no adjustment will be made on conversion of any Notes for interest accrued thereon or for dividends paid on any Common Stock issued. If Notes not called for redemption are converted after the close of business on a record date for the payment of interest and prior to the opening of business on the next succeeding interest payment date, such Notes must be accompanied by funds equal to the interest payable on such succeeding interest payment date on the principal amount so converted. The interest payment with respect to a Note called for redemption on a date during the period from the close of business on or after any record date to the opening of business on the business day following the corresponding payment date will be payable on the corresponding interest payment date to the registered Holder at the close of business on that record date (notwithstanding the conversion of such Note before the corresponding interest payment date) and a Holder of Notes who elects to convert need not include funds equal to the interest paid. The Company is not required to issue fractional shares of Common Stock upon conversion of Notes and, in lieu thereof, will pay a cash adjustment based upon the closing price of the Common Stock on the last business day prior to the date of conversion. The conversion price is subject to adjustment (under formulae set forth in the Indenture) upon the occurrence of certain events, including: (i) the issuance of Common Stock as a dividend or distribution on the outstanding Common Stock, (ii) the issuance to all holders of Common Stock of certain rights or warrants to purchase Common Stock at less than the current market price, (iii) certain subdivisions, combinations and reclassifications of Common Stock, (iv) distributions to all holders of Common Stock of capital stock of the 16 19 Company (other than Common Stock) or evidences of indebtedness of the Company or assets (including securities, but excluding those dividends, rights, warrants and distributions referred to above and dividends and distributions in connection with the liquidation, dissolution or winding up of the Company and dividends and distributions paid exclusively in cash), (v) distributions consisting exclusively of cash (excluding any cash portion of distributions referred to in clause (iv) or in connection with a consolidation, merger or sale of assets of the Company as referred to in clause (ii) of the second paragraph below) to all holders of Common Stock in an aggregate amount that, together with (x) all other such all-cash distributions made within the preceding 12 months in respect of which no adjustment has been made and (y) any cash and the fair market value of other consideration payable in respect of any tender offers by the Company or any of its subsidiaries for Common Stock concluded within the preceding 12 months in respect of which no adjustment has been made, exceeds 20% of the Company's market capitalization (being the product of the then current market price of the Common Stock times the number of shares of Common Stock then outstanding) on the record date for such distribution and (vi) the purchase of Common Stock pursuant to a tender offer made by the Company or any of its subsidiaries which involves an aggregate consideration that, together with (x) any cash and the fair market value of any other consideration payable in any other tender offer by the Company or any of its subsidiaries for Common Stock expiring within the 12 months preceding such tender offer in respect of which no adjustment has been made and (y) the aggregate amount of any such all-cash distributions referred to in clause (v) above to all holders of Common Stock within the 12 months preceding the expiration of such tender offer in respect of which no adjustments have been made, exceeds 20% of the Company's market capitalization on the expiration of such tender offer. No adjustment of the conversion price will be made for shares issued pursuant to a plan for reinvestment of dividends or interest. Except as stated above, the conversion price will not be adjusted for the issuance of Common Stock or any securities convertible into or exchangeable for Common Stock or carrying the right to purchase any of the foregoing. No adjustment in the conversion price will be required unless such adjustment would require a change of at least 1% in the conversion price then in effect; provided that any adjustment that would otherwise be required to be made shall be carried forward and taken into account in any subsequent adjustment. In the case of (i) any reclassification or change of the Common Stock (other than changes in par value or from par value to no par value or resulting from a subdivision or a combination) or (ii) a consolidation or merger involving the Company or a sale or conveyance to another corporation of the property and assets of the Company as an entirety or substantially as an entirety, in each case as a result of which holders of Common Stock shall be entitled to receive stock, other securities, other property or assets (including cash) with respect to or in exchange for such Common Stock, the Holders of the Notes then outstanding will be entitled thereafter to convert such Notes into the kind and amount of shares of stock, other securities or other property or assets which they would have owned or been entitled to receive upon such reclassification, change, consolidation, merger, sale or conveyance had such Notes been converted into Common Stock immediately prior to such reclassification, change, consolidation, merger, sale or conveyance assuming that a Holder of Notes would not have exercised any rights of election as to the stock, other securities or other property or assets receivable in connection therewith. In the event of a taxable distribution to holders of Common Stock (or other transaction) which results in any adjustment of the conversion price, the Holders of Notes may, in certain circumstances, be deemed to have received a distribution subject to the United States income tax as a dividend; in certain other circumstances, the absence of such an adjustment may result in a taxable dividend to the holders of Common Stock. See "Certain Tax Considerations - U.S. Holders - Adjustments to Conversion Price." The Company from time to time may to the extent permitted by law reduce the conversion price by any amount for any period of at least 20 days, in which case the Company shall give at least 15 days' notice of such decrease, if the Board of Directors has made a determination that such decrease would be in the best interests of the Company, which determination shall be conclusive. The Company may, at its option, make such reductions in the conversion price, in addition to those set forth above, as the Company deems advisable to avoid or diminish any income tax to its stockholders resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. See "Certain Tax Considerations." SUBORDINATION 17 20 The payment of principal of, premium, if any, and interest on the Notes is, to the extent set forth in the Indenture, subordinated in right of payment to the prior payment in full of all Senior Indebtedness. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding related to the Company or its property, in an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities, the holders of all Senior Indebtedness will first be entitled to receive payment in full of all amounts due or to become due thereon before the Holders of the Notes will be entitled to receive any payment in respect of the principal of, premium, if any, or interest on the Notes (except that Holders of Notes may receive securities that are subordinated at least to the same extent as the Notes to Senior Indebtedness and any securities issued in exchange for Senior Indebtedness). The Company also may not make any payment upon or in respect of the Notes (except in such subordinated securities) if (a) a default in the payment of the principal of, premium, if any, or interest on Senior Indebtedness occurs and is continuing beyond any applicable period of grace or (b) any other default occurs and is continuing with respect to Senior Indebtedness that permits holders of the Senior Indebtedness as to which such default relates to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the representative or representatives of holders of at least a majority in principal amount of Senior Indebtedness then outstanding. Payments on the Notes may and shall be resumed (i) in the case of a payment default, upon the date on which such default is cured or waived, or (ii) in the case of a non-payment default, 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Senior Indebtedness has been accelerated. No new period of payment blockage may be commenced within 360 days after the receipt by the Trustee of any prior Payment Blockage Notice. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of not less than 180 days. "Senior Indebtedness" with respect to the Notes means the principal of, premium, if any, and interest on, and any fees, costs, expenses and any other amounts (including indemnity payments) related to the following, whether outstanding on the date of the Indenture or thereafter incurred or created: (a) indebtedness, matured or unmatured, whether or not contingent, of the Company for money borrowed evidenced by notes or other written obligations, (b) any interest rate contract, interest rate swap agreement or other similar agreement or arrangement designed to protect the Company or any of its subsidiaries against fluctuations in interest rates, (c) indebtedness, matured or unmatured, whether or not contingent, of the Company evidenced by notes, debentures, bonds or similar instruments or letters of credit (or reimbursement agreements in respect thereof), (d) obligations of the Company as lessee under capitalized leases and under leases of property made as part of any sale and leaseback transactions, (e) indebtedness of others of any of the kinds described in the preceding clauses (a) through (d) assumed or guaranteed by the Company and (f) renewals, extensions, modifications, amendments and refundings of, and indebtedness and obligations of a successor person issued in exchange for or in replacement of, indebtedness or obligations of the kinds described in the preceding clauses (a) through (f), unless the agreement pursuant to which any such indebtedness described in clauses (a) through (f) is created, issued, assumed or guaranteed expressly provides that such indebtedness is not senior or superior in right of payment to the Notes; provided, however, that the following shall not constitute Senior Indebtedness: (i) any indebtedness or obligation of the Company in respect of the Notes; (ii) any indebtedness of the Company to any of its subsidiaries or other affiliates; (iii) any indebtedness that is subordinated or junior in any respect to any other indebtedness of the Company other than Senior Indebtedness; and (iv) any indebtedness incurred for the purchase of goods or materials in the ordinary course of business. In the event that the Trustee (or paying agent if other than the Trustee) or any Holder receives any payment of principal or interest with respect to the Notes at a time when such payment is prohibited under the Indenture, such payment shall be held in trust for the benefit of, and shall be paid over and delivered to, the holders of Senior Indebtedness or their representative as their respective interests may appear. After all Senior Indebtedness is paid in full and until the Notes are paid in full, Holders shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Indebtedness to receive distributions applicable to Senior Indebtedness to the extent that distributions otherwise payable to the Holders have been applied to the payment of Senior Indebtedness. 18 21 As of March 31, 1996, the Company had approximately $10 million in principal amount of indebtedness that would be considered Senior Indebtedness under the $300 million Chase Facility. The Company does not have any other material Senior Indebtedness outstanding as of such date. Pursuant to the recently amended terms of the Chase Facility, the Company will not be able to make aggregate borrowings under the Chase Facility in excess of approximately $260 million. Such borrowings would constitute Senior Indebtedness and would rank prior in right of payment to the Holders of the Notes, notwithstanding that it is incurred subsequent to the issuance of the Notes. The Indenture does not prohibit or limit the incurrence of such Senior Indebtedness. In addition, because the Company's operations are conducted primarily through its operating subsidiaries, including regulated insurance companies and HMOs, claims of holders of indebtedness of such subsidiaries, as well as claims of regulators and creditors of such subsidiaries, have priority with respect to the assets and earnings of such subsidiaries over the claims of creditors of the Company, including Holders of the Notes. As of March 31, 1996, the aggregate liabilities of such subsidiaries were approximately $306 million. Such HMO and insurance subsidiaries are subject to certain minimum capital requirements imposed by state insurance authorities. In addition, state insurance authorities have the power to disapprove of the payment of dividends and other intercompany payments by regulated HMO and insurance subsidiaries. Under certain circumstances, state insurance authorities have the power to impose increased minimum capital requirements and prohibit the payment of dividends and other upstream payments by such HMO and insurance subsidiaries, which could adversely affect the Company's ability to repurchase Notes whose Holders elect to cause the Company to repurchase their Notes upon a Change of Control, repay the Notes at maturity or make interest payments on the Notes. The Indenture does not limit the amount of additional indebtedness which any of the Company's subsidiaries can create, incur, assume or guarantee. Because of these subordination provisions, in the event of a liquidation or insolvency of the Company or any of its subsidiaries, Holders of Notes may recover less, ratably, than the holders of Senior Indebtedness. The Company expects from time to time to incur indebtedness constituting Senior Indebtedness other than debt under the Chase Facility. The Indenture does not prohibit or limit the incurrence of additional indebtedness, including Senior Indebtedness, by the Company or its subsidiaries. OPTIONAL REDEMPTION BY THE COMPANY The Notes are not redeemable at the option of the Company prior to March 1, 1999. At any time on or after that date, the Notes may be redeemed at the Company's option on at least 30 but not more than 60 days' notice, in whole at any time or in part from time to time, at the following prices (expressed in percentages of the principal amount), together with accrued interest to the date fixed for redemption if redeemed during the 12-month period beginning March 1:
REDEMPTION DATE PRICE ---- ----- 1999 102.5% 2000 101.7% 2001 100.8% and 100% on or after March 1, 2002
If fewer than all the Notes are to be redeemed, the Trustee will select the Notes to be redeemed in principal amounts of $1,000 or integral multiples thereof by lot or, in its discretion, on a pro rata basis. If any Note is to be redeemed in part only, a new Note or Notes in principal amount equal to the unredeemed principal portion thereof will be issued. If a portion of a Holder's Notes is selected for partial redemption and such Holder converts a portion of such Notes, such converted portion shall be deemed to be taken from the portion selected for redemption. No 19 22 sinking fund is provided for the Notes. CHANGE OF CONTROL Upon the occurrence of a Change of Control, each Holder of Notes shall have the right to require that the Company repurchase such Holder's Notes in whole or in part in integral multiples of $1,000, at a purchase price in cash in an amount equal to 101% of the principal amount thereof, together with accrued and unpaid interest to the date of purchase, pursuant to an offer (the "Change of Control Offer") made in accordance with the procedures described below and the other provisions in the Indenture. A "Change of Control" means an event or series of events in which (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) acquires "beneficial ownership" (as determined in accordance with Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50% of the total Voting Stock of the Company at an Acquisition Price (each term as defined herein) less than the conversion price then in effect with respect to the Notes and (ii) the holders of the Common Stock receive consideration which is not all or substantially all common stock that is (or upon consummation of or immediately following such event or events will be) listed on a United States national securities exchange or approved for quotation on the NASDAQ National Market or any similar United States system of automated dissemination of quotations of securities' prices; provided, however, that any such person or group shall not be deemed to be the beneficial owner of, or to beneficially own, any Voting Stock tendered in a tender offer until such tendered Voting Stock is accepted for purchase under the tender offer. "Voting Stock" means stock of the class or classes pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of a corporation (irrespective of whether or not at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). "Acquisition Price" means the weighted average price paid by the person or group in acquiring the Voting Stock. Within 30 days following any Change of Control, the Company shall send by first-class mail, postage prepaid, to the Trustee and to each Holder of Notes, at such Holder's address appearing in the security register, a notice stating, among other things, that a Change of Control has occurred, the purchase price, the purchase date, which shall be a business day no earlier than 30 days nor later than 60 days from the date such notice is mailed, and certain other procedures that a Holder of Notes must follow to accept a Change of Control Offer or to withdraw such acceptance. The Company will comply, to the extent applicable, with the requirements of Rule 13e-4 under the Exchange Act and other securities laws or regulations in connection with the repurchase of the Notes as described above. The occurrence of certain of the events that would constitute a Change of Control may constitute a default under the Chase Facility. Future indebtedness of the Company may contain prohibitions of certain events which would constitute a Change of Control or require the Company to offer to redeem such indebtedness upon a Change of Control. Moreover, the exercise by the Holders of Notes of their right to require the Company to purchase the Notes could cause a default under such indebtedness, even if the Change of Control itself does not, due to the financial effect of such purchase on the Company. Finally, the Company's ability to pay cash to Holders of Notes upon a purchase may be limited by the Company's then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required purchases. Furthermore, the Change of Control provisions may in certain circumstances make more difficult or discourage a takeover of the Company and the removal of the incumbent management. MERGER, CONSOLIDATION AND SALE OF ASSETS The Company shall not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to any person unless: (i) either the Company is the resulting, surviving or transferee person (the "Successor Company") or the Successor Company is a person organized and existing under the laws of the United States or any State thereof or the District of Columbia, and the Successor Company (if not the Company) 20 23 expressly assumes by a supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Indenture and the Notes, including the conversion rights described above under "Conversion of Notes," (ii) immediately after giving effect to such transaction no Event of Default has happened and is continuing and (iii) the Company delivers to the Trustee an Officers' Certificate and an opinion of counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with the Indenture. EVENTS OF DEFAULT AND REMEDIES An Event of Default is defined in the Indenture as being: default in payment of the principal of or premium, if any, on the Notes when due at maturity, upon redemption or otherwise, including failure by the Company to purchase the Notes when required as described under "Change of Control" (whether or not such payment shall be prohibited by the subordination provisions of the Indenture); default for 30 days in payment of any installment of interest on the Notes (whether or not such payment shall be prohibited by the subordination provisions of the Indenture); default by the Company for 90 days after notice in the observance or performance of any other covenants in the Indenture; or certain events involving bankruptcy, insolvency or reorganization of the Company. The Indenture provides that the Trustee may withhold notice to the Holders of Notes of any default (except in payment of principal, premium, if any, or interest with respect to the Notes) if the Trustee considers it in the interest of the Holders of Notes to do so. The Indenture provides that if any Event of Default shall have occurred and be continuing, the Trustee or the Holders of not less than 25% in principal amount of the Notes then outstanding may declare the principal of and premium, if any, on the Notes to be due and payable immediately, but if the Company shall cure all defaults (except the nonpayment of interest on, premium, if any, and principal of any Notes which shall have become due by acceleration) and certain other conditions are met, such declaration may be canceled and past defaults may be waived by the Holders of a majority in principal amount of Notes then outstanding. The Holders of a majority in principal amount of the Notes then outstanding shall have the right to direct the time, method and place of conducting any proceedings for any remedy available to the Trustee, subject to certain limitations specified in the Indenture. The Indenture provides that, subject to the duty of the Trustee following an Event of Default to act with the required standard of care, the Trustee will not be under an obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the Holders, unless the Trustee receives satisfactory indemnity against any associated loss, liability or expense. SATISFACTION AND DISCHARGE; DEFEASANCE The Indenture will cease to be of further effect as to all outstanding Notes (except as to (i) rights of registration of transfer and exchange and the Company's right of optional redemption, (ii) substitution of apparently mutilated, defaced, destroyed, lost or stolen Notes, (iii) rights of Holders of Notes to receive payments of principal of, premium, if any, and interest on, the Notes, (iv) rights of Holders of Notes to convert to Common Stock, (v) rights, obligations and immunities of the Trustee under the Indenture and (vi) rights of the Holders of Notes as beneficiaries of the Indenture with respect to the property so deposited with the Trustee payable to all or any of them), if (A) the Company will have paid or caused to be paid the principal of, premium, if any, and interest on the Notes as and when the same will have become due and payable or (B) all outstanding Notes (except lost, stolen or destroyed Notes which have been replaced or paid) have been delivered to the Trustee for cancellation or (C) (x) the Notes not previously delivered to the Trustee for cancellation will have become due and payable or are by their terms to become due and payable within one year or are to be called for redemption under arrangements satisfactory to the Trustee upon delivery of notice and (y) the Company will have irrevocably deposited with the Trustee, as trust funds, cash, in an amount sufficient to pay principal of and interest on the outstanding Notes, to maturity or redemption, as the case may be. Such trust may only be established if such deposit will not result in a breach or violation of, or constitute a default under, any agreement or instrument pursuant to which the Company is a party or by which it is bound and the Company has delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions related to such defeasance have been complied with. 21 24 The Indenture will also cease to be in effect (except as described in clauses (i) through (vi) in the immediately preceding paragraph) and the indebtedness on all outstanding Notes will be discharged on the 123rd day after the irrevocable deposit by the Company with the Trustee, in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of Notes, of cash, U.S. Government Obligations (as defined in the Indenture) or a combination thereof, in an amount 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 the principal of, premium, if any, and interest on the Notes then outstanding in accordance with the terms of the Indenture and the Notes ("legal defeasance"). Such legal defeasance may only be effected if (i) such deposit will not result in a breach or violation of, or constitute a default under, any agreement or instrument to which the Company is a party or by which it is bound, (ii) the Company has 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 Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, based thereon, the holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge by the Company and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, (iii) the Company has delivered to the Trustee an opinion of counsel to the effect that after the 123rd day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and (iv) the Company has delivered to the Trustee an Officers' Certificate and an opinion of counsel stating that all conditions related to the defeasance have been complied with. The Company may also be released from its obligations under the covenants described above under "Change of Control" and "Merger, Consolidation and Sale of Assets" with respect to the Notes outstanding on the 123rd day after the irrevocable deposit by the Company with the Trustee, in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of Notes, of cash, U.S. Government Obligations or a combination thereof, in an amount 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 the principal of, premium, if any, and interest on the Notes then outstanding in accordance with the terms of the Indenture and the Notes ("covenant defeasance"). Such covenant defeasance may only be effected if (i) such deposit will not result in a breach or violation of, or constitute a default under, any agreement or instrument to which the Company is a party or by which it is bound, (ii) the Company has delivered to the Trustee an Officers' Certificate and an opinion of counsel to the effect that the Holders of Notes will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and covenant defeasance by the Company 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 covenant defeasance had not occurred, (iii) the Company has delivered to the Trustee an opinion of counsel to the effect that after the 123rd day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and (iv) the Company has delivered to the Trustee an Officers' Certificate and an opinion of counsel stating that all conditions related to the covenant defeasance have been complied with. Following such covenant defeasance, the Company will no longer be required to comply with the obligations described above under "Merger, Consolidation and Sale of Assets" and will have no obligation to repurchase the Notes pursuant to the provisions described under "Change of Control." Notwithstanding any satisfaction and discharge or defeasance of the Indenture, the obligations of the Company described under "Conversion of Notes" will survive to the extent provided in the Indenture until the Notes cease to be outstanding. MODIFICATIONS OF THE INDENTURE The Indenture contains provisions permitting the Company and the Trustee, with the consent of the Holders of not less than a majority in principal amount of the Notes at the time outstanding, to modify the Indenture or any supplemental indenture or the rights of the Holders of Notes, except that no such modification shall (i) extend the fixed maturity of any Note, reduce the rate or extend the time of payment of interest thereon, reduce the principal amount thereof or premium, if any, thereon, reduce any amount payable upon redemption thereof, change the obligation of the Company to make redemption of any Note upon the happening of a Change of Control, impair 22 25 or affect the right of a Holder to institute suit for the payment thereof, change the currency in which the Notes are payable, modify the subordination provisions of the Indenture in a manner adverse to the Holders of Notes or impair the right to convert the Notes into Common Stock subject to the terms set forth in the Indenture, without the consent of the Holder of each Note so affected or (ii) reduce the aforesaid percentage of Notes, without the consent of the Holders of all of the Notes then outstanding. REGISTRATION RIGHTS The Company agreed, under the terms of a registration rights agreement (the "Registration Rights Agreement") with the Initial Purchasers, for the benefit of the Holders of Notes, that the Company would use its best efforts to file with the Commission within 90 days after the original issuance date of the Notes a shelf registration statement (the "Shelf Registration Statement") on such form as the Company deems appropriate covering resales by the Holders of Notes and the shares of Common Stock issuable upon conversion of the Notes and would use all reasonable efforts to cause the Shelf Registration Statement to become effective as promptly as practicable and keep such Shelf Registration Statement effective until such date that is three years after the latest date of original issuance of the Notes. The Company will be permitted to suspend the use of the prospectus that is a part of such Shelf Registration Statement during certain periods of time and under certain circumstances relating to pending corporate developments and public filings with the Commission and similar events. A Holder who sells the Notes and the Common Stock issued upon conversion of the Notes pursuant to the Shelf Registration Statement generally will be required to be named as a selling stockholder in the related prospectus and to deliver a prospectus to purchasers and will be bound by the provisions of the Registration Rights Agreement which are applicable to such Holder (including certain indemnification provisions). At any time during the three-year period following the date of latest date of original issuance of the Notes when a registration statement under the Securities Act covering the Notes and the Shares is not effective or the Company has suspended use of the prospectus that is part of such registration statement, neither the Notes nor the Shares may be sold or otherwise transferred except in accordance with certain transfer restrictions set forth in the Indenture. CONCERNING THE TRUSTEE The Bank of New York, the Trustee under the Indenture, has been appointed by the Company as the paying agent, conversion agent, registrar and custodian with regard to the Notes. The Bank of New York also serves as the transfer agent and registrar of the Common Stock. The Trustee and/or its affiliates may in the future provide banking and other services to the Company in the ordinary course of their respective businesses. DESCRIPTION OF CAPITAL STOCK The Company's authorized capital stock consists of 800,000,000 shares of Common Stock, par value $.10 per share, and 10,000,000 shares of Preferred Stock (the "Preferred Stock"). As of May 31, 1996, 63,710,957 shares of Common Stock were issued and outstanding and no shares of Preferred Stock were issued and outstanding. COMMON STOCK Holders of Common Stock are entitled to one vote per share in the election of directors and on all other matters to be voted upon by the stockholders. The Company's Board of Directors is divided into three classes, with the directors in each class holding office for a term of three years following election. Subject to the rights of holders of outstanding Preferred Stock, if any, the holders of Common Stock are entitled to receive such dividends, if any, as may be declared by the Board of Directors out of funds legally available therefor. The Company has not paid cash dividends on its Common Stock since its inception and does not expect to pay cash dividends on the Common Stock in the foreseeable future. In the event of a liquidation, dissolution, or winding up of the Company, the holders of Common Stock have the right to a ratable portion of the assets remaining after payment to the Company's 23 26 creditors, subject to any preferential payments required to be made to holders of outstanding Preferred Stock, if any. Holders of Common Stock do not have cumulative voting, preemptive, redemption or conversion rights. All outstanding shares of Common Stock are, and the shares issuable upon conversion of the Notes sold in this offering will be, fully paid and nonassessable. The preferences and rights of holders of shares of Common Stock may become subject to those of holders of shares of any series of Preferred Stock which the Company may issue in the future. PREFERRED STOCK The Board of Directors has the authority, without further stockholder approval, to issue the shares of Preferred Stock in one or more series from time to time and to fix the powers, designations, preferences, and rights, and the qualifications, limitations, or restrictions of such preferences and/or rights. While the issuance of Preferred Stock could provide needed flexibility in connection with possible acquisitions and for other corporate purposes, such issuance could also make it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company or discourage an attempt to gain control of the Company, and might adversely affect the holders of Common Stock. Among other things, the Preferred Stock may be issued with extraordinary voting, dividend, redemption or conversion rights. TRANSFER AGENT AND REGISTRAR The Bank of New York has been appointed by the Company as the transfer agent and registrar of the Common Stock. CERTAIN TAX CONSIDERATIONS GENERAL The following is a discussion of certain U.S. federal income tax and estate tax consequences of the purchase, ownership and disposition of the Notes as of the date hereof. For purposes of this discussion, a "U.S. Holder" is a Holder that is an individual who is a citizen or resident of the United States, a corporation or a partnership that is organized under the laws of the United States or any state thereof or an estate or trust whose income is includible in gross income regardless of its source. A "Non-U.S. Holder" is a Holder that is not a U.S. Holder. This summary applies only to Notes and Common Stock held as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"). It does not discuss all of the tax consequences that may be relevant to a Holder in light of its particular circumstances or to Holders subject to special rules, such as dealers in securities or foreign currencies, financial institutions, life insurance companies, or regulated investment companies, or to Holders whose functional currency is not the United States dollar or who hold the Notes or the Common Stock as part of a synthetic security, conversion transaction, or certain "straddle" or hedging transactions. The U.S. federal income tax and estate tax considerations set forth below are based upon the Code and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified, possibly with retroactive effect, so as to result in U.S. federal income tax consequences different from those presented below. U.S. HOLDERS Interest. Interest on a Note should be taxable to a U.S. Holder as ordinary interest income in accordance with the U.S. Holder's method of accounting for U.S. federal income tax purposes. Sale, Exchange or Redemption of a Note. A U.S. Holder should recognize gain or loss, if any, on the sale, redemption or other taxable disposition of a Note in an amount equal to the difference, if any, between the U.S. Holder's adjusted tax basis in the Note and the amount received therefor (other than amounts attributable to accrued and unpaid interest on the Notes, which should be treated as interest for U.S. federal income tax purposes). Subject to the market discount rules noted under "U.S. Holders -- Market Discount and Bond Premium" below, gain or loss, 24 27 if any, recognized on the sale, redemption or other taxable disposition of a Note generally should be long-term capital gain or loss if the Note was held for more than one year as of the date of disposition. Market Discount and Bond Premium. If a U.S. Holder acquires a Note subsequent to its original issuance and the Note's stated redemption price at maturity exceeds the U.S. Holder's initial tax basis in the Note by more than a de minimis amount, the U.S. Holder should generally be treated as having acquired the Note at a "market discount" equal to such excess. In addition, if a U.S. Holder's initial tax basis in a Note exceeds the stated redemption price at maturity of the Note, the U.S. Holder should generally be treated as having acquired the Note with "bond premium" in an amount equal to such excess. U.S. Holders should consult their tax advisers regarding the existence, if any, and tax consequences of market discount and bond premium. Conversion of the Notes. A U.S. Holder should not recognize gain or loss upon conversion of the Notes into Common Stock. The U.S. Holder's tax basis in shares of Common Stock received upon conversion should be the same as the U.S. Holder's adjusted tax basis of the Notes converted (reduced by the portion of such basis allocable to any fractional Common Stock interest for which the U.S. Holder receives a cash payment from the Company). The holding period of the Common Stock received in the conversion should include the holding period of the Notes that were converted. A U.S. Holder generally should recognize gain (or loss) upon a conversion to the extent that any cash paid in lieu of a fractional share of Common Stock exceeds (or is less than) its tax basis allocable to such fractional share. Dividends. Dividends paid on Common Stock received upon conversion will be taxable to a U.S. Holder as ordinary income, to the extent paid out of the Company's current or accumulated earnings and profits. Subject to certain restrictions, dividends received by a corporate U.S. Holder generally should be eligible for the 70% dividends received deduction. Sale of Common Stock. A U.S. Holder of Common Stock received on conversion who sells or otherwise disposes of such stock in a taxable transaction will recognize capital gain or loss equal to the difference between the cash and the fair market value of any property received on such sale and the U.S. Holder's tax basis in such stock. Such gain or loss will be long term gain or loss if the holding period for such Common Stock was more than one year. Redemption of Common Stock. A redemption by the Company of some or all of a U.S. Holder's Common Stock will be treated as a dividend to the redeeming U.S. Holder to the extent of the Company's current and accumulated earnings and profits unless the redemption meets one of the tests under Section 302(b) of the Code. If one of the tests under Section 302(b) is met, the redemption will be treated as an exchange giving rise to capital gain or loss, except to the extent of declared but unpaid dividends. Such gain or loss will be long term capital gain or loss if the holding period for such Common Stock was more than one year. U.S. Holders should consult their tax advisors as to the application of Section 302(b) to their particular circumstances. Adjustments to Conversion Price. Pursuant to Treasury Regulations promulgated under Section 305 of the Code, a U.S. Holder of a Note should be treated as having received a constructive distribution from the Company upon an adjustment in the conversion price of the Notes if (i) as a result of such adjustment, the proportionate interest of such U.S. Holder in the assets or earnings and profits of the Company is increased and (ii) the adjustment is not made pursuant to a bona fide, reasonable, anti-dilution formula. An adjustment in the conversion price would not be considered made pursuant to such a formula if the adjustment were made to compensate for certain taxable distributions with respect to the Common Stock into which the Notes are convertible. Thus, under certain circumstances, a decrease in the conversion price of the Notes may be taxable to a U.S. Holder of a Note as a dividend to the extent of the current or accumulated earnings and profits of the Company. In addition, the failure to adjust fully the conversion price of the Notes to reflect distributions of stock dividends with respect to the Common Stock may result in a taxable dividend to the U.S. Holders of the Common Stock. Backup Withholding and Information Reporting. A U.S. Holder of a Note, or of Common Stock issued upon conversion of a Note, may be subject to information reporting and possible backup withholding. If applicable, backup withholding would apply at a rate of 31% with respect to dividends or interest on, or the proceeds of a sale, 25 28 exchange, redemption, retirement, or other disposition of, such Note or Common Stock, as the case may be, unless (i) such U.S. Holder is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact, or (ii) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with applicable backup withholding rules. NON-U.S. HOLDERS The Notes. The payment of interest on a Note should generally not be subject to U.S. federal withholding tax, if (1) the interest is not effectively connected with the conduct of a trade or business within the United States, (2) the Non-U.S. Holder does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote, (3) the Non-U.S. Holder is not a controlled foreign corporation that is related to the Company actually or constructively through stock ownership and (4) either (i) the beneficial owner of the Note certifies to the Company or its agent, under penalties of perjury, that it is not a U.S. Holder and provides its name and address on U.S. Treasury Form W-8 (or on a suitable substitute form) or (ii) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business (a "financial institution") and holds the Note certifies under penalties of perjury that such a Form W-8 (or suitable substitute form) has been received from the beneficial owner by it or by a financial institution between it and the beneficial owner and furnishes the payer with a copy thereof. A Non-U.S. Holder should generally not be subject to U.S. federal income tax on any gain or income realized in connection with the sale, exchange, retirement, or other disposition of a Note, including the exchange of a Note for Common Stock, unless the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of the disposition, and either (a) has a tax home in the United States and the gain from the disposition is not attributable to an office of other fixed place of business maintained by such non-U.S. Holder in a foreign country or (b) the gain from the disposition is attributable to an office or other fixed place of business maintained by such non-U.S. Holder in the United States. A Note held directly by an individual who, at the time of death, is not a citizen or resident of the United States should not be includible in such individual's gross estate for U.S. estate tax purposes as a result of such individual's death if the individual does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote and, at the time of the individual's death, if payments with respect to such Note would not have been effectively connected with the conduct by such individual of a trade or business in the United States. Even if the Note is includible in the gross estate under the foregoing rules, the Note may be excluded under the provisions of an applicable estate tax treaty. The Common Stock. In general, dividends (including any amounts that are treated as dividends as described above) paid to a Non-U.S. Holder of the Common Stock should be subject to U.S. federal income tax withholding at a 30% rate unless such rate is reduced by an applicable income tax treaty. Dividends that are effectively connected with such Non-U.S. Holder's conduct of a trade or business in the United States or, if a tax treaty applies, attributable to a permanent establishment, or, in the case of an individual, a "fixed base," in the United States ("U.S. trade or business income") are generally subject to U.S. federal income tax at regular rates, but are not generally subject to the 30% withholding tax if the Non-U.S. Holder files the appropriate form with the payer. Any U.S. trade or business income received by a Non-U.S. Holder that is a corporation may also, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate or such lower rate as may be applicable under an income tax treaty. Dividends paid to an address in a foreign country are presumed (absent actual knowledge to the contrary) to be paid to a resident of such country for purposes of the withholding tax discussed above and, under the current interpretation of Treasury Regulations, for purposes of determining the applicability of a tax treaty rate. However, on April 22, 1996, the Internal Revenue Service (the "Service") proposed regulations (the "Proposed Regulations") which would generally be effective for payments made after December 31, 1997, under which a Non-U.S. Holder of the Common Stock who wishes to claim the benefit of an applicable tax treaty rate would be required to satisfy applicable certification and other requirements. Prospective investors who would be Non-U.S. Holders should consult their tax advisors regarding the possible application of these rules. 26 29 A Non-U.S. Holder of the Common Stock that is eligible for a reduced rate of U.S. federal withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS. A Non-U.S. Holder of the Common Stock should generally not be subject to U.S. income or withholding tax on gain realized on the sale, exchange or redemption (provided that the redemption is treated as the sale or exchange of the stock) of such stock, unless the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of the disposition, and either (a) has a tax home in the United States and the gain from the disposition is not attributable to an office or other fixed place of business maintained by such Non-U.S. Holder in a foreign country or (b) the gain from the disposition is attributable to an office or other fixed place of business maintained by such Non-U.S. Holder in the United States. Common Stock held directly by an individual who at the time of death is not a citizen or resident of the United States will nevertheless generally be includible in the gross estate of such individual for U.S. estate tax purposes, subject to contrary provisions of an applicable estate tax treaty. Backup Withholding and Information Reporting. Payments on the Notes made by the Company or any paying agent of the Company and payments of dividends on the Common Stock to certain noncorporate Non-U.S. Holders generally should be subject to information reporting and possibly to "backup withholding" at a rate of 31%. Information reporting and backup withholding do not apply, however, to payments made outside the United States by the Company or a paying agent on a Note or to payments of dividends on the Common Stock if the certification described under "Non-U.S. Holders -- The Notes" above is received, provided in each case that the payer does not have actual knowledge that the Holder is a U.S. Holder. Payment of proceeds from a sale of a Note or the Common Stock to or through the U.S. office of a broker is subject to information reporting and backup withholding unless the Non-U.S. Holder certifies as to its non-U.S. status or otherwise establishes an exemption from information reporting and backup withholding. Payment outside the United States of the proceeds of the sale of a Note or the Common Stock to or through a foreign office of a "broker" (as defined in applicable U.S. Treasury Regulations) should not be subject to information reporting or backup withholding, except that if the broker is a U.S. person, a controlled foreign corporation for U.S. federal income tax purposes or a foreign person 50% or more of whose gross income is from a U.S. trade or business, information reporting should apply to such payment unless the broker has documentary evidence in its records that the beneficial owner is not a U.S. Holder and certain other conditions are not met or the beneficial owner otherwise establishes an exemption. The Proposed Regulations could affect the procedures to be followed by a Non-U.S. Holder or a financial institution in establishing such Non-U.S. Holder's non-United States status. Each Non-U.S. Holder should consult its tax advisor regarding the effect, if any, of the Proposed Regulations on its purchase, ownership, conversion, and disposition of the Notes, and its ownership and disposition of the Common Stock obtained as a result of any such conversion. THE U.S. FEDERAL INCOME TAX AND ESTATE TAX DISCUSSION SET FORTH ABOVE IS INTENDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO A PARTICULAR HOLDER'S SITUATION. PERSONS CONSIDERING A PURCHASE OF THE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF THE NOTES AND THE COMMON STOCK, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL OR FOREIGN LAWS AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES (POSSIBLY INCLUDING RETROACTIVE CHANGES) IN U.S. FEDERAL AND OTHER TAX LAWS. SELLING HOLDERS The Notes were initially issued and sold to Bear, Stearns & Co., Inc., Goldman, Sachs & Co., Merrill Lynch & Co., Morgan Stanley & Co. Incorporated, Robertson, Stephens & Company and Smith Barney Inc. 27 30 (together, the "Initial Purchasers"). The Selling Holders acquired the Notes (a) from the Initial Purchasers in transactions complying with Rule 144A, Regulation D or Regulation S under the Securities Act or (b) in other permitted resale transactions exempt from registration under the Securities Act from the Initial Purchasers or holders who acquired the Notes from the Initial Purchasers or other prior holders thereof. The Company agreed to indemnify and hold the Initial Purchasers harmless against certain liabilities under the Securities Act that would arise in connection with the sale of the Notes by the Initial Purchasers. The Selling Holders may from time to time offer and sell pursuant to this Prospectus any or all of the Notes or Common Stock issued upon conversion thereof. Except as otherwise indicated, the table below sets forth certain information with respect to the Selling Holders and the Securities as of June 4, 1996. The term Selling Holders includes the beneficial owners of the securities listed below and their transferees, pledgees, donees or other successors. Unless otherwise noted, the nature of beneficial ownership is sole voting and/or investment power. Other than as a result of the ownership of Securities indicated below, none of the Selling Holders has had any material relationship with the Company or any of its affiliates within the past three years. Aggregate Principal Amount Number of Shares of Notes of Common Stock Name That May Be Sold That May Be Sold * - ---- -------------------------- ------------------ San Diego City Employees Retirement System 540,000 11,498 Occidental College 160,000 3,407 San Diego County Convertible 1,840,000 39,178 Boston Museum of Fine Arts 60,000 1,278 Wake Forest University 460,000 9,795 Presbyterian Healthcare 330,000 7,027 Equity Portfolio(1) 15,000,000 319,387 South Dakota Retirement System 3,500,000 7,452 The TCW Group, Inc. on behalf of the following accounts: (a) TCW Convertible Value Fund 2,230,000 47,482 (b) General Motors Salaried Employees Convertible Fund 5,600,000 119,238 (c) State of Michigan Employees Retirement Fund 1,440,000 30,661 (d) TCW Convertible Securities Fund 3,325,000 70,797 (e) Cincinnati Bell Telephone Convertible Value Fund 625,000 13,308 (f) Massachusetts Mutual Life Insurance Company 590,000 12,563 (g) North Dakota State Workers Compensation Fund 845,000 17,992 (h) TCW/DW Income & Growth Fund 415,000 8,836 (i) Medical Malpractice Insurance Association 130,000 2,768 (j) TCW Convertible Strategy Fund 890,000 18,950 (k) TCW Convertible Value L.P. 340,000 7,239 (l) North Dakota State Land Dept. 310,000 6,601 Oppenheimer Bond Fund for Growth 6,000,000 127,755 Hillside Capital Corporation 85,000 1,810 Any other Selling Holder or future transferee from any such Selling Holder 202,535,000 4,312,466 ------------ --------- $247,250,000 5,264,558 (1) Equity Portfolio is a portfolio in the Preferred Master Trust Group (the "Trust Group") and is a series of an investment company registered under the Investment Company Act of 1940, as amended. American Express Financial Corporation, ("AEFC"), formerly known as IDS Financial Corporation, an investment adviser registered under the Investment Advisers Act of 1940, as amended, provides investment advisory services to the Trust Group and to certain other registered investment companies. AEFC is a wholly-owned subsidiary of American Express Company. The information set forth in the table with respect to the portfolio and the information set forth in this footnote was provided by AEFC. * Assumes a conversion price of $46.965 per share, and a cash payment in lieu of any fractional share interest. The preceding table has been prepared based upon information furnished to the Company by the Depository Trust Company and by or on behalf of the Selling Holders. Additional information concerning ownership of the Securities offered hereby rests with certain holders of the Securities who are not named in the preceding table, with whom the Company believes it has no affiliation and from whom the Company has received no response to its request for such information. In view of the fact that Selling Holders may offer all or a portion of the Notes or shares of Common Stock held by them pursuant to the offering contemplated by this Prospectus, and because this offering is not being underwritten on a firm commitment basis, no estimate can be given as to the amount of Notes or the number of shares of Common Stock that will be held by the Selling Holders after completion of the offering made hereby. In addition, the Selling Holders may have sold, transferred or otherwise disposed of all or a portion of their Notes and/or Common Stock since the date on which they provided the information set for above, in transactions exempt from the registration requirements of the Securities Act. Information concerning the Selling Holders may change from time to time and any such changed information will be set forth in supplements to this Prospectus if and when necessary. In addition, the per share conversion price, and therefor the number of shares issuable upon conversion of the Notes, is subject to adjustment under certain circumstances. Accordingly, the aggregate principal amount of Notes and the number of shares of Common Stock issuable upon conversion of the Notes offered hereby may increase or decrease. PLAN OF DISTRIBUTION The Securities covered hereby may be offered and sold from time to time by the Selling Holders. The Selling Holders will act independently of the Company in making decisions with respect to the timing, manner and size of each sale. Sales of the Securities are, in general, expected to be made at the market price prevailing at the time of each such sale; however, prices in negotiated transactions may differ considerably. Such sales may be made 28 31 on the NYSE or otherwise, at market prices prevailing at the time of sale, at prices related to the then prevailing market prices or in negotiated transactions, including without limitation pursuant to one or more of the following methods: (a) purchases by a broker-dealer as principal and resale by such broker or dealer for its account pursuant to this Prospectus; (b) ordinary brokerage transactions and transactions in which a broker solicits purchasers; and (c) block trades in which a broker-dealer so engaged will attempt to sell the Securities as agent but may take a position and resell a portion of the block as principal to facilitate the transaction. The Selling Holders have agreed that they will not participate in any underwritten offering of the Securities and the Company has no obligation to conduct or cooperate in such an offering for their benefit. The Company has been advised that, as of the date hereof, the Selling Holders have made no arrangement with any broker for the offering or sale of the Notes or the shares of Common Stock issuable upon conversion thereof. Brokers, dealers or agents may participate in such transactions as agents and may, in such capacity, receive brokerage commissions from the Selling Holders or purchasers of such securities. Such brokers, dealers or agents may also purchase the Notes or shares of Common Stock issuable upon conversion thereof and resell such securities for their own account. The Selling Holders and such brokers, dealers or agents may be considered "underwriters" as that term is defined by the Securities Act, although the Selling Holders disclaim such status. Any commissions, discounts or profits received by such brokers, dealers or agents in connection with the foregoing transactions may be deemed to be underwriting discounts and commissions under the Securities Act. To comply with the securities laws of certain jurisdictions, if applicable, the Notes and Common Stock issuable upon conversion thereof will be offered or sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain jurisdictions, the Notes and Common Stock issuable upon conversion thereof may not be offered or sold unless they have been registered or qualified for sale in such jurisdictions or unless an exemption from such registration or qualification is available and is complied with. Under applicable rules and regulations under the Exchange Act, any person engaged in a distribution of the Notes or the shares of Common Stock issuable upon conversion thereof may be limited in its ability to engage in market activities with respect to such Notes or the shares of Common Stock issuable upon conversion thereof. In addition and without limiting the foregoing, each Selling Holder will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Rules 10b-2, 10b-5, 10b-6 and 10b-7, which provisions may limit the timing of purchases and sales of any of the Notes and shares of Common Stock issuable upon conversion thereof by the Selling Holders. All of the foregoing may affect the marketability of the Notes and shares of Common Stock issuable upon conversion thereof. The Company may suspend the use of this Prospectus and any supplements hereto in certain circumstances due to pending corporate developments, public filings with the Commission or similar events. The Company is obligated in the event of such suspension to use its reasonable efforts to ensure that the use of the Prospectus may be resumed as soon as practicable. The Company has agreed to pay substantially all of the expenses incident to the registration, offering and sale of the Notes or the shares of Common Stock issuable upon conversion thereof to the public other than commissions and discounts of brokers, dealers or agents and other than the fees and disbursements of counsel to the Holders, which shall be paid by the Initial Purchasers of the Notes. Such expenses (excluding such commissions and discounts and fees and disbursements of counsel to the Holders) are estimated to be approximately $275,300. The Company has also agreed to indemnify the Selling Holders against certain liabilities, including certain liabilities under the Securities Act. LEGAL MATTERS The validity of the Securities offered hereby and certain additional legal matters will be passed upon for the Company by Sheehan Phinney Bass + Green, Professional Association, Manchester, New Hampshire. Certain members of Sheehan Phinney Bass + Green, Professional Association beneficially own an aggregate of 60,840 shares of Common Stock as of the date hereof. 29 32 EXPERTS The consolidated financial statements and the related financial statement schedules incorporated in this prospectus by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1995 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is incorporated herein by reference, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. With respect to the unaudited interim financial information for the period ended March 31, 1996 and 1995 which is incorporated herein by reference, Deloitte & Touche LLP have applied limited procedures in accordance with professional standards for a review of such information. However, as stated in their report included in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 and incorporated by reference herein, they did not audit and they do not express an opinion on that interim financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. Deloitte & Touche LLP are not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited interim financial information because such report is not a "report" or a "part" of the registration statement prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act. 30 33 No dealer, sales representative, or any other person has been authorized to give any information or to make any representation not contained in this Prospectus, and, if given or made, such information or representation must not be relied upon as having been authorized by the Company or any Selling Holder. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that the information herein is correct as of any time subsequent to the date hereof or that there been no change in the affairs of the Company since such date. ---------------------- TABLE OF CONTENTS Page ---- Available Information................. 3 Incorporation of Certain Documents by Reference...................... 3 Summary............................... 4 Risk Factors.......................... 7 Pro Forma Financial Information....... 10 Ratio of Earnings to Fixed Charge..... 15 Use of Proceeds....................... 15 Description of the Notes.............. 15 Description of Capital Stock.......... 23 Certain Tax Considerations............ 24 Selling Holders....................... 27 Plan of Distribution.................. 28 Legal Matters......................... 29 Experts............................... 30 HEALTHSOURCE, INC. $247,250,000 5% CONVERTIBLE SUBORDINATED NOTES DUE 2003 AND COMMON STOCK - ------------------------------------- PROSPECTUS - ------------------------------------- JUNE 4, 1996 31 34 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The expenses in connection with the distribution of the Securities being registered are estimated as follows: Securities and Exchange Commission Registration Fee $ 85,300 Legal Fees and Expenses 75,000 Accounting Fees and Expenses 75,000 State Securities Laws Registration Fees and Expenses 10,000 Trustee and Registrar Fees and Expenses 10,000 Miscellaneous 20,000 -------- Total $275,300 ========
All such expenses will be borne by the Company, other than the fees and expenses of counsel to the Selling Holders, which will be borne by the Initial Purchasers of the Notes. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS The By-Laws of the Company and the New Hampshire Business Corporation Act provide that the Company shall indemnify any person who is or was a party to any pending or completed action, other than an action by or in the right of the Company, by reason of the fact that he is or was a director, officer, employee or agent of the Company, against expenses, judgments, fines and amounts paid in settlement if he acted in good faith and he reasonably believed, (i) in the case of conduct in his official capacity that his conduct was in the best interests of the Company, or (ii) in all other cases, that his conduct was not opposed to its best interests; or, in the case of a criminal proceeding, he had no reasonable cause to believe his conduct was unlawful. Any such director, officer, employee or agent shall be indemnified by the Company in an action by or in the right of the Company to the same extent and under the same circumstances, except that no indemnification may be made for any claim as to which the person shall have been adjudged to be liable to the Company. The Company may not indemnify any such director, officer, employee or agent in connection with any proceeding charging improper personal benefit to him if he is adjudged liable on that basis. Prior to and as a condition of any indemnification by the Company of any such director, officer, employee or agent, the Board of Directors must make a determination that under the facts of the matter, the person seeking indemnification met the applicable standard of conduct. However, the Company must indemnify a director who is wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he is or was a director of the Company. In the case of the advancement by the Company of expenses before the final disposition of a proceeding involving any such person, such person must affirm his good faith belief that his conduct met the applicable standard of conduct and must undertake to repay the advance if it is ultimately determined that he did not meet the applicable standard of conduct, and the Board of Directors must make a determination that the facts then known would not preclude indemnification of such person. The Company is obligated pursuant to indemnity agreements with its directors and executive officers to indemnify them to the full extent permitted by law. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that, in II-1 35 the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. 16. EXHIBITS
Exhibit Source or Page No. Document of This Report - ------- -------- -------------- (4) Instruments Defining the Rights of Security Holders 4.1 Indenture dated as of March 6, 1996 by and Filed herewith between Healthsource, Inc. and The Bank of New York as Trustee and the form of First Supplemental Indenture dated as of June 3, 1996 4.2 Note Resale Registration Rights Agreement dated Exhibit 4.2 to Form 10-Q for as of March 6, 1996 by and between the Quarter Ended March 31, Healthsource, Inc. and Bear, Stearns & Co., 1996 Inc. for itself and on behalf of the Initial Purchasers (5) Opinion regarding Legality 5.1 Opinion of Sheehan Phinney Bass + Green, Filed herewith Professional Association (12) Computation of Historical Financial Ratios Filed herewith (15) Letter regarding Unaudited Interim Financial Information Filed herewith (23) Consents of Experts and Counsel 23.1 Consent of Deloitte & Touche LLP Filed herewith 23.2 Consent of Sheehan Phinney Bass + Green, Included in Exhibit 5.1 above Professional Association (25) Statement of Eligibility of Trustee 25.1 Statement of The Bank of New York Filed herewith
ITEM 17. UNDERTAKINGS The Company hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to include any material information with respect to the plan of distribution not previously II-2 36 disclosed in the registration statement or any material change to such information 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 offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (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. The Company hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Company's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in this 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. Insofar as indemnification for liabilities under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Company pursuant to the provisions described in Item 15 above, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim of indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in a 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 Company 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 of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The Company hereby undertakes to file an application for the purpose of determining the eligibility of the trustee to act under subsection (a) of Section 310 of the Trust Indenture Act in accordance with the rules and regulations prescribed by the Commission under Section 305(b)(2) of the Act. II-3 37 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Healthsource, Inc. 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 Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Hooksett, State of New Hampshire, on June 4, 1996. HEALTHSOURCE, INC. /s/ Norman C. Payson, M.D. By:________________________________ Norman C. Payson, M.D. President and Chief Executive Officer (Principal Executive Officer) /s/ Thomas M. Congoran By:________________________________ Thomas M. Congoran Chief Financial Officer (Principal Financial and Accounting Officer) Each person whose signature appears below hereby constitutes and appoints each of Norman C. Payson, M.D. and Thomas M. Congoran, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities (until revoked in writing) to sign any and all amendments (including post-effective amendments) to this Registration Statement, to file the same, together with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, to sign any and all applications, registration statements, notices and other documents necessary or advisable to comply with the applicable state securities laws, and to file the same, together with all other documents in connection therewith, with the appropriate state securities authorities, granting unto said attorneys-in-fact and agents or any of them, or their or his substitutes or substitute, full power and authority to perform and do each and every act and thing necessary and advisable as fully to all intends and purposes as he might or could perform and do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Date Title Signature - ---- ----- --------- June 4, 1996 Director /s/ Norman C. Payson, M.D. __________________________ Norman C. Payson, M.D. June 4, 1996 Director and Chairman /s/ Merwyn Bagan, M.D. of the Board __________________________ Merwyn Bagan, M.D.
II-4 38 June 4, 1996 Director /s/ Paul D. Baron, M.D. ______________________________ Paul D. Baron, M.D. June 4, 1996 Director /s/ Daniel F. Eubank, M.D. ______________________________ Daniel F. Eubank, M.D. Director ______________________________ Robert A. Leipold, M.D. June 4, 1996 Director /s/ Robert S. Cathcart, M.D. ______________________________ Robert S. Cathcart, M.D. June 4, 1996 Director /s/ Francis G. Middleton, M.D. ______________________________ Francis G. Middleton, M.D. June 4, 1996 Director /s/ Robert H. Bilbro, M.D. ______________________________ Robert H. Bilbro, M.D. June 4, 1996 Director /s/ David W. Schall, M.D. _______________________________ David W. Schall, M.D. June 4, 1996 Director /s/ J. Harold Chandler _______________________________ J. Harold Chandler
II-5 39 EXHIBIT INDEX
Exhibit Source or Page No. Document of This Report - ------- -------- -------------- (4) Instruments Defining the Rights of Security Holders 4.1 Indenture dated as of March 6, 1996 by and Filed herewith between Healthsource, Inc. and The Bank of New York as Trustee and the form of First Supplemental Indenture dated as of June 3, 1996 4.2 Note Resale Registration Rights Agreement dated Exhibit 4.2 to Form 10-Q for as of March 6, 1996 by and between the Quarter Ended March 31, Healthsource, Inc. and Bear, Stearns & Co., 1996 Inc. for itself and on behalf of the Initial Purchasers (5) Opinion regarding Legality 5.1 Opinion of Sheehan Phinney Bass + Green, Filed herewith Professional Association (12) Computation of Historical Financial Ratios Filed herewith (15) Letter regarding Unaudited Interim Financial Information Filed herewith (23) Consents of Experts and Counsel 23.1 Consent of Deloitte & Touche LLP Filed herewith 23.2 Consent of Sheehan Phinney Bass + Green, Included in Exhibit 5.1 above Professional Association (25) Statement of Eligibility of Trustee 25.1 Statement of The Bank of New York Filed herewith
EX-4.1 2 INDENTURE AS OF 3/6/96 1 EXHIBIT 4.1 ================================================================================ HEALTHSOURCE, INC. Issuer AND THE BANK OF NEW YORK Trustee INDENTURE Dated as of March 6, 1996 5% Convertible Subordinated Notes Due 2003 ================================================================================ 2 CROSS REFERENCE TABLE PURSUANT TO ITEM 601(b)(4)(iv) OF REGULATION S-K
TRUST INDENTURE ACT SECTION REFERENCE SECTION REFERENCE IN INDENTURE - ------------------- --------------------- [Section 310](a)(1)................................ 7.10 (a)(2)................................ 7.10 (a)(3)................................ N/A (a)(4)................................ N/A (a)(5)................................ 7.10 (b)................................... 7.9 [Section 311](a)................................... 7.14 (b)................................... 7.14 [Section 312](a)................................... 2.5(a), 5.1 (b)................................... 16.5 (c)................................... 16.5 [Section 313](a)................................... 7.2 (b)................................... 7.2 (c)................................... 7.2 (d)................................... 7.2 [Section 314](a)................................... 5.2, 4.8(a) (b)................................... N/A (c)................................... 16.7 (d)................................... N/A (e)................................... 16.7 [Section 315](a)................................... 7.1 (b)................................... 6.8 (c)................................... 7.1 (d)................................... 7.1 (e)................................... 6.9 [Section 316](a)(1)................................ 6.7 (a)(2)................................ N/A (b)................................... 6.4 (c)................................... 9.2 [Section 317](a)................................... 6.2 (b)................................... 4.4 [Section 318](a)................................... 16.10, 16.11 N/A means not applicable. Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture.
3 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS Section 1.1 Definitions.............................................. 2 ARTICLE II ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES Section 2.1 Designation, Amount and Issue of Notes................................................. 8 Section 2.2 Form of Notes............................................ 8 Section 2.3 Date and Denomination of Notes; Payments of Interest..................................... 10 Section 2.4 Execution of Notes....................................... 11 Section 2.5 Exchange and Registration of Transfer of Notes; Restrictions on Transfer; Depositary.................................. 12 Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes............................................. 23 Section 2.7 Temporary Notes.......................................... 24 Section 2.8 Cancellation of Notes Paid, Etc.......................... 25 ARTICLE III REDEMPTION OF NOTES Section 3.1 Redemption Prices........................................ 25 Section 3.2 Notice of Redemption; Selection of Notes....................................... 26 Section 3.3 Payment of Notes Called for Redemption............................................... 28 Section 3.4 Conversion Arrangement on Call for Redemption........................................... 28 Section 3.5 Purchase of Notes Upon a Change of Control............................................... 29 ARTICLE IV PARTICULAR COVENANTS OF THE COMPANY Section 4.1 Payment of Principal, Premium and Interest............................................. 30 Section 4.2 Maintenance of Office or Agency.......................... 31
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Page ---- Section 4.3 Appointments to Fill Vacancies in Trustee's Office.......................................... 31 Section 4.4 Provisions as to Paying Agent............................. 31 Section 4.5 Corporate Existence....................................... 33 Section 4.6 Rule 144A Information Requirement......................... 33 Section 4.7 Stay, Extension and Usury Laws............................ 33 Section 4.8 Compliance Statement; Notice of Defaults.................................................. 33 ARTICLE V NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY Section 5.1 Noteholders' Lists........................................ 34 Section 5.2 Reports by Company........................................ 34 ARTICLE VI DEFAULTS AND REMEDIES Section 6.1 Events of Default......................................... 35 Section 6.2 Payments of Notes on Default; Suit Therefor.................................................. 37 Section 6.3 Application of Monies Collected by Trustee................................................... 39 Section 6.4 Proceedings by Noteholder................................. 40 Section 6.5 Proceedings by Trustee.................................... 41 Section 6.6 Remedies Cumulative and Continuing........................ 41 Section 6.7 Direction of Proceedings and Waiver of Defaults by Majority of Noteholders............................................... 41 Section 6.8 Notice of Defaults........................................ 42 Section 6.9 Undertaking to Pay Costs.................................. 42 ARTICLE VII CONCERNING THE TRUSTEE Section 7.1 Duties and Responsibilities of Trustee................................................ 43 Section 7.2 Reports by Trustee to Holders............................. 44 Section 7.3 Reliance on Documents, Opinions, Etc...................... 44 Section 7.4 No Responsibility for Recitals, Etc....................... 46 Section 7.5 Trustee, Paying Agents, Conversion Agents or Registrar May Own Notes......................... 46 Section 7.6 Monies to Be Held in Trust................................ 46 Section 7.7 Compensation and Expenses of Trustee...................... 46 Section 7.8 Officers' Certificate as Evidence......................... 47 Section 7.9 Conflicting Interests of Trustee.......................... 47
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Page ---- Section 7.10 Eligibility of Trustee.................................. 47 Section 7.11 Resignation or Removal of Trustee....................... 48 Section 7.12 Acceptance by Successor Trustee......................... 49 Section 7.13 Successor, by Merger, Etc............................... 50 Section 7.14 Limitation on Rights of Trustee as Creditor............................................. 50 ARTICLE VIII CONCERNING THE NOTEHOLDERS Section 8.1 Action by Noteholders................................... 50 Section 8.2 Proof of Execution by Noteholders....................... 51 Section 8.3 Who Are Deemed Absolute Owners.......................... 51 Section 8.4 Company-Owned Notes Disregarded......................... 52 Section 8.5 Revocation of Consents, Future Holders Bound........................................... 52 ARTICLE IX NOTEHOLDERS MEETINGS Section 9.1 Purposes for Which Meetings May be Called.................................................. 53 Section 9.2 Manner of Calling Meetings; Record Date................. 53 Section 9.3 Call of Meeting by Company or Noteholders............................................. 53 Section 9.4 Who May Attend and Vote at Meetings..................... 54 Section 9.5 Manner of Voting at Meetings and Record to be Kept....................................... 54 Section 9.6 Exercise of Rights of Trustee and Noteholders Not To Be Hindered or Delayed................................................. 55 ARTICLE X SUPPLEMENTAL INDENTURES Section 10.1 Supplemental Indentures Without Consent of Noteholders.................................. 55 Section 10.2 Supplemental Indentures With Consent of Noteholders.................................. 57 Section 10.3 Effect of Supplemental Indentures....................... 57 Section 10.4 Notation on Notes....................................... 58 Section 10.5 Evidence of Compliance of Supplemental Indenture to Be Furnished Trustee....................... 58
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Page ---- ARTICLE XI CONSOLIDATION, MERGER, SALE, CONVEYANCE, TRANSFER AND LEASE Section 11.1 Company May Consolidate, Etc. on Certain Terms........................................... 58 Section 11.2 Successor Company To Be Substituted..................... 59 Section 11.3 Opinion of Counsel To Be Given to Trustee.............................................. 59 ARTICLE XII SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS Section 12.1 Legal Defeasance and Covenant Defeasance of the Notes................................. 60 Section 12.2 Termination of Obligations upon Cancellation of the Notes............................... 62 Section 12.3 Survival of Certain Obligations......................... 63 Section 12.4 Acknowledgment of Discharge by Trustee.................. 63 Section 12.5 Application of Trust Assets............................. 63 Section 12.6 Repayment to the Company; Unclaimed Money................................................... 64 Section 12.7 Reinstatement........................................... 64 ARTICLE XIII IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS Section 13.1 Indenture and Notes Solely Corporate Obligations............................................. 65 ARTICLE XIV CONVERSION OF NOTES Section 14.1 Right to Convert........................................ 65 Section 14.2 Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends................................... 66 Section 14.3 Cash Payments in Lieu of Fractional Shares.................................................. 68 Section 14.4 Conversion Price........................................ 68 Section 14.5 Adjustment of Conversion Price.......................... 68 Section 14.6 Effect of Reclassification, Consolidation, Merger or Sale........................... 78
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Page ---- Section 14.7 Taxes on Shares Issued.................................. 79 Section 14.8 Reservation of Shares; Shares to Be Fully Paid; Listing of Common Stock..................... 80 Section 14.9 Responsibility of Trustee............................... 80 Section 14.10 Notice to Holders Prior to Certain Actions................................................. 81 ARTICLE XV SUBORDINATION Section 15.1 Agreement to Subordinate................................ 82 Section 15.2 Certain Definitions..................................... 82 Section 15.3 Liquidation; Dissolution; Bankruptcy.................... 83 Section 15.4 Default on Senior Indebtedness.......................... 83 Section 15.5 When Distribution Must Be Paid Over..................... 84 Section 15.6 Notice by Company....................................... 85 Section 15.7 Subrogation............................................. 85 Section 15.8 Relative Rights......................................... 85 Section 15.9 Subordination May Not Be Impaired by Company................................................. 86 Section 15.10 Distribution or Notice to Representative.......................................... 86 Section 15.11 Rights of Trustee and Paying Agent...................... 86 Section 15.12 Authorization to Effect Subordination................... 87 Section 15.13 Conversions Not Deemed Payment.......................... 87 Section 15.14 Amendments.............................................. 88 ARTICLE XVI MISCELLANEOUS PROVISIONS Section 16.1 Pooling of Interests.................................... 88 Section 16.2 Provisions Binding on Company's Successors.............................................. 88 Section 16.3 Official Acts by Successor Company...................... 88 Section 16.4 Addresses for Notices, Etc.............................. 88 Section 16.5 Communications by Holders with Other Holders................................................. 89 Section 16.6 Governing Law........................................... 89 Section 16.7 Evidence of Compliance with Conditions Precedent; Certificates to Trustee...................... 89 Section 16.8 Legal Holidays.......................................... 90 Section 16.9 No Security Interest Created............................ 90 Section 16.10 Trust Indenture Act..................................... 90 Section 16.11 Trust Indenture Act Controls............................ 90 Section 16.12 Benefits of Indenture................................... 90 Section 16.13 Table of Contents, Headings Etc......................... 90 Section 16.14 Authenticating Agent.................................... 90 Section 16.15 Execution in Counterparts............................... 91
v 8 INDENTURE dated as of March 6, 1996 between HEALTHSOURCE, INC., a New Hampshire corporation (hereinafter sometimes called the "Company," as more fully set forth in Section 1.1), and THE BANK OF NEW YORK, a New York banking corporation (hereinafter sometimes called the "Trustee," as more fully set forth in Section 1.1). W I T N E S S E T H : WHEREAS, for its lawful corporate purposes, the Company has duly authorized the issuance of its 5% Convertible Subordinated Notes Due 2003 (hereinafter sometimes called the "Notes"), in an aggregate principal amount not to exceed $247,250,000 and, to provide the terms and conditions upon which the Notes are to be authenticated, issued and delivered, the Company has duly authorized the execution and delivery of this Indenture; and WHEREAS, the Notes, the certificate of authentication to be borne by the Notes, a form of assignment, a form of option to require repurchase by the Company upon a Change of Control (as hereinafter defined), a form of conversion notice and a certificate of transfer to be borne by the Notes are to be substantially in the forms hereinafter provided for; and WHEREAS, all acts and things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee or a duly authorized authenticating agent, as in this Indenture provided, the valid, binding and legal obligations of the Company, and to constitute these presents a valid agreement according to its terms, have been done and performed, and the execution of this Indenture and the issuance hereunder of the Notes have in all respects been duly authorized. NOW, THEREFORE, THIS INDENTURE WITNESSETH: That in order to declare the terms and conditions upon which the Notes are, and are to be, authenticated, issued and delivered, and in consideration of the premises and of the purchase and acceptance of the Notes by the holders thereof, the Company covenants and agrees with the Trustee for the equal and proportionate benefit of the respective holders from time to time of the Notes (except as otherwise provided below) as follows: 9 ARTICLE I DEFINITIONS Section 1.1 Definitions. The terms defined in this Section 1.1 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.1. All other terms used in this Indenture that are defined in the Trust Indenture Act (as hereinafter defined) or that are by reference defined in the Securities Act (as hereinafter defined), except as herein otherwise expressly provided or unless the context otherwise requires, shall have the meanings assigned to such terms in said Trust Indenture Act and in said Securities Act as in force at the date of the execution of this Indenture. The words "herein," "hereof," "hereunder" and words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other Subdivision. The terms defined in this Article include the plural as well as the singular. Accredited Investor: The term "Accredited Investor" shall have the meaning specified in Rule 501(a) under the Securities Act. Acquisition Price: The term "Acquisition Price" shall mean the weighted average price paid by the person or group in acquiring the Voting Stock. Affiliate: An "Affiliate" of any specified person shall mean an "affiliate" as defined in Rule 144(a) as promulgated under the Securities Act. Board of Directors: The term "Board of Directors" shall mean the Board of Directors of the Company or a committee of such Board of Directors duly authorized to act for it hereunder. Board Resolution: The term "Board Resolution" shall mean a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors, or a duly authorized committee thereof (to the extent permitted by applicable law), and to be in full force and effect on the date of such certification, and delivered to the Trustee. Business Day: The term "Business Day" shall mean a day, other than a Saturday, a Sunday or a day on which the banking institutions in the State of New York are authorized or obligated by law or executive order to close or a day that is declared a national or New York state holiday. 2 10 Cedel: The term "Cedel" shall mean Cedel Bank societe anonyme. Change of Control: The term "Change of Control" shall mean an event or series of events pursuant to which (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) acquires "beneficial ownership" (as determined in accordance with Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50% of the total Voting Stock of the Company at an Acquisition Price less than the Conversion Price then in effect with respect to the Notes and (ii) holders of the Common Stock receive consideration that is not all or substantially all common stock that is (or upon consummation of or immediately following such event or events shall be) listed on a United States national securities exchange or approved for quotation on the NASDAQ National Market or any similar United States system of automated dissemination of quotations of securities' prices; provided, however, that any such person or group shall not be deemed to be the beneficial owner of, or to beneficially own, any Voting Stock tendered into a tender offer until such tendered Voting Stock is accepted for purchase under the tender offer. Closing Date: The term "Closing Date" shall mean March 6, 1996. Commission: The term "Commission" shall mean the Securities and Exchange Commission. Common Stock: The term "Common Stock" shall mean any stock of any class of the Company that does not have a preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and that is not subject to redemption by the Company. Subject to the provisions of Section 14.6, however, shares issuable on conversion of Notes shall include only shares of the class designated as common stock of the Company at the date of this Indenture or shares of any class or classes resulting from any reclassification or reclassifications thereof and that do not have a preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and that are not subject to redemption by the Company; provided that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion that the total number of shares of such class resulting from all such reclassification bears to the total number of shares of all such classes resulting from all such reclassifications. 3 11 Company: The term "Company" shall mean Healthsource, Inc., a New Hampshire corporation, and subject to the provisions of Article XI, shall include its successors and assigns. Conversion Price: The term "Conversion Price" shall have the meaning specified in Section 14.4. Corporate Trust Office of the Trustee: The term "Corporate Trust Office of the Trustee," or other similar term, shall mean the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office is, at the date as of which this Indenture is dated, located at 101 Barclay Street, Floor 21 West, New York, New York 10286, Attention: Corporate Trust Trustee Administration. Custodian: The term "Custodian" shall mean The Bank of New York, as custodian with respect to the Notes in global form, or any successor entity thereto. default: The term "default" shall mean any event that is, or after notice or passage of time, or both, would be, an Event of Default. definitive Notes; in definitive form: The term "definitive Notes" shall have the meaning specified in Section 2.2, any reference to Notes "in definitive form" shall mean definitive Notes and any reference to Securities "in definitive form" shall mean definitive Notes or Common Stock as the context requires. Depositary: The term "Depositary" shall mean, with respect to the Notes issuable or issued in whole or in part in global form, the person specified in Section 2.5(d) as the Depositary with respect to the Notes, until a successor shall have been appointed and become such pursuant to the applicable provisions of this Indenture, and thereafter, "Depositary" shall mean or include such successor. DWAC: The term "DWAC" shall mean Deposit and Withdrawal at Custodian Service. Euroclear: The term "Euroclear" shall mean Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System. Event of Default: The term "Event of Default" shall mean any event specified in Section 6.1(a), (b), (c), (d) or (e). Exchange Act: The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 4 12 global Note: The term "global Note" shall mean any and all notes in global form. Indenture: The term "Indenture" shall mean this instrument as originally executed or, if amended or supplemented as herein provided, as so amended or supplemented. Note or Notes: The terms "Note" or "Notes" shall mean any Note or Notes, as the case may be, authenticated and delivered under this Indenture. Noteholder; holder: The terms "Noteholder" or "holder" as applied to any Note, or other similar terms (but excluding the term "beneficial holder"), shall mean any person in whose name at the time a particular Note is registered on the Note registrar's books. Note register: The term "Note register" shall have the meaning specified in Section 2.5(a). Officers' Certificate: The term "Officers' Certificate," when used with respect to the Company, shall mean a certificate signed by the President, the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer, any Treasurer, the Secretary or any Assistant Secretary of the Company, that is delivered to the Trustee. Each such certificate shall include the statements provided for in Section 16.7 if and to the extent required by the provisions of such Section. Opinion of Counsel: The term "Opinion of Counsel" shall mean an opinion in writing signed by legal counsel, who may be an employee of or counsel to the Company or other counsel acceptable to the Trustee, that is delivered to the Trustee. Each such opinion shall include the statements provided for in Section 16.7 if and to the extent required by the provisions of such Section. outstanding: The term "outstanding," when used with reference to Notes, shall, subject to the provisions of Section 8.4, mean, as of any particular time, all Notes authenticated and delivered by the Trustee under this Indenture, except (a) Notes theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (b) Notes, or portions thereof, for which monies in the necessary amount shall have been deposited in trust with the Trustee for payment or redemption; provided that if such Notes are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as in Article III provided, or provi- 5 13 sion satisfactory to the Trustee shall have been made for giving such notice; (c) Notes paid pursuant to Section 2.6 hereof or Notes in lieu of or in substitution for which other Notes shall have been authenticated and delivered pursuant to the terms of Section 2.6 unless proof satisfactory to the Trustee is presented that any such Notes are held by bona fide holders in due course; and (d) Notes converted into Common Stock pursuant to Article XIV and Notes not deemed outstanding pursuant to Section 3.2. person: The term "person" shall mean a corporation, an association, a partnership, an individual, a joint venture, a joint stock company, a trust, an unincorporated organization or a government or an agency or a political subdivision thereof. PORTAL Market: The term "PORTAL Market" shall mean the Private Offerings, Resales and Trading through Automated Linkages Market operated by the National Association of Securities Dealers, Inc. or any successor thereto. Predecessor Note: The term "Predecessor Note" of any particular Note shall mean every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purposes of this definition, any Note authenticated and delivered under Section 2.6 in lieu of a lost, destroyed or stolen Note shall be deemed to evidence the same debt as the lost, destroyed or stolen Note. QIB: The term "QIB" shall mean a "qualified institutional buyer" as defined in Rule 144A. Regulation S: The term "Regulation S" shall mean Regulation S under the Securities Act and any successor regulation thereto. Regulation S Global Note: The term "Regulation S Global Note" shall have the meaning specified in Section 2.2. Responsible Officer: The term "Responsible Officer," when used with respect to the Trustee, shall mean an officer of the Trustee assigned and duly authorized by the Trustee to administer its corporate trust matters. Restricted Global Note: The term "Restricted Global Note" shall have the meaning specified in Section 2.2. Restricted Period: The term "Restricted Period" shall have the meaning specified in Section 2.2. 6 14 Restricted Securities: The term "Restricted Securities" shall have the meaning specified in Section 2.5(d). Rule 144A: The term "Rule 144A" shall mean Rule 144A as promulgated under the Securities Act. Securities Act: The term "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. subsidiary: The term "subsidiary" of any specified person shall mean (i) a corporation a majority of whose capital stock with voting power under ordinary circumstances, to elect directors is at the time directly or indirectly owned by such person or (ii) any other person (other than a corporation) in which such person or such person and a subsidiary or subsidiaries of such person or a subsidiary or subsidiaries of such person directly or indirectly, at the date of determination thereof, has at least majority ownership. Successor Company: The term "Successor Company" shall have the meaning specified in Section 11.1. Trust Indenture Act: The term "Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as amended, as it was in force at the date of execution of this Indenture, except as provided in Sections 10.3 and 14.6; provided that in the event said Trust Indenture Act of 1939 is amended after the date hereof, the term "Trust Indenture Act" shall mean, to the extent required by such amendment, said Trust Indenture Act of 1939 as so amended. Trustee: The term "Trustee" shall mean The Bank of New York, its successors and any corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party and any successor trustee at the time serving as successor trustee hereunder. U.S. Government Obligations: The term "U.S. Government Obligations" shall mean securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a person controlled or supervised by, and acting as an agency or instrumentality of, the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any such U.S. Government Obligation or a specific payment of principal or interest on any such U.S. Government Obligation held by such custodian for the 7 15 account of the holder of such depository receipt; 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 depository receipt from any amount received by such custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt. Voting Stock: The term "Voting Stock" shall mean stock of the class or classes pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of a corporation (irrespective of whether or not at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). The definitions of certain other terms are as specified in Sections 2.3, 2.5, 3.5, 12.1, 14.5, 14.6, 15.2 and 15.4. ARTICLE II ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES Section 2.1 Designation, Amount and Issue of Notes. The Notes shall be designated as "5% Convertible Subordinated Notes Due 2003." Notes not to exceed the aggregate principal amount of $247,250,000 upon the execution of this Indenture, or from time to time thereafter, may be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and make available for delivery said Notes upon the written order of the Company, signed by its (a) Chief Executive Officer, President, Chief Operating Officer or Chief Financial Officer, and (b) any Treasurer or Secretary or any Assistant Secretary, without any further action by the Company hereunder. Section 2.2 Form of Notes. The Notes in definitive form ("definitive Notes") shall be substantially in the form of Exhibit A hereto, with the legends in substantially the form indicated in Exhibit A hereto and such other legends as may be applicable thereto, which definitive Notes shall be registered in the name of the holders thereof, duly executed by the Company and authenticated by the Trustee or the authenticating agent as provided herein. Unless issued in definitive form, Notes initially offered and sold in reliance on Rule 144A shall be issued in the form of one or more permanent global Notes (the "Restricted Global Note"), substantially in the form of Exhibit B hereto, with the legends in substantially the form set forth in Exhibit B 8 16 hereto and such other legends as may be applicable thereto, which Restricted Global Note shall be deposited on behalf of the holders of the Notes represented thereby with the Trustee, as custodian for the Depositary, and registered in the name of a nominee of the Depositary, duly executed by the Company and authenticated by the Trustee or the authenticating agent as provided herein. Notes offered and sold outside the United States in reliance on Regulation S may be evidenced in the form of one or more permanent global Notes (the "Regulation S Global Note"), substantially in the form of Exhibit C hereto, with the legends in substantially the form set forth in Exhibit C hereto and such other legends as may be applicable thereto, which Regulation S Global Note shall be deposited on behalf of the holders of the Notes represented thereby with the Trustee, as custodian for the Depositary, and registered in the name of a nominee of the Depositary, duly executed by the Company and authenticated by the Trustee or an authenticating agent as provided herein, for credit to the accounts of the respective depositaries for Euroclear and Cedel (or such other accounts as they may direct). Prior to or on the 40th day after the later of the commencement of the offering of the Notes and the Closing Date (the "Restricted Period"), beneficial interests in the Regulation S Global Note may only be held through Morgan Guaranty Trust Company of New York, Brussels office, as operator of Euroclear or Cedel or another agent member of Euroclear and Cedel acting for and on behalf of them, unless delivery is made through the Restricted Global Note in accordance with the certification requirements hereof. During the Restricted Period, interests in the Regulation S Global Note may be exchanged for interests in the Restricted Global Note or for definitive Notes only in accordance with the certification requirements described in Section 2.5 below. Any of the Notes may have such letters, numbers or other marks of identification and such notations, legends and endorsements as the officers executing the same may approve (execution thereof to be conclusive evidence of such approval) and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Notes may be listed, or to conform to usage. Any global Note shall represent such of the outstanding Notes as shall be specified therein and shall provide that it shall represent the aggregate amount of outstanding Notes from time to time endorsed thereon and that the aggregate amount of outstanding Notes represented thereby may from time to time be increased or reduced to reflect transfers or exchanges permitted hereby. Any endorsement of a global Note to reflect the amount 9 17 of any increase or decrease in the amount of outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in such manner and upon instructions given by the holder of such Notes in accordance with the Indenture. Payment of principal of and interest and premium, if any, on any global Note shall be made to the holder of such Note. The terms and provisions contained in the forms of Notes attached as Exhibits A, B and C hereto shall constitute, and are hereby expressly made, a part of this Indenture and to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Section 2.3 Date and Denomination of Notes; Payments of Interest. The Notes shall be issuable in registered form without coupons in denominations of $1,000 principal amount and integral multiples thereof. Every Note shall be dated the date of its authentication, shall bear interest from March 6, 1996 and shall be payable semiannually on each March 1 and September 1, commencing September 1, 1996, as specified on the faces of the forms of Notes, attached as Exhibits A, B and C hereto. The person in whose name any Note (or its Predecessor Note) is registered at the close of business on any record date with respect to any interest payment date (including any Note that is converted after the record date and on or before the interest payment date) shall be entitled to receive the interest payable on such interest payment date notwithstanding the cancellation of such Note upon any transfer, exchange or conversion subsequent to the record date and prior to such interest payment date. Interest may, at the option of the Company, be paid by check mailed to the address of such person as it appears on the Note register; provided that, with respect to any holder of Notes with an aggregate principal amount equal to or in excess of $5,000,000, at the request (such request to include appropriate wire instructions) of such holder in writing to the Trustee on or before the record date preceding any interest payment date, interest on such holder's Notes shall be paid by wire transfer in immediately available funds. The term "record date" with respect to any interest payment date shall mean the February 15 or August 15 preceding said March 1 or September 1. Interest on the Notes shall be computed on the basis of a 360-day year composed of twelve 30-day months. Any interest on any Note that is payable, but is not punctually paid or duly provided for, on any said March 1 or September 1 (herein called "Defaulted Interest") shall forthwith cease to be payable to the Noteholder on the relevant record date by virtue of his having been such Noteholder; and such Defaulted 10 18 Interest shall be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the persons in whose names the Notes (or their respective Predecessor Notes) 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 to be paid on each Note and the date of the payment (which shall be not less than 25 days after the receipt by the Trustee of such notice, unless the Trustee shall consent to an earlier date), and at the same time, the Company shall deposit with the Trustee an amount of money equal to the aggregate amount 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 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 payment of such Defaulted Interest and the special record date therefor to be mailed, first-class postage prepaid, to each Noteholder at his address as it appears in the Note register, 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 Notes (or their respective Predecessor Notes) were registered at the close of business on such special record date and shall no longer be payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes 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. Section 2.4 Execution of Notes. The Notes shall be signed in the name and on behalf of the Company by the signature of its Chief Executive Officer, President, Chief Operating 11 19 Officer or Chief Financial Officer and attested by the signature of its Treasurer, Secretary or any of its Assistant Secretaries (any of which signatures may be printed, engraved or otherwise reproduced thereon, by facsimile or otherwise). Only such Notes as shall bear thereon a certificate of authentication substantially in the form set forth on forms of Notes attached as Exhibits A, B and C hereto, manually executed by the Trustee (or an authenticating agent appointed by the Trustee as provided by Section 16.14), shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate by the Trustee (or such an authenticating agent) upon any Note executed by the Company shall be conclusive evidence that the Note so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture. In case any officer of the Company who shall have signed any of the Notes shall cease to be such officer before the Notes so signed shall have been authenticated and delivered by the Trustee, or disposed of by the Company, such Notes nevertheless may be authenticated and delivered or disposed of as though the person who signed such Notes had not ceased to be such officer of the Company; and any Note may be signed on behalf of the Company by such persons as, at the actual date of the execution of such Note, shall be the proper officers of the Company, although at the date of the execution of this Indenture any such person was not such an officer. Section 2.5 Exchange and Registration of Transfer of Notes; Restrictions on Transfer; Depositary. (a) 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 designated pursuant to Section 4.2 being herein sometimes collectively referred to as the "Note register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Notes and of transfers of Notes. Such Note register shall be in written form or in any form capable of being converted into written form within a reasonable period of time. The Trustee is hereby appointed "Note registrar" for the purpose of registering Notes and transfers of Notes as herein provided. The Company may appoint one or more co-registrars. Upon surrender for registration of transfer of any Note to the Note registrar or any co-registrar and satisfaction of the requirements for such transfer set forth in this Section 2.5, the Company shall execute, and the Trustee shall authenticate and make available for delivery, in the name of the designated transferee or transferees, one or more new Notes of any authorized denominations and of a like aggregate principal amount and 12 20 bearing such restrictive legends as may be required by Section 2.5(d). Notes may be exchanged for other Notes of any authorized denominations and of a like aggregate principal amount, upon surrender of the Notes to be exchanged at any such office or agency. Whenever any Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and make available for delivery, the Notes that the Noteholder making the exchange is entitled to receive. All Notes presented or surrendered for registration of transfer or for exchange shall (if so required by the Company, the Trustee, the Note registrar or any co-registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company, and the Note shall be duly executed by the Noteholder thereof or his attorney duly authorized in writing. No service charge shall be charged to the Noteholder for any exchange or registration of transfer of Notes, but the Company may require payment of a sum sufficient to cover any tax, assessments or other governmental charges that may be imposed in connection therewith. None of the Company, the Trustee, the Note registrar or any co-registrar shall be required to exchange or register a transfer of (a) any Notes for a period of 15 days next preceding the mailing of a notice of redemption or (b) any Notes called for redemption or, if a portion of any Note is selected or called for redemption, such portion thereof selected or called for redemption or (c) any Notes surrendered for conversion or, if a portion of any Note is surrendered for conversion, such portion thereof surrendered for conversion or (d) any Notes surrendered for redemption pursuant to Section 3.5 or, if a portion of any Note is surrendered for redemption pursuant to Section 3.5, such portion thereof surrendered for redemption pursuant to Section 3.5. All Notes issued upon any transfer or exchange of Notes shall be the valid obligations of the Company, evidencing the same debt and entitled to the same benefits under this Indenture as the Notes surrendered upon such registration of transfer or exchange. (b) So long as the Notes are eligible for book-entry settlement with the Depositary, or unless otherwise required by law, all Notes to be traded on the PORTAL Market shall be represented by the Restricted Global Note registered in the name of the Depositary or the nominee of the Depositary. The transfer and exchange of beneficial interests in any global Note that does not involve the issuance of a definitive Note or the transfer of 13 21 interests to another global Note shall be effected through the Depositary (but not the Trustee or the Custodian) in accordance with this Indenture (including the restrictions on transfer set forth herein) and the procedures of the Depositary therefor. Neither the Trustee nor the Custodian (in such respective capacities) shall have any responsibility for the transfer and exchange of beneficial interests in such global Note that does not involve the issuance of a definitive Note or the transfer of interests to another global Note. At any time at the request of the beneficial holder of an interest in a global Note, such beneficial holder shall be entitled to obtain a definitive Note upon written request to the Trustee and the Custodian in accordance with the standing instructions and procedures existing between the Depositary and the Custodian for the issuance thereof. Upon receipt of any such request, the Trustee or the Custodian, at the direction of the Trustee, shall cause, in accordance with the standing instructions and procedures existing between the Depositary and the Custodian, the aggregate principal amount of the global Note to be reduced and, following such reduction, the Company shall execute and the Trustee shall authenticate and make available for delivery to such beneficial holder (or its nominee) a Note or Notes in the appropriate aggregate principal amount in the name of such beneficial holder (or its nominee) and bearing such restrictive legends as may be required by this Indenture. Any transfer of a beneficial interest in a global Note that cannot be effected through book-entry settlement must be effected by the delivery to the transferee (or its nominee) of a definitive Note or Notes registered in the name of the transferee (or its nominee) on the books maintained by the Trustee. With respect to any such transfer, the Trustee or the Custodian, at the direction of the Trustee, shall cause, in accordance with the standing instructions and procedures existing between the Depositary and the Custodian, the aggregate principal amount of the global Note to be reduced and, following such reduction, the Company shall execute and the Trustee shall authenticate and make available for delivery to the transferee (or such transferee's nominee, as the case may be), a definitive Note or Notes in the appropriate aggregate principal amount in the name of such transferee (or its nominee) and bearing such restrictive legends as may be required by this Indenture. As a condition to such transfer, if such transfer is made to an Accredited Investor, the Trustee or the Custodian, at the direction of the Trustee, shall request such representations and agreements relating to the restrictions on transfer of such Note or Notes from such transferee (or such transferee's nominee) substantially in the form as set forth in Exhibit D hereto and as the Trustee (or the Custodian) may otherwise reasonably require. 14 22 Any transfer of a definitive Note or Notes must be effected by the delivery to the transferee (or its nominee) of a definitive Note or Notes registered in the name of the transferee (or its nominee) on the books maintained by the Trustee. With respect to any such transfer, the Company shall execute and the Trustee shall authenticate and make available for delivery to the transferee (or such transferee's nominee, as the case may be), a definitive Note or Notes in the appropriate aggregate principal amount in the name of such transferee (or its nominee) and bearing such restrictive legends as may be required by this Indenture. As a condition to such transfer, if such transfer is made to an Accredited Investor, the Trustee or the Custodian, at the direction of the Trustee, shall request such representations and agreements relating to the restrictions on transfer of such Note or Notes from such transferee (or such transferee's nominee) substantially in the form as set forth in Exhibit D hereto and as the Trustee (or the Custodian) shall otherwise reasonably require. (c) So long as the Notes are eligible for book-entry settlement, or unless otherwise required by law, upon any transfer of a definitive Note to a QIB in accordance with Rule 144A, unless otherwise requested by the transferor, and upon receipt of the definitive Note or Notes being so transferred, together with a certificate in the form of Exhibit E hereto from the transferor that the transferor reasonably believes the transferee is a QIB and is obtaining such beneficial interest in a transaction meeting the requirements of Rule 144A and any applicable securities laws of any state of the United States or any other jurisdiction (or other evidence satisfactory to the Trustee), the Trustee shall make or direct the Custodian to make, an endorsement on the Restricted Global Note to reflect an increase in the aggregate principal amount of the Notes represented by the Restricted Global Note, the Trustee shall cancel such definitive Note or Notes and cause, or direct the Custodian to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Custodian, the aggregate principal amount of Notes represented by the Restricted Global Note to be increased accordingly. So long as the Notes are eligible for book-entry settlement, or unless otherwise required by law, upon any transfer of a definitive Note in accordance with Regulation S, if requested by the transferor, and upon receipt of the definitive Note or Notes being so transferred, together with a certificate in the form of Exhibit F hereto from the transferor that the transfer was made in accordance with Rule 903 or 904 of Regulation S under the Securities Act (or other evidence satisfactory to the Trustee), the Trustee shall make or direct the Custodian to make, an endorsement on the Regulation S Global Note to reflect an increase in the aggregate principal amount of the Notes represented by the Regulation S Global Note, the Trustee 15 23 shall cancel such definitive Note or Notes and cause, or direct the Custodian to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Custodian, the aggregate principal amount of Notes represented by the Regulation S Global Note to be increased accordingly. If a holder of a beneficial interest in the Restricted Global Note wishes at any time to exchange its interest in the Restricted Global Note for an interest in the Regulation S Global Note, or to transfer its interest in the Restricted Global Note to a person who wishes to take delivery thereof in the form of an interest in the Regulation S Global Note, such holder may, subject to the rules and procedures of the Depositary and to the requirements set forth in the following sentence, exchange or cause the exchange or transfer or cause the transfer of such interest for an equivalent beneficial interest in the Regulation S Global Note. Upon receipt by the Trustee, as transfer agent, of (1) instructions given in accordance with the Depositary's procedures from or on behalf of a holder of a beneficial interest in the Restricted Global Note, directing the Trustee (via DWAC), as transfer agent, to credit or cause to be credited a beneficial interest in the Regulation S Global Note in an amount equal to the beneficial interest in the Restricted Global Note to be exchanged or transferred, (2) a written order given in accordance with the Depositary's procedures containing information regarding the Euroclear or Cedel account to be credited with such increase and the name of such account, and (3) a certificate in the form of Exhibit G given by the holder of such beneficial interest stating that the exchange or transfer of such interest has been made pursuant to and in accordance with Rule 903 or Rule 904 of Regulation S under the Securities Act (or other evidence satisfactory to the Trustee), the Trustee, as transfer agent, shall promptly deliver appropriate instructions to the Depositary (via DWAC), its nominee, or the custodian for the Depositary, as the case may be, to reduce or reflect on its records a reduction of the Restricted Global Note by the aggregate principal amount of the beneficial interest in such Restricted Global Note to be so exchanged or transferred from the relevant participant, and the Trustee, as transfer agent, shall promptly deliver appropriate instructions (via DWAC) to the Depositary, its nominee, or the custodian for the Depositary, as the case may be, concurrently with such reduction, to increase or reflect on its records an increase of the principal amount of such Regulation S Global Note by the aggregate principal amount of the beneficial interest in such Restricted Global Note to be so exchanged or transferred, and to credit or cause to be credited to the account of the person specified in such instructions (who shall be Morgan Guaranty Trust Company of New York, Brussels office, as operator of Euroclear or Cedel or another agent member of Euroclear or Cedel, or both, as the case may be, acting for and on behalf of them) a beneficial interest in such Regulation S Global Note 16 24 equal to the reduction in the principal amount of such Restricted Global Note. If a holder of a beneficial interest in the Regulation S Global Note wishes at any time to exchange its interest in the Regulation S Global Note for an interest in the Restricted Global Note, or to transfer its interest in the Regulation S Global Note to a person who wishes to take delivery thereof in the form of an interest in the Restricted Global Note, such holder may, subject to the rules and procedures of Euroclear or Cedel and the Depositary, as the case may be, and to the requirements set forth in the following sentence, exchange or cause the exchange or transfer or cause the transfer of such interest for an equivalent beneficial interest in such Restricted Global Note. Upon receipt by the Trustee, as transfer agent, of (l) instructions given in accordance with the procedures of Euroclear or Cedel and the Depositary, as the case may be, from or on behalf of a beneficial owner of an interest in the Regulation S Global Note directing the Trustee, as transfer agent, to credit or cause to be credited a beneficial interest in the Restricted Global Note in an amount equal to the beneficial interest in the Regulation S Global Note to be exchanged or transferred, (2) a written order given in accordance with the procedures of Euroclear or Cedel and the Depositary, as the case may be, containing information regarding the account with the Depositary to be credited with such increase and the name of such account, and (3) prior to the expiration of the Restricted Period, a certificate in the form of Exhibit H given by the holder of such beneficial interest and stating that the person transferring such interest in such Regulation S Global Note reasonably believes that the person acquiring such interest in the Restricted Global Note is a QIB and is obtaining such beneficial interest in a transaction meeting the requirements of Rule 144A and any applicable securities laws of any state of the United States or any other jurisdiction (or other evidence satisfactory to the Trustee), the Trustee, as transfer agent, shall promptly deliver (via DWAC) appropriate instructions to the Depositary, its nominee, or the custodian for the Depositary, as the case may be, to reduce or reflect on its records a reduction of the Regulation S Global Note by the aggregate principal amount of the beneficial interest in such Regulation S Global Note to be exchanged or transferred, and the Trustee, as transfer agent, shall promptly deliver (via DWAC) appropriate instructions to the Depositary, its nominee, or the custodian for the Depositary, as the case may be, concurrently with such reduction, to increase or reflect on its records an increase of the principal amount of the Restricted Global Note by the aggregate principal amount of the beneficial interest in the Regulation S Global Note to be so exchanged or transferred, and to credit or cause to be credited to the account of the person specified in such instructions a beneficial interest in the Restricted Global Note equal to the reduction in the principal amount of the Regulation S Global Note. After the expiration of the Restricted Period, the certif- 17 25 ication requirement set forth in clause (3) of the second sentence of this paragraph shall no longer apply to such exchanges and transfers. If a holder of a definitive Note wishes at any time to exchange its Note for a beneficial interest in any global Note (or vice versa), or to transfer its definitive Note to a person who wishes to take delivery thereof in the form of a beneficial interest in a global Note (or vice versa), such Notes and beneficial interests may be exchanged or transferred for one another only in accordance with such procedures as are substantially consistent with the provisions of the two preceding paragraphs (including the certification requirements intended to ensure that such exchanges or transfers comply with Rule 144, Rule 144A or Regulation S, as the case may be) and as may be from time to time adopted by the Company and the Trustee. Any beneficial interest in one of the global Notes that is transferred to a person who takes delivery in the form of an interest in the other global Note shall, upon transfer, cease to be an interest in such global Note and become an interest in the other global Note and, accordingly, shall thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in such other global Note for as long as it remains such an interest. Any global Note may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this Indenture as may be required by the Custodian, the Depositary or by the National Association of Securities Dealers, Inc. in order for the Notes to be tradeable on the PORTAL Market or as may be required for the Notes to be tradeable on any market developed for trading of securities pursuant to Rule 144A or required to comply with any applicable law or any regulation thereunder or with Regulation S or with the rules and regulations of any securities exchange upon which the Notes may be listed or traded or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Notes are subject. (d) Every Note that bears or is required under this Section 2.5(d) to bear the legend set forth in this Section 2.5(d) (together with any Common Stock issued upon conversion of the Notes and required to bear the legend set forth in Section 2.5(e), collectively, the "Restricted Securities") shall be subject to the restrictions on transfer set forth in this Section 2.5(d), unless such restrictions on transfer shall have been waived by the written consent of the Company or removed in accordance with the provisions of Section 2.5(f), and the holder of each such Restricted Security, by such holder's acceptance thereof, agrees to be bound by such restrictions on transfer. As used in this Section 2.5(d), the term "transfer" encompasses any 18 26 sale, pledge, transfer or other disposition of any Restricted Security. Until three years after the later of the original issuance date of any Note and the last date on which the Company or an Affiliate of the Company was the owner of such Note, any certificate evidencing such Note (and all securities issued in exchange therefor or substitution thereof, other than Common Stock, if any, issued upon conversion thereof, which shall bear the legend set forth in Section 2.5(e), if applicable) shall bear a legend in substantially the following form, unless otherwise agreed by the Company (with notice thereof to the Trustee): THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT PRIOR TO THE DATE THAT IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY AND THE LAST DATE ON WHICH HEALTHSOURCE, INC. (THE "COMPANY") OR ANY "AFFILIATE" (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY WAS THE OWNER OF THE NOTE (THE "RESTRICTION TERMINATION DATE") RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE BANK OF NEW YORK, AS TRUSTEE, A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED HEREBY BEFORE THE RESTRICTION TERMINATION DATE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO 19 27 THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE BANK OF NEW YORK, AS TRUSTEE. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE BANK OF NEW YORK, AS TRUSTEE, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Any Note (or security issued in exchange or substitution therefor) as to which such restrictions on transfer shall have expired in accordance with their terms may, upon satisfaction of the requirements of Section 2.5(f) and surrender of such Note for exchange to the Note registrar in accordance with the provisions of this Section 2.5, be exchanged for a new Note or Notes, of like tenor and aggregate principal amount, which shall not bear the restrictive legend required by this Section 2.5(d). Notwithstanding any other provisions of this Indenture (other than the provisions set forth in this Section 2.5(d)), a global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. The Depositary shall be a clearing agency registered under the Exchange Act. The Company initially appoints The Depository Trust Company to act as Depositary with respect to the global Notes. Initially, the global Notes shall be issued to the Depositary, registered in the name of Cede & Co., as the nominee of the Depositary, and deposited with the Trustee as Custodian for Cede & Co. If at any time the Depositary for the global Notes notifies the Company that it is unwilling or unable to continue as Depositary for such Notes, the Company may appoint a successor Depositary with respect to such Notes. If a successor Depositary for the Notes is not appointed by the Company within 90 days after the Company receives such notice, the Company shall execute, and the Trustee, upon receipt of an Officers' Certificate for the authentication and delivery of Notes, shall authenticate and make available for delivery, Notes in definitive form, in an aggregate principal amount equal to the principal amount of the global Notes in exchange for such global Notes. 20 28 Definitive Notes issued in exchange for all or a part of a global Note pursuant to this Section 2.5(d) shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. Upon execution and authentication, the Trustee shall make available for delivery such definitive Notes to the persons in whose names such definitive Notes are so registered. At such time as all interests in global Notes have been redeemed, converted, repurchased or canceled, such global Notes shall be, upon receipt thereof, canceled by the Trustee in accordance with standing procedures and instructions existing between the Depositary and the Custodian. At any time prior to such cancellation, if any interest in a global Note is exchanged for definitive Notes, redeemed, converted, canceled or transferred to a transferee who receives definitive Notes therefor or any definitive Note is exchanged or transferred for part of a global Note, the principal amount of such global Note shall, in accordance with the standing procedures and instructions existing between the Depositary and the Custodian, be reduced or increased, as the case may be, and an endorsement shall be made on such global Note by the Trustee or the Custodian, at the direction of the Trustee, to reflect such reduction or increase. The Company and the Trustee may for all purposes, including the making of payments due on the Notes, deal with the Depositary as the authorized representative of the Noteholders for the purposes of exercising the rights of Noteholders hereunder. The rights of the owner of any beneficial interest in a global Note shall be limited to those established by law and agreements between such owners and depository participants or Euroclear and Cedel; provided that no such agreement shall give any rights to any person against the Company or the Trustee without the written consent of the parties so affected. Multiple requests and directions from and votes of, the Depositary as holder of notes in book entry form with respect to any particular matter shall not be deemed inconsistent to the extent they do not represent an amount of notes in excess of those held in the name of the Depositary or its nominee. (e) Until three years after the later of the original issuance date of any Note (other than any Note represented by the Regulation S Global Note) and the last date on which the Company or an Affiliate of the Company was the owner of such Note, any stock certificate representing Common Stock issued upon conversion of such Note shall bear a legend in substantially the following form, unless otherwise agreed by the Company (with written notice thereof to the Trustee and any transfer agent for the Common Stock): 21 29 THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES THAT PRIOR TO THE DATE THAT IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THE NOTE UPON THE CONVERSION OF WHICH THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED AND THE LAST DATE ON WHICH HEALTHSOURCE, INC. (THE "COMPANY") OR ANY "AFFILIATE" (AS DEFINED IN RULE 144 OF THE SECURITIES ACT) OF THE COMPANY WAS THE OWNER OF THE NOTE UPON THE CONVERSION OF WHICH THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED OR THE COMMON STOCK EVIDENCED HEREBY (THE "RESTRICTION TERMINATION DATE"), (1) IT WILL NOT RESELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN COMPLIANCE WITH RULE 144A, (C) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT PRIOR TO SUCH TRANSFER, FURNISHES TO THE BANK OF NEW YORK, AS TRANSFER AGENT, A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRANSFER AGENT), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT; (2) PRIOR TO ANY SUCH TRANSFER PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, IT WILL FURNISH TO THE BANK OF NEW YORK, AS TRANSFER AGENT, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; AND (3) IT WILL DELIVER TO EACH PERSON TO WHOM THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND WILL BE REMOVED UPON THE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Any such Common Stock as to which such restrictions on transfer shall have expired in accordance with their terms may, upon satisfaction of the requirements of Section 2.5(f) and surrender of the certificates representing such shares of Common Stock for exchange in accordance with the procedures of the transfer agent for the Common Stock, be exchanged for a new certificate or certificates for a like aggregate number of shares 22 30 of Common Stock, which shall not bear the restrictive legend required by this Section 2.5(e). (f) Upon any sale or transfer of any Restricted Security (including any interest in a global Note) (i) that is effected pursuant to an effective registration statement under the Securities Act, (ii) in the case of the Common Stock only, that is effected pursuant to Rule 144 as promulgated under the Securities Act as determined by counsel to the Company or the Trustee or (iii) in connection with which the Trustee (or transfer agent for the Common Stock, in the case of shares of Common Stock) receives certificates and other information (including an Opinion of Counsel, if requested) reasonably acceptable to the Company and the Trustee (or such transfer agent, as the case may be) to the effect that such security shall no longer be subject to the resale restrictions under federal and state securities laws, then (A) in the case of a Restricted Security in definitive form, the Note registrar or co-registrar (or transfer agent, in the case of Common Stock) shall permit the holder thereof to exchange such Restricted Security for a security that does not bear the legends set forth in Section 2.5(d) or 2.5(e), as applicable, and shall rescind any such restrictions on transfer and (B) in the case of Restricted Securities represented by a global Note, such Note shall no longer be subject to the restrictions contained in the legend set forth in Section 2.5(d) (but still subject to the other provisions hereof). In addition, any Note (or security issued in exchange or substitution therefor) or shares of Common Stock issued upon conversion of any Note, in either case, as to which the restrictions on transfer described in the legends set forth in Section 2.5(d) and 2.5(e), respectively, have expired by their terms, may, upon surrender thereof (in accordance with the terms of this Indenture in the case of Notes) together with such certifications and other information (including an Opinion of Counsel having substantial experience in practice under the Securities Act and otherwise reasonably acceptable to the Company, addressed to the Company and the Trustee and in a form acceptable to the Company, to the effect that the transfer of such Restricted Security has been made in compliance with Rule 144 or such successor provision) acceptable to the Company and the Trustee (or transfer agent, as the case may be) as either of them may reasonably require, be exchanged for a new Note or Notes of like tenor and aggregate principal amount (in the case of Notes), or a new certificate or certificates for a like aggregate number of shares of Common Stock (in the case of Common Stock), or a new certificate or other instrument of like tenor and amount (in the case of securities issued in exchange or substitution for Notes), which shall not bear the restrictive legends set forth in Sections 2.5(d) and 2.5(e). (g) Each holder of a Note agrees to indemnify the Company and the Trustee against any liability that may result 23 31 from the transfer, exchange or assignment of such holder's Note in violation of any provision of this Indenture and/or applicable U.S. federal or state securities law. Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes. In case any Note shall become mutilated or be destroyed, lost or stolen, the Company in its discretion may execute, and upon its request, the Trustee or an authenticating agent appointed by the Trustee shall authenticate and make available for delivery a new Note bearing a number not contemporaneously outstanding in exchange and substitution for the mutilated Note or in lieu of and in substitution for the Note so destroyed, lost or stolen. The Company may charge such applicant for the expenses of the Company in replacing a Note. In every case the applicant for a substituted Note shall furnish to the Company, to the Trustee and, if applicable, to such authenticating agent such security or indemnity as may be required by them to save each of them harmless from any loss, liability, cost or expense caused by or connected with such substitution, and in every case of destruction, loss or theft, the applicant shall also furnish to the Company, to the Trustee and, if applicable, to such authenticating agent evidence to their satisfaction of the destruction, loss or theft of such Note and of the ownership thereof. The Trustee or such authenticating agent may authenticate any such substituted Note and deliver the same upon the receipt of such security or indemnity as the Trustee, the Company and, if applicable, such authenticating agent may require. Upon the issuance of any substituted Note, 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 connected therewith. In case any Note that has matured or is about to mature or has been called for redemption or is about to be converted into Common Stock shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Note, pay or authorize the payment of or convert or authorize the conversion of the same (without surrender thereof, except in the case of a mutilated Note), as the case may be, if the applicant for such payment or conversion shall furnish to the Company, to the Trustee and, if applicable, to such authenticating agent such security or indemnity as may be required by them to save each of them harmless from any loss, liability, cost or expense caused by or connected with such substitution, and in case of destruction, loss or theft, evidence satisfactory to the Company, the Trustee and, if applicable, any paying agent or conversion agent of the destruction, loss or theft of such Note and of the ownership thereof. Every substitute Note issued pursuant to the provisions of this Section 2.6 in lieu of any Note that is destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Note 24 32 shall be enforceable by anyone, and shall be entitled to all the benefits of (but shall be subject to all the limitations set forth in) this Indenture equally and proportionately with any and all other Notes duly issued hereunder. To the extent permitted by law, all Notes shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment or conversion of mutilated, destroyed, lost or stolen Notes and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment or conversion of negotiable instruments or other securities without their surrender. Section 2.7 Temporary Notes. Pending the preparation of definitive Notes, the Company may execute and the Trustee or an authenticating agent appointed by the Trustee shall, upon written request of the Company, authenticate and make available for delivery temporary Notes (printed or lithographed). Temporary Notes shall be issuable in any authorized denomination and shall be substantially in the form of the definitive Notes but with such omissions, insertions and variations as may be appropriate for temporary Notes, all as may be determined by the Company. Every such temporary Note shall be executed by the Company and authenticated by the Trustee or such authenticating agent upon the same conditions and in substantially the same manner, and with the same effect, as the definitive Notes. Without unreasonable delay the Company shall execute and deliver to the Trustee or such authenticating agent definitive Notes (other than in the case of Notes in global form) and thereupon any or all temporary Notes (other than any such global Note) may be surrendered in exchange therefor, at each office or agency maintained by the Company pursuant to Section 4.2 and the Trustee or such authenticating agent shall authenticate and make available for delivery in exchange for such temporary Notes an equal aggregate principal amount of definitive Notes. Such exchange shall be made by the Company at its own expense and without any charge therefor. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits and subject to the same limitations under this Indenture as definitive Notes authenticated and delivered hereunder. Section 2.8 Cancellation of Notes Paid, Etc. All Notes surrendered for the purpose of payment, redemption, conversion, exchange or registration of transfer shall, if surrendered to the Company or any paying agent or any Note registrar or any conversion agent, be surrendered to the Trustee and promptly canceled by it or, if surrendered to the Trustee, shall be promptly canceled by it and no Notes shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. The Trustee shall return canceled Notes to the Company. If the Company shall acquire any of the Notes, such acquisition shall not operate as a redemption or satisfaction of 25 33 the indebtedness represented by such Notes unless and until the same are delivered to the Trustee for cancellation. Section 2.9 CUSIP Numbers. The Company in issuing the Notes may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP numbers. ARTICLE III REDEMPTION OF NOTES Section 3.1 Redemption Prices. The Notes are not redeemable at the option of the Company prior to March 1, 1999. At any time on or after that date, the Notes may be redeemed at the Company's option, upon notice as set forth in Section 3.2, in whole at any time or in part from time to time, at the optional redemption prices set forth in the forms of Note attached as Exhibits A, B and C, together with accrued interest to the date fixed for redemption. Section 3.2 Notice of Redemption; Selection of Notes. In case the Company shall desire to exercise the right to redeem all or, as the case may be, any part of the Notes pursuant to Section 3.1, it shall fix a date for redemption and, in the case of any redemption pursuant to Section 3.1, it or, at its request accompanied by the proposed form of notice of redemption (which must be received by the Trustee at least ten days prior to the date the Trustee is requested to give notice as described below, unless a shorter period is agreed to by the Trustee), the Trustee in the name of and at the expense of the Company, shall publish a notice in the Wall Street Journal and mail or cause to be mailed a notice of such redemption at least 30 and not more than 60 days prior to the date fixed for redemption to the holders of Notes so to be redeemed as a whole or in part at their last addresses as the same appear on the Note register, provided that if the Company shall give such notice, it shall also give such notice, and notice of the Notes to be redeemed, to the Trustee. Such mailing shall be by first class mail. The notice, if mailed in the manner herein provided, shall be conclusively presumed to have been duly given, whether or not the holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the holder of any Note designated for 26 34 redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Note. Each such notice of redemption shall identify the Notes to be redeemed (including CUSIP numbers), specify the aggregate principal amount of Notes to be redeemed, the date fixed for redemption, the redemption price at which Notes are to be redeemed, the place or places of payment, that payment will be made upon presentation and surrender of such Notes, that interest accrued to the date fixed for redemption shall be paid as specified in said notice and that on and after said date, interest thereon or on the portion thereof to be redeemed shall cease to accrue. Such notice shall also state the current Conversion Price and the date on which the right to convert such Notes or portions thereof into Common Stock shall expire. If fewer than all the Notes are to be redeemed, the notice of redemption shall identify the Notes to be redeemed. In case any Note is to be redeemed in part only, the notice of redemption shall state the portion of the principal amount thereof to be redeemed and shall state that on and after the date fixed for redemption, upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion thereof shall be issued. On or prior to the Business Day prior to the redemption date specified in the notice of redemption given as provided in this Section 3.2, the Company shall deposit with the Trustee or with one or more paying agents (or, if the Company is acting as its own paying agent, set aside, segregate and hold in trust as provided in Section 4.4) an amount of money sufficient to redeem on the redemption date all the Notes so called for redemption (other than those theretofore surrendered for conversion into Common Stock) at the appropriate redemption price, together with accrued interest to the date fixed for redemption. If any Note called for redemption is converted pursuant hereto, any money deposited with the Trustee or any paying agent or so segregated and held in trust for the redemption of such Note shall be paid to the Company upon its request or, if then held by the Company, shall be discharged from such trust. If fewer than all the Notes are to be redeemed, the Company shall give the Trustee written notice in the form of an Officers' Certificate not fewer than 45 days (or such shorter period of time as may be acceptable to the Trustee) prior to the redemption date as to the aggregate principal amount of Notes to be redeemed. If fewer than all the Notes are to be redeemed, the Trustee shall select the Notes or portions thereof to be redeemed (in principal amounts of $1,000 or integral multiples thereof), by lot or, in its discretion, on a pro rata basis. If any Note selected for partial redemption is converted in part after such selection, the converted portion of such Note shall be deemed (so far as may be) to be the portion to be selected for redemption. The Notes (or portions thereof) so selected shall be deemed duly 27 35 selected for redemption for all purposes hereof, notwithstanding that any such Note is converted as a whole or in part before the mailing of the notice of redemption. Upon any redemption of less than all Notes, the Company and the Trustee may treat as outstanding any Notes surrendered for conversion during the period of 15 days next preceding the mailing of a notice of redemption and need not treat as outstanding any Note authenticated and delivered during such period in exchange for the unconverted portion of any Note converted in part during such period. Section 3.3 Payment of Notes Called for Redemption. If notice of redemption has been given as above provided, the Notes or portion of Notes with respect to which such notice has been given shall, unless converted into Common Stock pursuant to the terms hereof, become due and payable on the date and at the place or places stated in such notice at the applicable redemption price, together with interest thereon accrued to the date fixed for redemption, and on and after said date (unless the Company shall default in the payment of such Notes at the redemption price, together with interest thereon accrued to said date), interest on the Notes or portion of Notes so called for redemption shall cease to accrue, and such Notes shall cease after the close of business on the Business Day next preceding the date fixed for redemption to be convertible into Common Stock and, except as provided in Sections 7.6 and 12.4, to be entitled to any benefit or security under this Indenture, and the holders thereof shall have no right in respect of such Notes except the right to receive the redemption price thereof and unpaid interest thereon to the date fixed for redemption. On presentation and surrender of such Notes at a place of payment in said notice specified, the said Notes or the specified portions thereof shall be paid and redeemed by the Company at the applicable redemption price, together with interest accrued thereon to the date fixed for redemption; provided that any semi-annual payment of interest becoming due on the date fixed for redemption shall be payable to the holders of such Notes registered as such on the relevant record date subject to the terms and provisions of Section 2.3 hereof. Upon presentation of any Note redeemed in part only, the Company shall execute and the Trustee shall authenticate and make available for delivery to the holder thereof, at the expense of the Company, a new Note or Notes, of authorized denominations, in principal amount equal to the unredeemed portion of the Notes so presented. Notwithstanding the foregoing, the Trustee shall not redeem any Notes or mail any notice of optional redemption during the continuance of a default in payment of interest or premium on the Notes or of any Event of Default of which, in the case of any 28 36 Event of Default other than under Section 6.1(a) or (b), a Responsible Officer of the Trustee has actual knowledge. If any Note called for redemption shall not be so paid upon surrender thereof for redemption, the principal and premium, if any, shall, until paid or duly provided for, bear interest from the date fixed for redemption at the rate borne by the Note and such Note shall remain convertible into Common Stock until the principal and premium, if any, shall have been paid or duly provided for. Section 3.4 Conversion Arrangement on Call for Redemption. In connection with any redemption of Notes, the Company may arrange for the purchase and conversion of any Notes by an agreement with one or more investment bankers or other purchasers to purchase such Notes by paying to the Trustee in trust for the Noteholders, on or prior to the Business Day prior to the date fixed for redemption, an amount not less than the applicable redemption price, together with interest accrued to the date fixed for redemption, of such Notes. Notwithstanding anything to the contrary contained in this Article III, the obligation of the Company to pay the redemption price of such Notes, together with interest accrued to the date fixed for redemption, shall be deemed to be satisfied and discharged to the extent such amount is so paid by such purchasers. If such an agreement is entered into, a copy of which shall be filed with the Trustee prior to the date fixed for redemption, any Notes not duly surrendered for conversion by the holders thereof may, at the option of the Company, be deemed, to the fullest extent permitted by law, acquired by such purchasers from such holders and (notwithstanding anything to the contrary contained in Article XIV) surrendered by such purchasers for conversion, all as of the time immediately prior to the close of business on the date fixed for redemption (and the right to convert any such Notes shall be deemed to have been extended through such time), subject to payment of the above amount as aforesaid. At the direction of the Company, the Trustee shall hold and dispose of any such amount paid to it in the same manner as it would monies deposited with it by the Company for the redemption of Notes. Without the Trustee's prior written consent, no arrangement between the Company and such purchasers for the purchase and conversion of any Notes shall increase or otherwise affect any of the powers, duties, responsibilities or obligations of the Trustee as set forth in this Indenture, and the Company agrees to indemnify the Trustee from, and hold it harmless against, any loss, liability or expense arising out of or in connection with any such arrangement for the purchase and conversion of any Notes between the Company and such purchasers including the costs and expenses incurred by the Trustee in the defense of any claim or liability arising out of or in connection with the exercise or performance of any of its powers, duties, responsibilities or obligations under this Indenture. 29 37 Section 3.5 Purchase of Notes Upon a Change of Control. (a) If a Change of Control shall occur at any time, then each holder of Notes shall have the right to require that the Company repurchase such holder's Notes in whole or in part in integral multiples of $1,000 at a purchase price (the "Change of Control Purchase Price") in cash in an amount equal to 101% of the principal amount of such Notes, plus accrued and unpaid interest thereon, if any, to the purchase date (the "Change of Control Purchase Date") pursuant to the offer described below (the "Change of Control Offer") and in accordance with the other procedures set forth in this Indenture. (b) Within 30 days following any Change of Control, the Company shall publish a notice in the Wall Street Journal, notify the Trustee thereof and give written notice of such Change of Control to each holder of Notes, by first-class mail, postage prepaid, at the Noteholder's address appearing in the Note register, stating, among other things, (i) that a Change of Control has occurred, (ii) the Change of Control Purchase Price, (iii) the Change of Control Purchase Date (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed, or such later date as is necessary to comply with requirements under the Exchange Act), (iv) that any Note not tendered shall continue to accrue interest and to have all of the benefits of this Indenture, (v) that, unless the Company defaults in the payment of the Change of Control Purchase Price, any Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Purchase Date and (vi) certain other procedures that a holder of Notes must follow to accept a Change of Control Offer or to withdraw such acceptance. (c) The Company shall comply with the applicable tender offer rules, including Rule 13e-4 under the Exchange Act, and any other applicable securities laws or regulations in connection with a Change of Control Offer, and any provisions of this Indenture that conflict with such laws shall be deemed to be superseded by the provisions of such laws. ARTICLE IV PARTICULAR COVENANTS OF THE COMPANY Section 4.1 Payment of Principal, Premium and Interest. The Company covenants and agrees that it shall duly and punctually pay or cause to be paid the principal of and premium, if any, and interest on each of the Notes at the places, at the respective times and in the manner provided herein and in the Notes. Each installment of interest on the Notes due on any 30 38 semi-annual interest payment date may be paid by mailing checks for the interest payable to or upon the written order of the holders of Notes entitled thereto as they shall appear on the Note register; provided that, with respect to any holder of Notes with an aggregate principal amount equal to or in excess of $5,000,000, at the request (such request to include appropriate wire instructions) of such holder in writing to the Trustee, interest on such holder's Notes shall be paid by wire transfer in immediately available funds. An installment of principal or interest shall be considered paid on the date due if the Trustee or Paying Agent (other than the Company, a Subsidiary of the Company or any Affiliate of any of them) holds on that date money designated for and sufficient to pay the installment of principal or interest and is not prohibited from paying such money to the holders of the Notes pursuant to the terms of this Indenture. Section 4.2 Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency where the Notes may be surrendered for registration of transfer or exchange or for presentation for payment or for conversion or redemption and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency not designated by the Trustee. If at any time the Company shall fail to maintain any such office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. The Company shall 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. The Company hereby initially designates the Trustee as paying agent, Note registrar and conversion agent and each of the Corporate Trust Office of the Trustee and the office of The Bank of New York in the Borough of Manhattan, The City of New York, as one such office or agency of the Company for the purposes set forth in the first paragraph of this Section 4.2. So long as the Trustee is the Note registrar, the Trustee agrees to mail, or cause to be mailed, the notices set forth in Section 7.11(a) and the third paragraph of Section 7.12. 31 39 Section 4.3 Appointments to Fill Vacancies in Trustee's Office. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, shall appoint, in the manner provided in Section 7.11, a Trustee, so that there shall at all times be a Trustee hereunder. Section 4.4 Provisions as to Paying Agent. (a) If the Company shall appoint a paying agent other than the Trustee, or if the Trustee shall appoint such a paying agent, the Company or the Trustee, as the case may be, shall cause such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 4.4: (1) that it shall hold all sums held by it as such agent for the payment of the principal of, premium, if any, or interest on the Notes (whether such sums have been paid to it by the Company or by any other obligor on the Notes) in trust for the benefit of the holders of the Notes; (2) that it shall give the Trustee notice of any failure by the Company (or by any other obligor on the Notes) to make any payment of the principal of, premium, if any, or interest on the Notes when the same shall be due and payable; and (3) that at any time during the continuance of an Event of Default, upon request of the Trustee, it shall forthwith pay to the Trustee all sums so held in trust. The Company shall, before each due date of the principal of, premium, if any, or interest on the Notes, deposit with the paying agent a sum sufficient to pay such principal, premium, if any, or interest, and (unless such paying agent is the Trustee) the Company shall promptly notify the Trustee of any failure to take such action. (b) If the Company shall act as its own paying agent, it shall, on or before each due date of the principal of, premium, if any, or interest on the Notes, set aside, segregate and hold in trust for the benefit of the holders of the Notes a sum sufficient to pay such principal, premium, if any, or interest so becoming due and shall notify the Trustee of any failure to take such action and of any failure by the Company (or any other obligor under the Notes) to make any payment of the principal of, premium, if any, or interest on the Notes when the same shall become due and payable. (c) Anything in this Section 4.4 to the contrary notwithstanding, the Company may, at any time, for the purpose of obtaining a satisfaction and discharge of this Indenture, or for 32 40 any other reason, pay or cause to be paid to the Trustee all sums held in trust by the Company or any paying agent hereunder as required by this Section 4.4, such sums to be held by the Trustee upon the trusts herein contained and upon such payment by the Company or any paying agent to the Trustee, the Company or such paying agent shall be released from all further liability with respect to such sums. (d) Anything in this Section 4.4 to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section 4.4 is subject to Sections 12.3 and 12.4. Section 4.5 Corporate Existence. Subject to Article XI, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence. Section 4.6 Rule 144A Information Requirement. During the three-year period following the original issuance date of any Note and during the three-year period following the last date on which the Company or an Affiliate of the Company was the owner of any Note (or shares of Common Stock issued upon conversion of any Note), if the Company is subject neither to Section 13 nor Section 15(d) of the Exchange Act, the Company shall at the written request of any holder or beneficial holder of such Note (or shares of Common Stock issued upon conversion of Notes) provide to such holder or beneficial holder of such Note (or shares of Common Stock issued upon conversion of Notes) and any prospective transferee designated by such holder or beneficial holder of such Note (or shares of Common Stock issued upon conversion of Notes) such information, if any, required by Rule 144A(d)(4) under the Securities Act (so long as such information is required to permit such transfer under Rule 144A). Section 4.7 Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or that may affect the covenants or the performance of this Indenture; and the Company (to the extent it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. 33 41 Section 4.8 Compliance Statement; Notice of Defaults (a) The Company will deliver to the Trustee annually, commencing April 30, 1996, a certificate, from its principal executive officer, principal financial officer or principal accounting officer, stating whether or not to the best knowledge of the signer thereof the Company is in compliance (without regard to periods of grace or notice requirements) with all conditions and covenants under this Indenture, and if the Company shall not be in compliance, specifying such non-compliance and the nature and status thereof of which such signer may have knowledge. (b) The Company shall file with the Trustee written notice of the occurrence of any default or Event of Default within ten days of its becoming aware of any such default or Event of Default. ARTICLE V NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY Section 5.1 Noteholders' Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of holders of Notes and shall otherwise comply with Trust Indenture Act Section 312(a). If the Trustee is not the Notes registrar, the Company shall furnish to the Trustee on or before at least seven Business Days preceding each interest payment date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee reasonably may require of the names and addresses of holders of Notes, and the Company shall otherwise comply with Trust Indenture Act Section 312(a). Section 5.2 Reports by Company. The Company shall deliver to the Trustee within 15 days after it files the same with the Commission, copies of all reports and information (or copies of such portions of any of the foregoing as the Commission may by its rules and regulations prescribe), if any, which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act or pursuant to the immediately following sentence. So long as at least $5,000,000 aggregate principal amount of Notes remain outstanding, the Company shall file with the Commission such reports as may be required pursuant to Section 13 of the Exchange Act in respect of a security registered pursuant to Section 12 of the Exchange Act, regardless of whether the Company is otherwise required to file such reports. If the Company is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act (or otherwise required to file reports pursuant to the immediately 34 42 preceding sentence), the Company shall deliver to the Trustee, within 15 days after it would have been required to file such information with the Commission were it required to do so, annual and quarterly financial statements, including any notes thereto (and, in the case of a fiscal year end, an auditors' report by an independent certified public accounting firm of established national reputation), and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," in each case substantially equivalent to that which it would have been required to include in such quarterly or annual reports, information, documents or other reports if it had been subject to the requirements of Section 13 or 15(d) of the Exchange Act. The Company shall provide copies of the foregoing materials to the Noteholders to the extent required by the Trust Indenture Act once this Indenture has been qualified. The Company shall also comply with the other provisions of Section 314(a) of the Trust Indenture Act. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). ARTICLE VI DEFAULTS AND REMEDIES Section 6.1 Events of Default. In case one or more of the following Events of Default (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) shall have occurred and be continuing: (a) default in the payment of the principal of or premium, if any, on the Notes when due at maturity, upon redemption or otherwise, including failure by the Company to purchase the Notes when required under Section 3.5 (whether or not such payment shall be prohibited by the subordination provisions of this Indenture); or (b) default in the payment of any installment of interest on the Notes as and when the same shall become due and payable (whether or not such payment shall be prohibited by the subordination provisions of this Indenture), and continuance of such default for a period of 30 days; or 35 43 (c) a failure on the part of the Company duly to observe or perform any other covenants or agreements on the part of the Company in this Indenture (other than a default in the performance or breach of a covenant or agreement that is specifically dealt with elsewhere in this Section 6.1) that continues for a period of 90 days after the date on which written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the Trustee, or to the Company and a Responsible Officer of the Trustee, by the holders of at least 25% in aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 8.4; or (d) the Company shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect, or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it or shall make a general assignment for the benefit of creditors or shall fail generally to pay its debts as they become due; or (e) an involuntary case or other proceeding shall be commenced against the Company seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 90 consecutive days; then, and in each and every such case (other than an Event of Default specified in Section 6.1(d) or (e)), unless the principal of all of the Notes shall have already become due and payable, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Notes then outstanding hereunder determined in accordance with Section 8.4, by notice in writing to the Company (and to the Trustee if given by Noteholders), may declare the principal of, premium, if any, on the Notes and the interest accrued thereon to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Notes contained to the contrary notwithstanding. If an Event of Default specified in Section 6.1(d) or (e) occurs and is continuing, the principal of all the Notes and the interest accrued thereon shall be immediately due and payable. The foregoing provision is subject to the conditions that if, at any time after 36 44 the principal of the Notes shall have been so declared due and payable, and before any judgment or decree for the payment of the monies due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon all Notes and the principal of and premium, if any, on any and all Notes that shall have become due otherwise than by acceleration (with interest on overdue installments of interest (to the extent that payment of such interest is enforceable under applicable law) and on such principal and premium, if any, at the rate borne by the Notes, to the date of such payment or deposit) and amounts due to the Trustee pursuant to Section 7.7, and if any and all defaults under this Indenture, other than the nonpayment of principal of, premium, if any, and accrued interest on Notes that shall have become due by acceleration, shall have been cured or waived pursuant to Section 6.7, then and in every such case the holders of a majority in aggregate principal amount of the Notes then outstanding, by written notice to the Company and to the Trustee, may waive all defaults or Events of Default and rescind and annul such declaration and its consequences; but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or Event of Default, or shall impair any right consequent thereto. The Company shall notify a Responsible Officer of the Trustee, promptly upon becoming aware thereof, of any Event of Default. In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned because of such waiver or rescission and annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company, the holders of Notes and the Trustee shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Company, the holders of Notes and the Trustee shall continue as though no such proceeding had been taken. Section 6.2 Payments of Notes on Default; Suit Therefor. The Company covenants that (a) in case default shall be made in the payment of any installment of interest upon any of the Notes as and when the same shall become due and payable, and such default shall have continued for a period of 30 days, or (b) in case default shall be made in the payment of the principal of or premium, if any, on any of the Notes as and when the same shall have become due and payable, whether at maturity of the Notes or in connection with any redemption, by declaration or otherwise, then, upon demand of the Trustee, the Company shall pay to the Trustee, for the benefit of the holders of the Notes, the whole amount that then shall have become due and payable on all such Notes for principal premium, if any, or interest, or both, as the case may be, with interest upon the overdue principal, premium, if any, and (to the extent that payment of such 37 45 interest is enforceable under applicable law) upon the overdue installments of interest at the rate borne by the Notes; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including reasonable compensation to the Trustee, its agents, attorneys and counsel, and any expenses or liabilities incurred by the Trustee hereunder other than through its negligence or bad faith. Until such demand by the Trustee, the Company may pay the principal of and premium, if any, and interest on the Notes to the registered holders, whether or not the Notes are overdue. In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or any other obligor on the Notes and collect in the manner provided by law out of the property of the Company or any other obligor on the Notes wherever situated the monies adjudged or decreed to be payable. In the case there shall be pending proceedings for the bankruptcy or for the reorganization of the Company or any other obligor on the Notes under Title 11 of the United States Code or any other applicable law, or in case a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Company or such other obligor, the property of the Company or such other obligor, or in the case of any other judicial proceedings relative to the Company or such other obligor upon the Notes, or to the creditors or property of the Company or such other obligor, the Trustee, irrespective of whether the principal of the Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 6.2, shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of principal, premium, if any, and interest owing and unpaid in respect of the Notes and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the Noteholders allowed in such judicial proceedings relative to the Company or any other obligor on the Notes, its or their creditors, or its or their property and to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same after the deduction of any amounts due the Trustee under Section 7.7; and any receiver, assignee or trustee in bankruptcy or reorganization, liquidator, custodian or similar official is hereby authorized by each of the 38 46 Noteholders 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 Noteholders, to pay to the Trustee any amount due it for reasonable compensation, expenses, advances and disbursements, including counsel fees incurred by it up to the date of such distribution. To the extent that such payment of reasonable compensation, expenses, advances and disbursements out of the estate in any such proceedings shall be denied for any reason, payment of the same shall be secured by a lien on, and shall be paid out of, any and all distributions, dividends, monies, securities and other property that the holders of the Notes may be entitled to receive in such proceedings, whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or adopt on behalf of any Noteholder any plan of reorganization or arrangement affecting the Notes or the rights of any Noteholder, or to authorize the Trustee to vote in respect of the claim of any Noteholder in any such proceeding. All rights of action and of asserting claims under this Indenture, or under any of the Notes, may be enforced by the Trustee without the possession of any of the Notes or the production thereof on any trial or other proceeding relative thereto, and any such suit or 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 Notes. In any proceedings brought by the Trustee (and in any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party), the Trustee shall be held to represent all the holders of the Notes, and it shall not be necessary to make any holders of the Notes parties to any such proceedings. Section 6.3 Application of Monies Collected by Trustee. Any monies collected by the Trustee pursuant to this Article VI shall be applied in the order following, at the date or dates fixed by the Trustee for the distribution of such monies, upon presentation of the several Notes and stamping thereon 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 7.7; 39 47 Second: Subject to the provisions of Article XV, in case the principal of the outstanding Notes shall not have become due and be unpaid, to the payment of interest on the Notes in default in the order of the maturity of the installments of such interest, with interest (to the extent that such interest has been collected by the Trustee) upon the overdue installments of interest at the rate borne by the Notes, such payments to be made ratably to the persons entitled thereto; and Third: Subject to the provisions of Article XV, in case the principal of the outstanding Notes shall have become due, by declaration or otherwise, and be unpaid, to the payment of the whole amount then holding and unpaid upon the Notes for principal, premium, if any, and interest, with interest on the overdue principal and premium, if any, and (to the extent that such interest has been collected by the Trustee) upon overdue installments of interest at the rate borne by the Notes; and in case such monies shall be insufficient to pay in full the whole amounts so due and unpaid upon the Notes, then to the payment of such principal, premium, if any, and interest without preference or priority of principal and premium, if any, over interest, or of interest over principal and premium, if any, or of any installment of interest over any other installment of interest, or of any Note over any other Note, ratably to the aggregate of such principal and premium, if any, and accrued and unpaid interest. Section 6.4 Proceedings by Noteholder. No holder of any Note shall have any right by virtue of or by availing of any provision of this Indenture to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Indenture, or for the appointment of a receiver, trustee, liquidator, custodian or other similar official, or for any other remedy hereunder, unless such holder previously shall have given to the Trustee written notice of an Event of Default and of the continuance thereof, as hereinbefore provided, and unless also the holders of not less than 25% in aggregate principal amount of the Notes then outstanding shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee for 60 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding, and no direction inconsistent with such written request shall have been given to the Trustee pursuant to Section 6.7; it being understood and intended, and being expressly covenanted by the taker and holder of every Note with every other taker and holder and the Trustee, that no one or more holders of Notes shall have any right in any 40 48 manner whatever by virtue of or by availing of any provision of this Indenture to affect, disturb or prejudice the rights of any other holder of Notes, to obtain or seek to obtain priority over or preference to any other such holder or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Notes (except as otherwise provided herein). For the protection and enforcement of this Section 6.4, each and every Noteholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Notwithstanding any other provision of this Indenture and any provision of any Note, the right of any holder of any Note to receive payment of the principal of, premium, if any, and interest on such Note, on or after the respective due dates expressed in such Note, or to institute suit for the enforcement of any such payment on or after such respective dates against the Company shall not be impaired or affected without the consent of such holder except as otherwise set forth herein. Anything in this Indenture or the Notes to the contrary notwithstanding, the holder of any Note, without the consent of either the Trustee or the holder of any other Note, in his own behalf and for his own benefit, may enforce, and may institute and maintain any proceeding suitable to enforce, his rights of conversion as provided herein. Section 6.5 Proceedings by Trustee. In case of an Event of Default, the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. Section 6.6 Remedies Cumulative and Continuing. Except as provided in Section 2.6, all powers and remedies given by this Article VI to the Trustee or to the Noteholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of such powers and remedies or of any other powers and remedies available to the Trustee or the holders of the Notes, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture, and no delay or omission of the Trustee or of any holder of any of the Notes to exercise any right or power accruing upon any default or Event of Default occurring and continuing as aforesaid shall impair any such right or power or shall be construed to be a waiver of any such default or any acquiescence 41 49 therein; and, subject to the provisions of Section 6.4, every power and remedy given by this Article VI or by law to the Trustee or to the Noteholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Noteholders. Section 6.7 Direction of Proceedings and Waiver of Defaults by Majority of Noteholders. The holders of a majority in aggregate principal amount of the Notes at the time outstanding (determined in accordance with Section 8.4) shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee; provided that (a) such direction shall not be in conflict with any rule of law or with this Indenture and (b) the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. The holders of a majority in aggregate principal amount of the Notes at the time outstanding (determined in accordance with Section 8.4) may on behalf of the holders of all of the Notes waive any past default or Event of Default hereunder and its consequences except (i) a default in the payment of interest or premium, if any, on, or the principal of, the Notes, (ii) a failure by the Company to convert any Notes into Common Stock or (iii) a default in respect of a covenant or provisions hereof that under Article X cannot be modified or amended without the consent of the holders of all Notes then outstanding. Upon any such waiver, the Company, the Trustee and the holders of the Notes shall be restored to their former positions and rights hereunder; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. Whenever any default or Event of Default hereunder shall have been waived as permitted by this Section 6.7, said default or Event of Default shall for all purposes of the Notes and this Indenture be deemed to have been cured and to be not continuing; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. Section 6.8 Notice of Defaults. The Trustee shall, within 90 days after the occurrence of a default, mail to all Noteholders, as the names and addresses of such holders appear upon the Note register, notice of all defaults known to a Responsible Officer, unless such defaults shall have been cured or waived before the giving of such notice; and provided that, except in the case of default in the payment of the principal of, premium, if any, or interest on any of the Notes, the Trustee shall be protected in withholding such notice if and so long as a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interests of the Noteholders. 42 50 Section 6.9 Undertaking to Pay Costs. All parties to this Indenture agree, and each holder of any Note by his acceptance thereof shall be deemed to have agreed, that any court may, in its discretion, require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; provided that the provisions of this Section 6.9 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Noteholder or group of Noteholders holding in the aggregate more than 10% in principal amount of the Notes at the time outstanding determined in accordance with Section 8.4 or to any suit instituted by any Noteholder for the enforcement of the payment of the principal of, premium, if any, or interest on any Note on or after the due date expressed in such Note or to any suit for the enforcement of the right to convert any Note in accordance with the provisions of Article XIV. ARTICLE VII CONCERNING THE TRUSTEE Section 7.1 Duties and Responsibilities of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (1) the Trustee need perform only those duties that are specifically set forth in this Indenture and no others; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; provided that in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to 43 51 examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (1) this paragraph (c) does not limit the effect of paragraph (b) of this Section 7.1; (2) the Trustee shall not be liable for any error of judgment made in good faith by an officer of the Trustee unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.7. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (e) of this Section 7.1. (e) The Trustee may refuse to perform any duty or exercise any right or power or extend or risk its own funds or otherwise incur any financial liability unless it receives indemnity satisfactory to it against any loss, liability or expense. Section 7.2 Reports by Trustee to Holders. Within 60 days after each May 15 commencing with the May 15 following the date of this Indenture, the Trustee shall, if required by the Trust Indenture Act, mail to each Noteholder a brief report dated as of such May 15 that complies with Section 313(a) of the Trust Indenture Act. The Trustee also shall comply with Sections 313(b) and 313(c) of the Trust Indenture Act. The Company shall promptly notify the Trustee in writing if the Notes become listed or delisted on any stock exchange or automatic quotation system. A copy of each report at the time of its mailing to Noteholders shall be mailed to the Company and, to the extent required by Section 5.2 hereof and Section 313(d) of the Trust Indenture Act, filed with the Commission and each stock exchange, if any, on which the Notes are listed. Section 7.3 Reliance on Documents, Opinions, Etc. Except as otherwise provided in Section 7.1: 44 52 (a) The Trustee may rely and shall be protected in acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, coupon or other paper or document believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties; (b) Any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by an Officers' Certificate (unless other evidence in respect thereof be herein specifically prescribed or required by the Trust Indenture Act); and any resolution of the Board of Directors may be evidenced to the Trustee by a copy thereof certified by the Secretary or an Assistant Secretary of the Company; (c) The Trustee may consult with counsel of its selection and any advice or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel; (d) 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 by it with due care hereunder; no Depositary, Custodian or paying agent who is not the Trustee shall be deemed an agent of the Trustee, and the Trustee (in its capacity as Trustee) shall not be responsible for any act or omission by any such Depositary, Custodian or paying agent; (e) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request or direction of any of the holders pursuant to this Indenture unless such holders have offered the Trustee reasonable security or indemnity against the costs, expenses and liabilities that would be incurred by it in compliance with such request or direction. (f) Subject to the provisions of Section 7.1(c), the Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within its rights or powers; (g) In connection with any request to transfer or exchange any Note, the Trustee may request a direction (in the form of an Officers' Certificate) from the Company and an Opinion of Counsel with respect to compliance with any restrictions on transfer or exchange imposed by this Indenture, the Securities Act, other applicable law or the rules 45 53 and regulations of any exchange on which the Notes or the capital stock may be traded, and the Trustee may rely and shall be protected in acting upon such direction and in accordance with such Officers' Certificate and Opinion of counsel; (h) The Trustee may rely and shall be fully protected in acting upon the determination and notice by the Company of the Conversion Price; and (i) The Trustee shall not be deemed to have knowledge of any Event of Default or other fact or event upon the occurrence of which it may be required to take action hereunder unless one of its Responsible Officers has actual knowledge thereof. Section 7.4 No Responsibility for Recitals, Etc. The recitals contained herein and in the Notes (except in the Trustee's certificate of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Notes. The Trustee shall not be accountable for the use or application by the Company of any Notes or the proceeds of any Notes authenticated and delivered by the Trustee in conformity with the provisions of this Indenture. Section 7.5 Trustee, Paying Agents, Conversion Agents or Registrar May Own Notes. The Trustee, any paying agent, any conversion agent or any Note registrar, in its individual or any other capacity, may become the owner or pledgee of Notes with the same rights it would have if it were not Trustee, paying agent, conversion agent or Note registrar. Section 7.6 Monies to Be Held in Trust. Subject to the provisions of Section 12.4, all monies received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received. 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 may be agreed to in writing from time to time by the Company and the Trustee. Section 7.7 Compensation and Expenses of Trustee. The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, such compensation as the Company and the Trustee shall from time to time agree in writing, for all services rendered by it hereunder in any capacity (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust), and the Company shall pay or reimburse the Trustee upon its request for 46 54 all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Company also covenants to indemnify each of the Trustee or any predecessor Trustee in any capacity under this Indenture and its agents and any authenticating agent for, and to hold them harmless against, any and all loss, liability, damage, claim or expense, including taxes (other than taxes based on the income of the Trustee) incurred without negligence or bad faith on the part of the Trustee or such agent or authenticating agent, as the case may be, and arising out of or in connection with the acceptance or administration of this trust or in any other capacity hereunder, including the costs and expenses of defending themselves against any claim of liability in the premises. The obligations of the Company under this Section 7.7 to compensate or indemnify the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall be secured by a lien prior to that of the Notes upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Notes. The obligation of the Company under this Section shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 6.1(d) hereof or Section 6.1(e) hereof, the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar law. Section 7.8 Officers' Certificate as Evidence. Except as otherwise provided in Section 7.1, whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee, and such Officers' Certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken or omitted by it under the provisions of this Indenture upon the faith thereof. Section 7.9 Conflicting Interests of Trustee. In the event that the Trust Indenture Act is applicable hereto, and if the Trustee has or shall acquire a conflicting interest within the meaning of Section 310(b) of the Trust Indenture Act and 47 55 there exists an Event of Default hereunder (exclusive of any period of grace or requirement of notice), 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. Section 7.10 Eligibility of Trustee. There shall at all times be a Trustee hereunder that shall be a person that satisfied the requirements of Trust Indenture Act Section 310(a)(1) and Section 310(a)(5) and that has a combined capital and surplus of at least $50,000,000. If such person publishes reports of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article VII. Section 7.11 Resignation or Removal of Trustee. (a) The Trustee may at any time resign by giving written notice of such resignation to the Company; and the Company shall mail, or cause to be mailed, notice thereof to the holders of Notes at their addresses as they shall appear on the Note register. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. (b) In case at any time any of the following shall occur: (1) the Trustee shall fail to comply with Section 7.9 after written request therefor by the Company or by any Noteholder who has been a bona fide holder of a Note or Notes for at least six months; or (2) the Trustee shall cease to be eligible in accordance with the provisions of Section 7.10 and shall fail to resign after written request therefor by the Company or by any such Noteholder; 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, 48 56 then, in any such case, the Company may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee or any Noteholder who has been a bona fide holder of a Note or Notes for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c) The holders of a majority in aggregate principal amount of the Notes at the time outstanding may at any time remove the Trustee and nominate a successor trustee, which shall be deemed appointed as successor trustee unless within ten days after notice to the Company of such nomination the Company objects thereto, in which case the Trustee so removed or any Noteholder, upon the terms and conditions and otherwise as provided in the next paragraph, may petition any court of competent jurisdiction for an appointment of a successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within 60 days after removal or the mailing of such notice of resignation to the Noteholders, the Trustee resigning or being removed may petition any court of competent jurisdiction for the appointment of a successor trustee, or, in the case of either resignation or removal, any Noteholder who has been a bona fide holder of a Note or Notes for at least six months may, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. (d) Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section 7.11 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 7.12. Section 7.12 Acceptance by Successor Trustee. Any successor trustee appointed as provided in Section 7.11 shall execute, acknowledge and deliver to the Company and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon, the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as trustee herein; but on the written request of the Company or of 49 57 the successor trustee, the Trustee ceasing to act shall, upon payment of any amounts then due it pursuant to the provisions of Section 7.7, execute and deliver an instrument transferring to such successor trustee all the rights and powers of the Trustee so ceasing to act. Upon request of any such successor trustee, the Company shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. Any Trustee ceasing to act shall, nevertheless, retain a lien upon all property and funds held or collected by such trustee as such, except for funds held in trust for the benefit of holders of particular Notes, to secure any amounts then due it pursuant to the provisions of Section 7.7. No successor trustee shall accept appointment as provided in this Section 7.12 unless at the time of such acceptance such successor trustee shall be qualified under the provisions of Section 7.9 and eligible under the provisions of Section 7.10. Upon acceptance of appointment by a successor trustee as provided in this Section 7.12, the Company shall mail or cause to be mailed notice of the succession of such Trustee hereunder to the holders of Notes at their addresses as they shall appear on the Note register. If the Company fails to mail such notice within ten days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of the Company. Section 7.13 Successor, by Merger, Etc. 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 of the corporate trust business of the Trustee, shall be the successor to the Trustee hereunder, provided such corporation shall be qualified under the provisions of Section 7.9 and eligible under the provisions of Section 7.10 without the execution or filing of any paper or any further act on the part of any of the parties hereto. Section 7.14 Limitation on Rights of Trustee as Creditor. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Notes) and the Trust Indenture Act is applicable hereto, the Trustee shall be subject to the provisions of Section 311(a) or, if applicable, Section 311(b) of the Trust Indenture Act regarding the collection of the claims against the Company (or any such other obligor). 50 58 ARTICLE VIII CONCERNING THE NOTEHOLDERS Section 8.1 Action by Noteholders. Whenever in this Indenture it is provided that the holders of a specified percentage in aggregate principal amount of the Notes may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action), the fact that at the time of taking any such action, the holders of such specified percentage have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by Noteholders in person or by agent or proxy appointed in writing, (b) by the record of the holders of Notes voting in favor thereof at any meeting of Noteholders duly called and held in accordance with the provisions of Article IX or (c) by a combination of such instrument or instruments and any such record of such a meeting of Noteholders. Whenever the Company or the Trustee solicits the taking of any action by the holders of the Notes, the Company or the Trustee may fix in advance of such solicitation, a date as the record date for determining holders entitled to take such action. The record date shall be not more than 15 days prior to the date of commencement of solicitation of such action. Section 8.2 Proof of Execution by Noteholders. Subject to the provisions of Sections 7.1, 7.2 and 9.5, proof of the execution of any instrument by a Noteholder or his agent or proxy shall be sufficient if made in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The holding of Notes shall be proved by the Note register or by a certificate of the Note registrar. The record of any Noteholders' meeting shall be proved in the manner provided in Section 9.5. Section 8.3 Who Are Deemed Absolute Owners. The Company, the Trustee, any paying agent, any conversion agent and any Note registrar may deem the person in whose name such Note shall be registered upon the books of the Company to be, and may treat him as, the absolute owner of such Note (whether or not such Note shall be overdue and notwithstanding any notation of ownership or other writing thereon) for the purpose of receiving payment of or on account of the principal of, premium, if any, and interest on such Note, for conversion of such Note and for all other purposes; and neither the Company nor the Trustee nor any paying agent nor any conversion agent nor any Note registrar shall be affected by any notice to the contrary. All such payments so made to any holder for the time being, or upon his order, shall be valid and, to the extent of the sum or sums so 51 59 paid, effectual to satisfy and discharge the liability for monies payable upon any such Note. The Depositary shall be deemed to be the owner of any global Note for all purposes, including receipt of notices to Noteholders and payment of principal of, premium, if any, and interest on the Notes. None of the Company, the Trustee (in its capacity as Trustee), any paying agent or the Note registrar (or co-registrar) shall have any responsibility for any aspect of the records relating to or payments made on account of beneficial interests of a global Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests; provided that the foregoing shall not apply to the Trustee or any other person acting in its capacity as Custodian. Section 8.4 Company-Owned Notes Disregarded. In determining whether the holders of the requisite aggregate principal amount of Notes have concurred in any direction, consent, waiver or other action under this Indenture, Notes that are owned by the Company or any other obligor on the Notes or by any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Notes shall be disregarded and deemed not to be outstanding for the purpose of any such determination; provided that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, consent, waiver or other action, only Notes that a Responsible Officer actually knows are so owned shall be so disregarded. Notes so owned that have been pledged in good faith may be regarded as outstanding for the purposes of this Section 8.4 if the pledgee shall establish to the satisfaction of the Trustee the pledger's right to vote such Notes and that the pledgee is not the Company, any other obligor on the Notes or a person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any such other obligor. In the case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Upon request of the Trustee, the Company shall furnish to the Trustee promptly an Officers' Certificate listing and identifying all Notes, if any, known by the Company to be owned or held by or for the account of any of the above described persons; and subject to Section 7.1, the Trustee shall be entitled to accept such Officers' Certificate as conclusive evidence of the facts therein set forth and of the fact that all Notes not listed therein are outstanding for the purpose of any such determination. Section 8.5 Revocation of Consents, Future Holders Bound. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 8.1, of the taking of any action by the holders of the percentage in aggregate principal amount of the Notes specified in this Indenture in connection 52 60 with such action, any holder of a Note that is shown by the evidence to be included in the Notes the holders of which have consented to such action may, by filing written notice with the Trustee at its Corporate Trust Office and upon proof of holding as provided in Section 8.2, revoke such action so far as concerns such Note. Except as aforesaid, any such action taken by the holder of any Note shall be conclusive and binding upon such holder and upon all future holders and owners of such Note and of any Notes issued in exchange or substitution therefor, irrespective of whether any notation in regard thereto is made upon such Note or any Note issued in exchange or substitution therefor. ARTICLE IX NOTEHOLDERS' MEETINGS Section 9.1 Purposes for Which Meetings May be Called. A meeting of Noteholders may be called at any time and from time to time pursuant to the provisions of this Article IX for any of the following purposes: (i) to give any notice to the Company or to the Trustee, or to give any directions to the Trustee, or to consent to the waiving of any default hereunder and its consequences, or to take any other action authorized to be taken by Noteholders pursuant to any of the provisions of Article VI; (ii) to remove the Trustee and appoint a successor trustee pursuant to the provisions of Article VII; (iii) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 10.2; or (iv) to take any other action authorized to be taken by or on behalf of the holders of any specified aggregate principal amount of the Notes under any other provisions of this Indenture or under applicable law. Section 9.2 Manner of Calling Meetings; Record Date. The Trustee may at any time call a meeting of Noteholders to take any action specified in Section 9.1, to be held at such time and at such place in the City of New York, State of New York, as the Trustee shall determine. Notice of every meeting of the Noteholders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be mailed not less than 30 nor more than 60 days prior to the date fixed for the meeting to such Noteholders at their addresses as such addresses appear in the Note register. For the purpose of determining Noteholders entitled to notice of any meeting of Noteholders, the Trustee shall fix in advance a 53 61 date as the record date for such determination, such date to be a business day not more than ten days prior to the date of the mailing of such notice as hereinabove provided. Only persons in whose name any Note shall be registered in the Note register at the close of business on a record date fixed by the Trustee as aforesaid, or by the Company or the Noteholders as provided in Section 9.3, shall be entitled to notice of the meeting of Noteholders with respect to which such record date was so fixed. Section 9.3 Call of Meeting by Company or Noteholders. In case at any time the Company, pursuant to a resolution of its Board of Directors or the holders of at least 10% in aggregate principal amount of the Notes then outstanding shall have requested the Trustee to call a meeting of Noteholders to take any action authorized in Section 9.1 by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed notice of such meeting within 20 days after receipt of such request, then the Company or the holders of Notes in the amount above specified, as the case may be, may fix the record date with respect to, and determine the time and the place for, such meeting and may call such meeting to take any action authorized in Section 9.1, by mailing notice thereof as provided in Section 9.2. The record date fixed as provided in the preceding sentence shall be set forth in a written notice to the Trustee and shall be a business day not less than 15 nor more than 20 days after the date on which the original request is sent to the Trustee. Section 9.4 Who May Attend and Vote at Meetings. Only persons entitled to receive notice of a meeting of Noteholders and their respective proxies duly appointed by an instrument in writing shall be entitled to vote at such meeting. The only persons who shall be entitled to be present or to speak at any meeting of Noteholders shall be the persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. When a determination of Noteholders entitled to vote at any meeting of Noteholders has been made as provided in this Section, such determination shall apply to any adjournments thereof. Section 9.5 Manner of Voting at Meetings and Record to be Kept. The vote upon any resolution submitted to any meeting of Noteholders shall be by written ballots on each of which shall be subscribed the signature of the Noteholder or proxy casting such ballot and the identifying number or numbers of the Notes held or represented in respect of which such ballot is cast. The chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of 54 62 each meeting of Noteholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 9.2. The record shall show the identifying numbers of the Notes voting in favor of or against any resolution. Each counterpart of such record shall be signed and verified by the affidavits of the chairman and secretary of the meeting and one of the counterparts shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee. Any counterpart record so signed and verified shall be conclusive evidence of the matters therein stated and shall be the record referred to in clause (b) of Section 8.1. Section 9.6 Exercise of Rights of Trustee and Noteholders Not To Be Hindered or Delayed. Nothing in this Article IX contained shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Noteholders or any rights expressly or impliedly conferred hereunder to make such call, any hinderance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Noteholders under any of the provisions of this Indenture or of the Notes. ARTICLE X SUPPLEMENTAL INDENTURES Section 10.1 Supplemental Indentures Without Consent of Noteholders. The Company, when authorized by a Board Resolution, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto for one or more of the following purposes: (a) to make provision with respect to the conversion rights of the holders of Notes pursuant to the requirements of Section 14.6; (b) subject to Article XV, to convey, transfer, assign, mortgage or pledge to the Trustee as security for the Notes, any property or assets; (c) to evidence the succession of another person to the Company, or successive successions, and the assumption by the Successor Company of the covenants, agreements and obligations of the Company pursuant to Article XI; 55 63 (d) to add to the covenants of the Company such further covenants, restrictions or conditions as the Board of Directors and the Trustee shall consider to be for the benefit of the holders of Notes and to make the occurrence, or the occurrence and continuance, of a default in any such additional covenants, restrictions or conditions a default or an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; provided that in respect of any such additional covenant, restriction or condition, 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; (e) to provide for the issuance under this Indenture of Notes in coupon form (including Notes registrable as to principal only) and to provide for exchangeability of such Notes with the Notes issued hereunder in fully registered form and to make all appropriate changes for such purpose; (f) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture that may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture that shall not adversely affect the interests of the holders of the Notes; (g) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Notes; (h) to modify, eliminate or add to the provisions of this Indenture to such extent necessary to effect the qualification of this Indenture under the Trust Indenture Act (if applicable), or under any similar federal statute hereafter enacted (if applicable); or (i) to modify, eliminate or add to the provisions of this Indenture to allow for the issuance of one or more Notes in global form, in addition to the global Note provided for herein, representing beneficial interests in Notes issued outside the United States in reliance on Regulation S under the Securities Act, with such transfer restrictions and legends as are consistent with such Regulation, and to add provisions relating to the exchange and transfer of beneficial interests in any Note or Notes represented by any such global Note or Notes, any definitive Note and any global Note referred to in Section 2.5(b) hereof. 56 64 The Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations that may be therein contained and to accept the conveyance, transfer and assignment of any property thereunder, but the Trustee shall not be obligated to, but may in its discretion, enter into any supplemental indenture that affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section 10.1 may be executed by the Company and the Trustee without the consent of the holders of any of the Notes at the time outstanding, notwithstanding any of the provisions of Section 10.2. Section 10.2 Supplemental Indentures With Consent of Noteholders. With the consent (evidenced as provided in Article VIII) of the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding, the Company, when authorized by a Board Resolution and the Trustee may from time to time and at any time 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 any supplemental indenture or of modifying in any manner the rights of the holders of the Notes; provided that no such supplemental indenture shall (i) extend the fixed maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or premium, if any, thereon or reduce any amount payable on redemption thereof, alter the obligation of the Company to redeem the Notes at the option of the holder upon the occurrence of a Change of Control or impair or affect the right of any Noteholder to institute suit for the payment thereof or make the principal thereof or interest or premium, if any, thereon payable in any coin or currency other than that provided in the Notes, modify the subordination provisions in a manner adverse to the holders of the Notes, or impair the right to convert the Notes into Common Stock subject to the terms set forth herein without the consent of the holder of each Note so affected or (ii) reduce the aforesaid percentage of Notes, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Notes then outstanding. Upon the request of the Company, accompanied by a copy of a Board Resolution certified by its Secretary or Assistant Secretary authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Noteholders as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, 57 65 in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Noteholders under this Section 10.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. Section 10.3 Effect of Supplemental Indentures. Any supplemental indenture executed pursuant to the provisions of this Article X shall comply with the Trust Indenture Act, as then in effect, if such supplemental indenture is then required to so comply. Upon the execution of any supplemental indenture pursuant to the provisions of this Article X, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitation of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the holders of Notes shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 10.4 Notation on Notes. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article X may bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture, but they need not do so. If the Company or the Trustee shall determine to add such a notation, new Notes so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any modification of this Indenture contained in any such supplemental indenture may, at the Company's expense, be prepared and executed by the Company, authenticated by the Trustee (or an authenticating agent duly appointed by the Trustee pursuant to Section 16.14) and delivered in exchange for the Notes then outstanding, upon surrender of such Notes then outstanding. Section 10.5 Evidence of Compliance of Supplemental Indenture to Be Furnished Trustee. The Trustee shall be furnished with and, subject to the provisions of Sections 7.1 and 7.2, may rely upon an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant hereto complies with the requirements of this Article X. 58 66 ARTICLE XI CONSOLIDATION, MERGER, SALE, CONVEYANCE, TRANSFER AND LEASE Section 11.1 Company May Consolidate, Etc. on Certain Terms. The Company shall not consolidate with or merge with or into, or convey, transfer or lease all or substantially all of its assets to any person unless: (i) either the Company is the resulting, surviving or transferee person (the "Successor Company") or the Successor Company is a person organized and existing under the laws of the United States or any State thereof or the District of Columbia, and the Successor Company (if not the Company) expressly assumes by a supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under this Indenture and the Notes, including the rights pursuant to Article XIV hereof; (ii) immediately after giving effect to such transaction, no Event of Default has happened and is continuing; and (iii) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with this Indenture. Section 11.2 Successor Company To Be Substituted. In case of any such consolidation, merger, sale, conveyance, transfer or lease and upon the assumption by the Successor Company, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the due and punctual payment of the principal of, premium, if any, and interest on all of the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Company, such Successor Company shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the party hereto. Such Successor Company thereupon may cause to be signed, and may issue either in its own name or in the name of Healthsource, Inc. any or all of the Notes issuable hereunder that theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such Successor Company instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver, or cause to be authenticated and delivered, any Notes that previously shall have been signed and delivered by the officers of the Company to the Trustee for, authentication, and any Notes that such Successor Company thereafter shall cause to be signed and delivered to the Trustee for that purpose. All the Notes so issued shall in all respects have the same legal rank and benefit under this Indenture as the Notes theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Notes had been issued at the date of the execution hereof. In the event of any such consolidation, merger, sale, 59 67 conveyance, transfer or lease, the person named as the "Company" in the first paragraph of this Indenture or any successor that shall thereafter have become such in the manner prescribed in this Article XI may be dissolved, wound up and liquidated at any time thereafter and such person shall be released from its liabilities as obligor and maker of the Notes and from its obligations under this Indenture. In case of any such consolidation, merger, sale, conveyance, transfer or lease, such changes in phraseology and form (but not in substance) may be made in the Notes thereafter to be issued as may be appropriate. Section 11.3 Opinion of Counsel To Be Given to Trustee. The Trustee subject to Sections 7.1 and 7.2, shall receive an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, conveyance, transfer or lease and any such assumption complies with the provisions of this Article XI. ARTICLE XII SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS Section 12.1 Legal Defeasance and Covenant Defeasance of the Notes. (a) The Company may, at its option by Board Resolution, at any time, with respect to the Notes, elect to have either paragraph (b) or paragraph (c) below be applied to the outstanding Notes upon compliance with the conditions set forth in paragraph (d). (b) Upon the Company's exercise under paragraph (a) of the option applicable to this paragraph (b), the Company shall be deemed to have been released and discharged from its obligations with respect to the outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "legal defeasance"). For this purpose, such legal defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of the Sections of and matters under this Indenture referred to in clauses (i) and (ii) below and to have satisfied all its other obligations under such Notes and this Indenture insofar as such Notes are concerned, except for the following, which shall survive until otherwise terminated or discharged hereunder: (i) the rights of holders of outstanding Notes to receive solely from the trust fund described in paragraph (d) below and as more fully set forth in such paragraph, payments in respect of the principal 60 68 of, premium, if any, and interest on such Notes when such payments are due and (ii) obligations listed in Section 12.3. (c) Upon the Company's exercise under paragraph (a) of the option applicable to this paragraph (c), the Company shall be released and discharged from its obligations under any covenant contained in Article XI and in Section 3.5 with respect to the outstanding Notes on and after the date the conditions set forth in paragraph (d) are satisfied (hereinafter, "covenant defeasance"), and the Notes shall thereafter be deemed to be not "outstanding" for the purpose of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document, and such omission to comply shall not constitute a Default or an Event of Default under Section 6.1(c), but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. (d) The following shall be the conditions to application of either paragraph (b) or paragraph (c) above to the outstanding Notes: (i) The Company shall have irrevocably deposited in trust with the Trustee, pursuant to an irrevocable trust and security agreement in form and substance satisfactory to the Trustee, cash or U.S. Government Obligations maturing as to principal and interest at such times, or a combination thereof, in such amounts as are sufficient, without consideration of the reinvestment of such interest and after payment of all federal, state and local taxes or other charges or assessments in respect thereof payable by the Trustee, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof (in form and substance reasonably satisfactory to the Trustee) delivered to the Trustee, to pay the principal of, premium, if any, and interest on the outstanding Notes on the dates on which any such payments are due and payable in accordance with the terms of this Indenture and of the Notes; (ii) (A) No Event of Default shall have occurred or be continuing on the date of such deposit, and (B) no Default or Event of Default under Section 6.1(d) or 6.1(e) 61 69 shall occur on or before the 123rd day after the date of such deposit; (iii) Such deposit shall not result in a Default under this Indenture or a breach or violation of, or constitute a default under, any other instrument or agreement to which the Company is a party or by which it or its property is bound; (iv) In the case of a legal defeasance under paragraph (b) above, the Company has 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 Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the holders of the Notes shall not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and shall be subject to federal income tax on the same amounts and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred; and, in the case of a covenant defeasance under paragraph (c) above, the Company shall deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, in form and substance reasonably satisfactory to the Trustee, to the effect that holders of the Notes shall not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance and shall be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; (v) The holders shall have a perfected security interest under applicable law in the cash or U.S. Government Obligations deposited pursuant to Section 12(d)(i) above; (vi) The Company shall have delivered to the Trustee an Opinion of Counsel, in form and substance reasonably satisfactory to the Trustee, to the effect that, after the passage of 123 days following the deposit, the trust funds shall not be subject to any applicable bankruptcy, insolvency, reorganization or similar law affecting creditors' rights generally; (vii) such defeasance shall not cause the Trustee to have a conflicting interest with respect to any securities of the Company; and (viii) The Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent specified herein relating 62 70 to the defeasance contemplated by this Section 12.1 have been complied with; provided, that no deposit under clause (d)(i) above shall be effective to terminate the obligations of the Company under the Notes or this Indenture prior to the passage of 123 days following such deposit. Section 12.2 Termination of Obligations upon Cancellation of the Notes. In addition to the Company's rights under Section 12.1, the Company may terminate all of its obligations under this Indenture (subject to Section 12.3) when: (a) (i) all Notes theretofore authenticated and delivered (other than Notes that have been destroyed, lost or stolen and that have been replaced or paid as provided in Section 2.6) have been delivered to the Trustee for cancellation; and (ii) the Company has paid or caused to be paid all other sums payable hereunder and under the Notes by the Company; or (b) (i) the Notes not previously delivered to the Trustee for cancellation shall have become due and payable or are by their terms to become due and payable within one year or are to be called for redemption under arrangements satisfactory to the Trustee upon delivery of notice; (ii) the Company shall have irrevocably deposited with the Trustee, as trust funds, cash, in an amount sufficient to pay principal of and interest on the outstanding Notes, to maturity or redemption, as the case may be; (iii) such deposit shall not result in a breach or violation of, or constitute a default under, any agreement or instrument pursuant to which the Company is a party or by which it or its property is bound; and (iv) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions related to such defeasance have been complied with. Section 12.3 Survival of Certain Obligations. Notwithstanding the satisfaction and discharge of this Indenture and of the Notes referred to in Section 12.1 or 12.2, the respective obligations of the Company and the Trustee under Sections 2.3, 2.4, 2.5, 2.6, 3.1, 4.2, 5.1, 6.4, 6.9, 7.6, 7.11, 12.5, 12.6, 12.7, Articles XIV and XV shall survive until the Notes are no longer outstanding, and thereafter, the obligations of the Company and the Trustee under Sections 6.9, 7.6, 12.5, 12.6 and 12.7 shall survive. Nothing contained in this Article XII shall abrogate any of the rights, obligations or duties of the Trustee under this Indenture. 63 71 Section 12.4 Acknowledgment of Discharge by Trustee. Subject to Section 12.7, after (i) the conditions of Section 12.1 or 12.2 have been satisfied, (ii) the Company has paid or caused to be paid all other sums payable hereunder by the Company and (iii) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent referred to in clause (i) above relating to the satisfaction and discharge of this Indenture have been complied with, the Trustee upon written request shall acknowledge in writing the discharge of the Company's obligations under this Indenture except for those surviving obligations specified in Section 12.3. Section 12.5 Application of Trust Assets. The Trustee shall hold any cash or U.S. Government Obligations deposited with it in the irrevocable trust established pursuant to Section 12.1 or 12.2, as the case may be. The Trustee shall apply the deposited cash or the U.S. Government Obligations, together with earnings thereon in accordance with this Indenture and the terms of the irrevocable trust agreement established pursuant to Section 12.1 or 12.2, as the case may be, to the payment of principal of, premium, if any, and interest on the Notes. The cash or U.S. Government Obligations so held in trust and deposited with the Trustee in compliance with Section 12.1 or 12.2, as the case may be, shall not be part of the trust estate under this Indenture, but shall constitute a separate trust fund for the benefit of all holders entitled thereto. Except as specifically provided herein, the Trustee shall not be requested to invest any amounts held by it for the benefit of the holders or pay interest on uninvested amounts to any holder. 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 12.1 hereof or Section 12.2 hereof 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 Notes. Section 12.6 Repayment to the Company; Unclaimed Money. Subject to applicable laws governing escheat of such property, and upon termination of the trust established pursuant to Section 12.1 hereof or 12.2 hereof, as the case may be, the Trustee shall promptly pay to the Company upon written request any excess cash or U.S. Government Obligations held by them. Additionally, if amounts for the payment of principal, premium, if any, or interest remains unclaimed for two years, the Trustee shall, upon written request, pay such amounts back to the Company forthwith. Thereafter, all liability of the Trustee with respect to such amounts shall cease. After payment to the Company, holders entitled to such payment must look to the Company for 64 72 such payment as general creditors unless an applicable abandoned property law designates another person. Section 12.7 Reinstatement. If the Trustee is unable to apply any cash or U.S. Government Obligations in accordance with Section 12.1 or 12.2 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 12.1 or 12.2 until such time as the Trustee is permitted to apply all such cash or U.S. Government Obligations in accordance with Section 12.1 or 12.2, as the case may be; provided that if the Company makes any payment of principal of, premium, if any, or interest on any Notes following the reinstatement of its obligations, the Company shall be subrogated to the rights of the holders of such Notes to receive such payment from the amounts held by the Trustee. ARTICLE XIII IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS Section 13.1 Indenture and Notes Solely Corporate Obligations. No recourse for the payment of the principal of, or premium, if any, or interest on any Note, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture or in any supplemental indenture or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor entity, either directly or through the Company or any successor entity, 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 all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Notes. ARTICLE XIV CONVERSION OF NOTES Section 14.1 Right to Convert. Subject to and upon compliance with the provisions of this Indenture, the holder of any Note shall have the right, at his option, at any time after 60 days following the latest date of original issuance of the Notes and prior to the close of business on March 1, 2003 (except 65 73 that, with respect to any Note or portion of a Note that shall be called for redemption or delivered for repurchase, such right shall terminate, except as provided in the fourth paragraph of Section 14.2, at the close of business on the last Trading Day prior to the date fixed for redemption of such Note or portion of a Note unless the Company shall default in payment due upon redemption thereof) to convert the principal amount of any such Note, or any portion of such principal amount that is $1,000 or an integral multiple thereof, into that number of fully paid and nonassessable shares of Common Stock (as such shares shall then be constituted) obtained by dividing the aggregate principal amount of the Notes or portion thereof surrendered for conversion by the Conversion Price in effect at such time rounded to three digits, by surrender of the Note so to be converted in whole or in part in the manner provided in Section 14.2. A holder of Notes is not entitled to any rights of a holder of Common Stock until such holder has converted his Notes to Common Stock and only to the extent such Notes are deemed to have been converted to Common Stock under this Article XIV. Section 14.2 Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends. In order to exercise the conversion privilege with respect to any Note in definitive form, the holder of any such Note to be converted in whole or in part shall surrender such Note, duly endorsed, at an office or agency maintained by the Company pursuant to Section 4.2, accompanied by the funds, if any, required by the penultimate paragraph of this Section 14.2, and shall give written notice of conversion in the form provided on the form of Note (or such other notice that is acceptable to the Company) to the office or agency that the holder elects to convert such Note or the portion thereof specified in said notice. Such notice shall also state the name or names (with address) in which the certificate or certificates for shares of Common Stock that shall be issuable on such conversion shall be issued and shall be accompanied by transfer taxes, if required pursuant to Section 14.7. Each such Note surrendered for conversion shall, unless the shares issuable on conversion are to be issued in the name of the holder of such Note as it appears on the Note register, be duly endorsed by, or be accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or his duly authorized attorney. In order to exercise the conversion privilege with respect to any interest in a global Note, the beneficial holder must complete the appropriate instruction form for conversion pursuant to the Depositary's book-entry conversion program and follow the other procedures set forth in such program. As promptly as practicable after satisfaction of the requirements for conversion set forth above, subject to compliance with any restrictions on transfer if shares issuable on 66 74 conversion are to be issued in a name other than that of the Noteholder (as if such transfer were a transfer of the Note or Notes (or portion thereof) so converted), the Company shall issue and shall deliver to such holder at the office or agency maintained by the Company for such purpose pursuant to Section 4.2, a certificate or certificates for the number of full shares issuable upon the conversion of such Note or portion thereof in accordance with the provisions of this Article XIV and a check or cash in respect of any fractional interest in respect of a share of Common Stock arising upon such conversion, as provided in Section 14.3. In case any Note of a denomination greater than $1,000 shall be surrendered for partial conversion, and subject to Section 2.3, the Company shall execute and the Trustee shall authenticate and make available for delivery to the holder of the Note so surrendered, without charge to him, a new Note or Notes in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Note. Each conversion shall be deemed to have been effected as to any such Note (or portion thereof) on the date on which the requirements set forth above in this Section 14.2 have been satisfied as to such Note (or portion thereof), and the person in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on said date the holder of record of the shares represented thereby; provided that any such surrender on any date when the stock transfer books of the Company shall be closed shall constitute the person in whose name the certificates are to be issued as the record holder thereof for all purposes on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such Note shall have been surrendered. Any Note or portion thereof surrendered for conversion during the period from the close of business on the record date for any interest payment date through the opening of business on the next succeeding interest payment date shall (unless such Note or portion thereof being converted shall have been called for redemption) be accompanied by payment, in funds acceptable to the Company, of an amount equal to the interest otherwise payable on such interest payment date on the principal amount being converted; provided, however, that no such payment need be made if there shall exist at the time of conversion a default in the payment of interest on the Notes. An amount equal to such payment shall be paid by the Company on such interest payment date to the holder of such Note at the close of business on such record date; provided that if the Company shall default in the payment of interest on such interest payment date, such amount shall be paid to the person who made such required payment. The interest payment with respect to a Note called for redemption on a date during the period from the close of business on or after any record date to the opening of business on the business day 67 75 following the corresponding payment date will be payable on the corresponding interest payment date to the registered Holder at the close of business on that record date (notwithstanding the conversion of such Note before the corresponding interest payment date) and a Holder who elects to convert need not include funds equal to the interest paid. Except as provided above in this Section 14.2, no adjustment shall be made for interest accrued on any Note converted or for dividends on any shares issued upon the conversion of such Note as provided in this Article XIV. Upon the conversion of an interest in a global Note, the Trustee, or the Custodian at the direction of the Trustee, shall make a notation on such global Note as to the reduction in the principal amount represented thereby. Section 14.3 Cash Payments in Lieu of Fractional Shares. No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon conversion of Notes. If more than one Note shall be surrendered for conversion at one time by the same holder, the number of full shares that shall be issuable upon conversion shall be computed on the basis of the aggregate principal amount of the Notes (or specified portions thereof to the extent permitted hereby) so surrendered. If any fractional share of stock would be issuable upon the conversion of any Note or Notes, the Company shall make an adjustment therefor in cash at the current market value thereof. The current market value of a share of Common Stock shall be the Closing Price on the first Trading Day immediately preceding the day on which the Notes (or specified portions thereof) are deemed to have been converted and such Closing Price shall be determined as provided in Section 14.5(g). Section 14.4 Conversion Price. The Conversion Price shall be as specified in the forms of Notes (herein called the "Conversion Price") attached as Exhibits A, B and C hereto, subject to adjustment as provided in this Article XIV. Section 14.5 Adjustment of Conversion Price. The Conversion Price shall be adjusted from time to time by the Company as follows: (a) In case the Company shall hereafter pay a dividend or make a distribution to all holders of the outstanding Common Stock in shares of Common Stock, the Conversion Price in effect at the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the Record Date (as defined in Section 14.5(g)) fixed for such determination and the denominator of which shall be the sum 68 76 of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the Record Date. The Company shall not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company nor shall any shares be deemed outstanding. (b) In case the Company shall issue rights or warrants to all holders of its outstanding shares of Common Stock entitling them (for a period expiring within 45 days after the date fixed for determination of stockholders entitled to receive such rights or warrants) to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price (as defined in Section 14.5(g)) on the Record Date fixed for determination of stockholders entitled to receive such rights or warrants, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect at the opening of business on the date after the Record Date by a fraction the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the Record Date plus the number of shares that the aggregate offering price of the total number of shares so offered would purchase at such Current Market Price, and the denominator of which shall be the number of shares of Common Stock outstanding on the close of business on the Record Date plus the total number of additional shares of Common Stock so offered for subscription or purchase. Such adjustment shall become effective immediately after the opening of business on the day following the Record Date fixed for determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered after the expiration or termination of such rights or warrants, the Conversion Price shall be readjusted to the Conversion Price that would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Conversion Price shall again be adjusted to be the Conversion Price that would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors. 69 77 (c) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (d) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock shares of any class of capital stock of the Company (other than any dividends or distributions to which Section 14.5(a) applies) or evidences of its indebtedness or assets (including securities, but excluding any rights or warrants referred to in Section 14.5(b), and excluding any dividend or distribution (x) in connection with the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, (y) exclusively in cash or (z) referred to in Section 14.5(a) (any of the foregoing hereinafter in this Section 14.5(d) called the "Securities")), then, in each such case, the Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the Record Date (as defined in Section 14.5(g)) with respect to such distribution by a fraction of which the numerator shall be the Current Market Price (determined as provided in Section 14.5(g)) on such date less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) on such date of the portion of the Securities so distributed applicable to one share of Common Stock and the denominator shall be such Current Market Price, such reduction to become effective immediately prior to the opening of business on the day following the Record Date; provided, however, that in the event the then fair market value (as so determined) of the portion of the Securities so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Noteholder shall have the right to receive upon conversion the amount of Securities such holder would have received had such holder converted each Note on such date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price that would then be in 70 78 effect if such dividend or distribution had not been declared. If the Board of Directors determines the fair market value of any distribution for purposes of this Section 14.5(d) by reference to the actual or when issued trading market for any securities comprising all or part of such distribution, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price pursuant to Section 14.5(g) to the extent possible. Notwithstanding the foregoing provisions of this Section 14.5(d), no adjustment shall be made hereunder for any distribution of Securities if the Company makes proper provision so that each Noteholder who converts such Note (or any portion thereof) after the date fixed for determination of stockholders entitled to receive such distribution shall be entitled to receive upon such conversion, in addition to the shares of Common Stock issuable upon such conversion, the amount and kind of Securities that such holder would have been entitled to receive if such holder had, immediately prior to such determination date, converted such Note into Common Stock; provided that, with respect to any Securities that are convertible, exchangeable or exercisable, the foregoing provision shall only apply to the extent (and so long as) the Securities receivable upon conversion of such Note would be convertible, exchangeable or exercisable, as applicable, without any loss of rights or privileges for a period of at least 60 days following conversion of such Note. Rights or warrants distributed by the Company to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events (the "Trigger Event") (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of Common Stock, shall not be deemed distributed for purposes of this Section 14.5(d) (and no adjustment to the Conversion Price under Section 14.5(d) shall be required) until the occurrence of the earliest Trigger Event. In addition, in the event of any distribution of rights or warrants, or any Trigger Event with respect thereto, that shall have resulted in an adjustment to the Conversion Price under this Section 14.5(d), (1) in the case of any such rights or warrants that shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or 71 79 repurchase price received by a holder of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants all of which shall have expired or been terminated without exercise by any holder thereof, the Conversion Price shall be readjusted as if such issuance had not occurred. For purposes of this Section 14.5(d) and Sections 14.5(a) and (b), any dividend or distribution to which this Section 14.5(d) is applicable that also includes shares of Common Stock, or rights or warrants to subscribe for or purchase shares of Common Stock (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, assets or shares of capital stock other than such shares of Common Stock or rights or warrants (and any Conversion Price reduction required by this Section 14.5(d) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (and any further Conversion Price reduction required by Sections 14.5(a) and (b) with respect to such dividend or distribution shall then be made, except (A) the Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of stockholders entitled to receive such dividend or other distribution" and "the date fixed for such determination" within the meaning of Sections 14.5(a) and (b) and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of Section 14.5(a). (e) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding any cash that is distributed upon a merger or consolidation to which Section 14.6 applies or as part of a distribution referred to in Section 14.5(d) for which an adjustment to the Conversion Price is provided therein) in an aggregate amount that, combined together with (1) the aggregate amount of any other such distributions to all holders of its Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to this Section 14.5(e) has been made, and (2) the aggregate of any cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) of consideration payable in respect of any tender offer, by the Company or any of its subsidiaries for all or any portion of the Common Stock concluded within the 12 months preceding the date of 72 80 payment of such distribution, and in respect of which no adjustment pursuant to Section 14.5(f) has been made, exceeds 20.0% of the product of the Current Market Price (determined as provided in Section 14.5(g)) on the Record Date with respect to such distribution times the number of shares of Common Stock outstanding on such date, then, and in each such case, immediately after the close of business on such date, unless the Company elects to reserve such cash for distribution to the holders of the Notes upon the conversion of the Notes so that any such holder converting Notes shall receive upon such conversion, in addition to the shares of Common Stock to that such holder is entitled, the amount of cash which such holder would have received if such holder had, immediately prior to the Record Date for such distribution of cash, converted its Notes into Common Stock, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on such date by a fraction (i) the numerator of which shall be equal to the Current Market Price on the Record Date less an amount equal to the quotient of (x) the excess of such combined amount over such 20.0% and (y) the number of shares of Common Stock outstanding on the Record Date and (ii) the denominator of which shall be equal to the Current Market Price on such date; provided, however, that in the event the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Noteholder shall have the right to receive upon conversion the amount of cash such holder would have received had such holder converted each Note on the Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price that would then be in effect if such dividend or distribution had not been declared. (f) In case a tender offer made by the Company or any of its subsidiaries for all or any portion of the Common Stock shall expire and such tender offer (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares (as defined below)) of an aggregate consideration having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) that combined together with (1) the aggregate of the cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution), as of the expiration of such tender offer, of consideration payable in 73 81 respect of any other tender offer, by the Company or any of its subsidiaries for all or any portion of the Common Stock expiring within the 12 months preceding the expiration of such tender offer, and in respect of which no adjustment pursuant to this paragraph (f) has been made, and (2) the aggregate amount of any distributions to all holders of the Company's Common Stock made exclusively in cash within 12 months preceding the expiration of such tender offer, and in respect of which no adjustment pursuant to paragraph (e) of this Section has been made, exceeds 20.0% of the product of the Current Market Price (determined as provided in paragraph (g) of this Section) as of the last time (the "Expiration Time") tenders could have been made pursuant to such tender offer (as it may be amended) times the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to close of business on the date of the Expiration Time by a fraction of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender offer) of all shares validly tendered and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) on the Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Time. In the event that the Company is obligated to purchase shares pursuant to any such tender offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price that would then be in effect if such tender offer had not been made. (g) For purposes of this Section 14.5, the following terms shall have the meaning indicated: (1) "Closing Price" with respect to any securities on any day shall mean the closing sale price 74 82 regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case on the New York Stock Exchange, or, if such security is not listed or admitted to trading on such Exchange, on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose, or a price determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution. (2) "Current Market Price" shall mean the average of the daily Closing Prices per share of Common Stock for the ten consecutive Trading Days immediately prior to the date in question; provided that (1) if the "ex" date (as hereinafter defined) for any event (other than the issuance or distribution or Change of Control requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 14.5(a), (b), (c), (d), (e) or (f) occurs during such ten consecutive Trading Days, the Closing Price for each Trading Day prior to the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the same fraction by which the Conversion Price is so required to be adjusted as.a result of such other event, (2) if the "ex" date for any event (other than the issuance, distribution or Change of Control requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 14.5(a), (b), (c), (d), (e) or (f) occurs on or after the "ex" date for the issuance or distribution requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event and (3) if the "ex" date for the issuance, distribution or Change of Control requiring such computation is prior to the day in question, after taking into account any adjustment required pursuant to clause (1) or (2) of this proviso, the Closing Price for each Trading Day on or after such 75 83 "ex" date shall be adjusted by adding thereto the amount of any cash and the fair market value (as determined by the Board of Directors in a manner consistent with any determination of such value for purposes of Section 14.5(d) or (f), whose determination shall be conclusive and described in a Board Resolution) of the evidences of indebtedness, shares of capital stock or assets being distributed applicable to one share of Common Stock as of the close of business on the day before such "ex" date. For purposes of any computation under Section 14.5(f), the Current Market Price of the Common Stock on any date shall be deemed to be the average of the daily Closing Prices per share of Common Stock for such day and the next two succeeding Trading Days; provided, however, that if the "ex" date for any event (other than the tender or exchange offer requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 14.5(a), (b), (c), (d), (e) or (f) occurs on or after the Expiration Time for the tender or exchange offer requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event. For purposes of this paragraph, the term "ex" date, (1) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the relevant exchange or in the relevant market from which the Closing Price was obtained without the right to receive such issuance or distribution, (2) when used with respect to any subdivision or combination of shares of Common Stock, means the first date on which the Common Stock trades regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective and (3) when used with respect to any tender or exchange offer means the first date on which the Common Stock trades regular way on such exchange or in such market after the expiration of such offer. Notwithstanding the foregoing, whenever successive adjustments to the Conversion Price are called for pursuant to this Section 14.5, such adjustments shall be made to the Current Market Price as may be necessary or appropriate to effectuate the intent of this Section 14.5 and to avoid unjust or inequitable results as determined in good faith by the Board of Directors. (3) "fair market value" shall mean the amount that a willing buyer would pay a willing seller in an arm's-length transaction. 76 84 (4) "Record Date" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). (5) "Trading Day" shall mean (x) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national security exchange, a day on which the New York Stock Exchange or that other national security exchange is open for business or (y) if the applicable security is quoted on the Nasdaq National Market, a day on which trades may be made thereon or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. (h) The Company may make such reductions in the Conversion Price, in addition to those required by Sections 14.5(a), (b), (c), (d), (e) and (f), as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. To the extent permitted by applicable law, the Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least 20 days, the reduction is irrevocable during the period and the Board of Directors shall have made a determination that such reduction would be in the best interests of the Company, which determination shall be conclusive and described in a Board Resolution. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to all holders of record of the Notes a notice of the reduction at least 15 days prior to the date the reduced Conversion Price takes effect, and such notice shall state the reduced Conversion Price and the period it shall be in effect. (i) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, that any adjustments that by reason of this Section 14.5(i) are not 77 85 required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article XIV shall be made by the Company and shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. No adjustment need be made for rights to purchase Common Stock pursuant to a Company plan for reinvestment of dividends or interest. No adjustment need be made for a change in the par value, or to or from no par value, of the Common Stock. To the extent the Notes become convertible into cash, assets, property or securities (other than Common Stock of the Company), no adjustment need be made thereafter as to the cash, assets, property or such securities (except as such securities may otherwise by their terms provide), and interest shall not accrue on such cash. (j) Whenever the Conversion Price is adjusted as herein provided, the Company shall promptly file with the Trustee and any conversion agent other than the Trustee an Officers' Certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the date on which each adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Price to the holder of each Note at his last address appearing on the Note register provided for in Section 2.5, within 20 days after execution thereof. Failure to deliver such notice shall not effect the legality or validity of any such supplemental indenture. (k) In any case in which this Section 14.5 provides that an adjustment shall become effective immediately after a Record Date for an event, the Company may defer until the occurrence of such event (i) issuing to the holder of any Note converted after such Record Date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holder any amount in cash in lieu of any fraction pursuant to Section 14.3. Section 14.6 Effect of Reclassification, Consolidation, Merger or Sale. If any of the following events occur, namely (i) any reclassification or change of outstanding shares of Common Stock (other than a change in par value, or to or from 78 86 no par value, as a result of a subdivision or combination), (ii) any consolidation, merger or combination of the Company with another corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock or (iii) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture if such supplemental indenture is then required to so comply) providing that such Note shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Notes (assuming, for such purposes, a sufficient number of authorized shares of Common Stock available to convert all such Notes) immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance, assuming such holder of Common Stock did not exercise his rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance (provided that, if the kind or amount of securities, cash or other property receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("non-electing share"), then for the purposes of this Section 14.6 the kind and amount of securities, cash or other property receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). Such supplemental indenture shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article XIV. The Company shall cause notice of the execution of such supplemental indenture to be mailed to each holder of Notes, at his address appearing on the Note register provided for in Section 2.5, within 20 days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture. 79 87 The above provisions of this Section 14.6 shall similarly apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances. If this Section 14.6 applies to any event or occurrence, Section 14.5 shall not apply. Section 14.7 Taxes on Shares Issued. The issue of stock certificates on conversions of Notes shall be made without charge to the converting Noteholder for any transfer or similar tax in respect of the issue thereof. The Company shall not, however, be required to pay any tax that may be payable in respect of any transfer involved in the issue and delivery of stock in any name other than that of the holder of any Note converted, and the Company shall not be required to issue or deliver any such stock certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. Section 14.8 Reservation of Shares; Shares to Be Fully Paid; Listing of Common Stock. The Company shall provide, free from preemptive rights, out of its authorized but unissued shares or shares held in treasury, sufficient shares to provide for the conversion of the Notes from time to time as such Notes are presented for conversion. Before taking any action that would cause an adjustment reducing the Conversion Price below the then par value, if any, of the shares of Common Stock issuable upon conversion of the Notes, the Company shall take all corporate action that may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue shares of such Common Stock at such adjusted Conversion Price. The Company covenants that all shares of Common Stock that may be issued upon conversion of Notes shall, upon issue, be fully paid and nonassessable by the Company and free from all taxes, liens and charges with respect to the issue thereof. The Company further covenants that it shall, if permitted by the rules of the New York Stock Exchange, list and keep listed, so long as the Common Stock shall be so listed on such exchange, all Common Stock issuable upon conversion of the Notes. Section 14.9 Responsibility of Trustee. The Trustee and any other conversion agent shall not at any time be under any duty or responsibility to any holder of Notes to determine whether any facts exist that may require any adjustment of the Conversion Price, or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture 80 88 provided to be employed, in making the same. The Trustee and any other conversion agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, that may at any time be issued or delivered upon the conversion of any Note; and the Trustee and any other conversion agent make no representations with respect thereto. Subject to the provisions of Section 7.1, neither the Trustee nor any conversion agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property or cash upon the surrender of any debenture for the purpose of conversion or to comply with any of the duties, responsibilities or covenants of the Company contained in this Article XIV. Without limiting the generality of the foregoing, neither the Trustee nor any conversion agent shall be under any responsibility to determine whether a supplemental indenture under Section 14.6 hereof need to be entered into or the correctness of any provisions contained in any supplemental indenture entered into pursuant to Section 14.6 relating either to the kind or amount of shares of stock or securities or property (including cash) receivable by Noteholders upon the conversion of their Notes after any event referred to in such Section 14.6 or to any adjustment to be made with respect thereto, but, subject to the provisions of Section 7.1, may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, the Officers' Certificate (which the Company shall be obligated to file with the Trustee prior to the execution of any such supplemental indenture) with respect thereto. Section 14.10 Notice to Holders Prior to Certain Actions. In case: (a) the Company makes any distribution or dividend that would require an adjustment in the Conversion Price pursuant to Section 14.5; or (b) the Company takes any action that would require a supplemental indenture pursuant to Section 14.6; or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, the Company shall cause to be filed with the Trustee and to be mailed to each holder of Notes at his address appearing on the Note register, as promptly as possible but in any event at least 15 days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record date is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined or (y) the date on which such reclassification, change, consoli- 81 89 dation, merger, sale, conveyance, transfer, dissolution, liquidation or winding-up is expected to become effective or occur and the date as of which it is expected that holders of record of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, change, consolidation, merger, sale, conveyance, transfer, dissolution, liquidation or winding-up. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, change, consolidation, merger, sale, conveyance, transfer, dissolution, liquidation or winding-up. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings referenced in clauses (a) through (c) of this Section 14.10. ARTICLE XV SUBORDINATION Section 15.1 Agreement to Subordinate. The Company agrees, and each Noteholder by accepting a Note agrees, that the indebtedness evidenced by the Note is subordinated in right of payment, to the extent and in the manner provided in this Article XV, to the prior payment in full of all Senior Indebtedness and that the subordination is for the benefit of the holders of Senior Indebtedness. Section 15.2 Certain Definitions. For purposes of this Article XV, the following terms shall have the meaning indicated: (1) "Representative" shall mean the indenture trustee or other trustee, agent or representative for any Senior Indebtedness. (2) "Senior Indebtedness" with respect to the Notes means the principal of, premium, if any, and interest on, and any fees, costs, expenses and any other amounts (including indemnity payments) related to the following, whether outstanding on the date hereof or hereafter incurred or created: (a) indebtedness, matured or unmatured, whether or not contingent, of the Company for money borrowed evidenced by notes or other written obligations, (b) any interest rate contract, interest rate swap agreement or other similar agreement or arrangement designed to protect the Company or any of its subsidiaries against fluctuations in interest rates, (c) indebtedness, matured or unmatured, whether or not contingent, of the Company evidenced by notes, debentures, bonds or similar instruments or letters of credit (or reimbursement agreements in respect thereof), (d) obligations of the Company as lessee under capitalized leases and 82 90 under leases of property made as part of any sale and lease-back transactions, (e) indebtedness of others of any of the kinds described in the preceding clauses (a) through (d) assumed or guaranteed by the Company and (f) renewals, extensions, modifications, amendments, and refundings of, and indebtedness and obligations of a successor person issued in exchange for or in replacement of, indebtedness or obligations of the kinds described in the preceding clauses (a) through (f), unless the agreement pursuant to which any such indebtedness described in clauses (a) through (f) is created, issued, assumed or guaranteed expressly provides that such indebtedness is not senior or superior in right of payment to the Notes; provided, however, that the following shall not constitute Senior Indebtedness: (i) any indebtedness or obligation of the Company in respect of the Notes, (ii) any indebtedness of the Company to any of its subsidiaries or other Affiliates; (iii) any indebtedness that is subordinated or junior in any respect to any other indebtedness of the Company other than Senior Indebtedness; and (iv) any indebtedness incurred for the purchase of goods or materials in the ordinary course of business. For the purposes of this Indenture, Senior Indebtedness shall not be deemed to have been paid in full until the holders of the Senior Indebtedness shall have indefeasibly received payment in full in cash of all Senior Indebtedness; provided that if any holder of Senior Indebtedness agrees to accept payment in full of such Senior Indebtedness for consideration other than cash, such holder shall be deemed to have indefeasibly received payment in full of such Senior Indebtedness. The provisions of this Article XV shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Senior Indebtedness is rescinded or must otherwise be returned by any holder of Senior Indebtedness upon the insolvency, bankruptcy or organization of the Company or otherwise, all as though such payment had not been made. A distribution may consist of cash, securities or other property, by set-off or otherwise. Section 15.3 Liquidation; Dissolution; Bankruptcy. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, in an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities, holders of Senior Indebtedness shall be entitled to receive payment in full of all amounts due or to become due thereon before Noteholders shall be entitled to receive any payment with respect to the principal of, premium, if any, or interest on the Notes (except that Noteholders may receive securities that are subordinated to at least the same extent as the 83 91 Notes to Senior Indebtedness and any securities issued in exchange for Senior Indebtedness). Section 15.4 Default on Senior Indebtedness. The Company may not make any payment upon or in respect of the Notes (except in such subordinated securities) if: (a) a default in the payment of the principal of, premium, if any, or interest on Senior Indebtedness occurs and is continuing beyond any applicable period of grace; or (b) a default, other than a default referred to in subsection (i) above, on Senior Indebtedness occurs and is continuing that permits holders of the Senior Indebtedness as to which such default relates to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from the representative or representatives of holders of at least a majority in principal amount of Senior Indebtedness then outstanding. No nonpayment default that existed or was continuing on the date of delivery of any such Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of not less than 180 days. The Company may and shall resume payments on and distributions in respect of the Notes and may acquire them upon the earlier of: (a) in the case of a payment default, upon the date on which the default is cured or waived, or (b) in the case of a default referred to in Section 15.4(b) hereof, 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of such Senior Indebtedness has been accelerated. No new period of payment blockage may be commenced within 360 days after the receipt by the Trustee of any prior Payment Blockage Notice. No default referred to in Section 15.4(b) hereof that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of not less than 180 days, if this Article XV otherwise permits the payment, distribution or acquisition at the time of such payment or acquisition. Section 15.5 When Distribution Must Be Paid Over. In the event that the Trustee (or Paying Agent if other than the 84 92 Trustee) or any Noteholder receives any payment of principal or interest with respect to the Notes at a time when such payment is prohibited by Section 15.3 or 15.4 hereof, such payment shall be held by the Trustee (or Paying Agent if other than the Trustee) or such Noteholder, in trust for the benefit of, and immediately shall be paid over and delivered, upon written request, to, the holders of Senior Indebtedness as their interests may appear or their Representative under the indenture or other agreement (if any) pursuant to which Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article XV, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Noteholders or the Company or any other person money or assets to which any holders of Senior Indebtedness shall be entitled by virtue of this Article XV, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. Section 15.6 Notice by Company. The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any principal or interest with respect to the Notes to violate this Article XV, but failure to give such notice shall not affect the subordination of the Notes to the Senior Indebtedness as provided in this Article XV. Section 15.7 Subrogation. After all Senior Indebtedness is paid in full and until the Notes are paid in full, Noteholders shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Indebtedness to receive distributions applicable to Senior Indebtedness to the extent that distributions otherwise payable to the Noteholders have been applied to the payment of Senior Indebtedness. A distribution made under this Article XV to holders of Senior Indebtedness that otherwise would have been made to Noteholders is not, as between the Company and Noteholders, a payment by the Company on the Notes. Section 15.8 Relative Rights. This Article XV defines the relative rights of Noteholders and holders of Senior Indebtedness. Nothing in this Indenture shall: 85 93 (a) impair, as between the Company and the Noteholders, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (b) affect the relative rights of Noteholders and creditors of the Company other than their rights in relation to holders of Senior Indebtedness; or (c) prevent the Trustee or any Noteholder from exercising its available remedies upon a default or Event of Default, subject to the rights of holders and owners of Senior Indebtedness to receive distributions and payments otherwise payable to Noteholders. If the Company fails because of this Article XV to pay principal of or interest on a Note on the due date, the failure is still a default or Event of Default. Section 15.9 Subordination May Not Be Impaired by Company. No right of any holder of Senior Indebtedness to enforce the subordination of the indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the Company or any holder of Notes or by the failure of the Company or any holder of Notes to comply with this Indenture. Section 15.10 Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Company referred to in this Article XV, the Trustee and the Noteholders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other person making any distribution to the Trustee or to the Noteholders for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XV. Section 15.11 Rights of Trustee and Paying Agent. Notwithstanding the provisions of this Article XV or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least three Business Days prior to the date of 86 94 such payment written notice of facts that would cause the payment of any principal and interest with respect to the Notes to violate this Article XV. Only the Company or a Representative may give the notice. Nothing in this Article XV shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.6 hereof. The Trustee shall be entitled to rely on the delivery to it of a written notice by a person representing himself to be a holder of Senior Indebtedness (or a trustee or agent on behalf of such holder) to establish that such notice has been given by a holder of Senior Indebtedness (or a trustee or agent on behalf of any such holder). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article XV, the Trustee may request such person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such person under this Article XV, and if such evidence is not furnished, the Trustee may defer any payment which it may be required to make for the benefit of such person pursuant to the terms of this Indenture pending judicial determination as to the rights of such person to receive such payment. The Trustee in its individual or any other capacity may hold Senior Indebtedness with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. Section 15.12 Authorization to Effect Subordination. Each holder of a Note by the holder's acceptance thereof authorizes and directs the Trustee on the holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article XV, and appoints the Trustee to act as the holder's attorney-in-fact for any and all such purposes. Without limiting the foregoing, each Representative is hereby irrevocably authorized and empowered (in its own name or in the name of the Noteholders or the Trustee or otherwise), but shall have no obligation, to demand, sue for, collect and receive every payment or distribution referred to in Section 15.3 above and give acquittance therefor and to file claims and proofs of claim and take such other action as it may deem necessary or advisable for the exercise or enforcement of any of the rights or interests of the holders or owners of the Senior Indebtedness hereunder; provided that for purposes of this Section 15.12 holders or owners of Senior Indebtedness may act only through such Representative. Section 15.13 Conversions Not Deemed Payment. For the purposes of this Article XV only, the issuance and delivery of 87 95 Common Stock upon conversion of the Notes in accordance with Article XIV shall not be deemed to constitute a payment or distribution on account of the principal of or interest on the Notes or on account of the purchase or other acquisition of Notes. Nothing contained in this Article or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among the Company, its creditors other than holders of Senior Indebtedness and the holders, the right, which is absolute and unconditional, of the holder of any Note to convert such Note in accordance with Article XIV. Section 15.14 Amendments. The provisions of this Article XV shall not be amended or modified without the written consent of the holders of Senior Indebtedness. ARTICLE XVI MISCELLANEOUS PROVISIONS Section 16.1 Pooling of Interests. The Company desires to preserve its ability to account for acquisition and other business combination transactions using the pooling-of-interests method where appropriate, and the provisions of this Indenture shall be interpreted accordingly. Section 16.2 Provisions Binding on Company's Successors. All the covenants, stipulations, promises and agreements in this Indenture made by the Company shall bind its successors and assigns whether so expressed or not. Section 16.3 Official Acts by Successor Company. Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board (including the Board of Directors), committee or officer of the Company shall and may be done and performed with like force and effect by the like board, committee or officer of any corporation that shall at the time be the lawful sole successor of the Company. Section 16.4 Addresses for Notices, Etc. Any notice or demand that by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Notes on the Company shall be deemed to have been sufficiently given or made, for all purposes if given or served by being sent by prepaid overnight delivery or being deposited postage prepaid by registered or certified mail in a post office letter box addressed (until another address is filed by the Company with the Trustee) to Healthsource, Inc., Two College Park Drive, Hooksett, New Hampshire 03106, Attention: Chief Financial Officer with a copy to Sheehan, Phinney, Bass + Green, Professional Association. Any notice, direction, request or demand hereunder to or upon the Trustee shall be deemed to have been sufficiently given or made, 88 96 for all purposes, if given or served by being sent by prepaid overnight delivery or being deposited postage prepaid by registered or certified mail in a post office letter box addressed to the Corporate Trust Office of the Trustee, which office is, at the date as of which this Indenture is dated, located at 101 Barclay Street, Floor 21 West, New York, New York 10286, Attention: Corporate Trust Trustee Administration. The Trustee, by notice to the Company, may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Noteholder shall be mailed to him by first class mail, postage prepaid, at his address as it appears on the Note register and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Noteholder or any defect in it shall not affect its sufficiency with respect to other Noteholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. Section 16.5 Communications by Holders with Other Holders. Noteholders may communicate pursuant to Section 312(b) of the Trust Indenture Act with other Noteholders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Note registrar and any other person shall have the protection of Section 312(c) of the Trust Indenture Act. Section 16.6 Governing Law. This Indenture and each Note shall be deemed to be a contract made under the substantive laws of New York and for all purposes shall be construed in accordance with the substantive laws of New York without regard to conflicts of laws principles thereof. Section 16.7 Evidence of Compliance with Conditions Precedent; Certificates to Trustee. Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, including those actions set forth in Trust Indenture Act Section 314(c), the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, and an Opinion of Counsel stating that, in the Opinion of such Counsel, all such conditions precedent have been complied with. Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that the person making such certificate 89 97 or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statement or opinion contained in such certificate or opinion is based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. Section 16.8 Legal Holidays. In any case where the date of maturity of interest on or principal of the Notes or the date fixed for redemption of any Note shall not be a Business Day, then payment of such interest on or principal of the Notes need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or the date fixed for redemption, and no interest shall accrue for the period from and after such date. Section 16.9 No Security Interest Created. Nothing in this Indenture or in the Notes, expressed or implied, shall be construed to constitute a security interest under the Uniform Commercial Code or similar legislation, as now or hereafter enacted and in effect, in any jurisdiction where property of the Company or its subsidiaries is located. Section 16.10 Trust Indenture Act. This Indenture is hereby made subject to, and shall be governed by, the provisions of the Trust Indenture Act required to be part of and to govern indentures qualified under the Trust Indenture Act. Section 16.11 Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies, or conflicts with the duties imposed by operation of the Trust Indenture Act, the imposed duties, upon qualification of this Indenture under the Trust Indenture Act, shall control. Section 16.12 Benefits of Indenture. Nothing in this Indenture or in the Notes, expressed or implied, shall give to any person, other than the parties hereto, any paying agent, any authenticating agent, any Note registrar and their successors hereunder and the holders of Notes, any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 16.13 Table of Contents, Headings Etc. The table of contents and the titles and headings of the articles and sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. 90 98 Section 16.14 Authenticating Agent. The Trustee may appoint an authenticating agent that shall be authorized to act on its behalf and subject to its direction in the authentication and delivery of Notes in connection with the original issuance thereof and transfers and exchanges of Notes hereunder, including under Sections 2.4, 2.5, 2.6, 2.7 and 3.3, as fully to all intents and purposes as though the authenticating agent had been expressly authorized by this Indenture and those Sections to authenticate and deliver Notes. For all purposes of this Indenture, the authentication and delivery of Notes by the authenticating agent shall be deemed to be authentication and delivery of such Notes "by the Trustee" and a certificate of authentication executed on behalf of the Trustee by an authenticating agent shall be deemed to satisfy any requirement hereunder or in the Notes for the Trustee's certificate of authentication. Such authenticating agent shall at all times be a person eligible to serve as Trustee hereunder pursuant to Section 7.10. Any corporation into which any authenticating agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any authenticating agent shall be a party, or any corporation succeeding to the corporate trust business of any authenticating agent, shall be the successor of the authenticating agent hereunder, if such successor company is otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the parties hereto or the authenticating agent or such successor company. Any authenticating agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of any authenticating agent by giving written notice of termination to such authenticating agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any authenticating agent shall cease to be eligible under this Section, the Trustee shall promptly appoint a successor authenticating agent (which may be the Trustee), shall give written notice of such appointment to the Company and shall mail notice of such appointment to all holders of Notes as the names and addresses of such holders appear on the Note register. The Company agrees to pay to the authenticating agent from time to time reasonable compensation for its services. The provisions of Sections 7.3, 7.4, 7.5, 8.3 and this Section 16.14 shall be applicable to any authenticating agent. Section 16.15 Execution in Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. 91 99 92 100 The Bank of New York hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions hereinabove set forth. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly signed and attested, all as of the date first written above. HEALTHSOURCE, INC. By: /s/ Norman C. Payson, M.D. ----------------------------------------- Name: Norman C. Payson, M.D. Title: President and Chief Executive Officer Attest: /s/ Jon S. Richardson - ---------------------------- Jon S. Richardson, Secretary THE BANK OF NEW YORK, as Trustee By: /s/ Mary Jane Morrissey ----------------------------------------- Name: Mary Jane Morrissey Title: Vice President Attest: /s/ - ---------------------------- 101 EXHIBIT A - FORM OF DEFINITIVE NOTE [FORM OF FACE OF NOTE] No. A-1 $_______________________________ CUSIP 42221EAB0 HEALTHSOURCE, INC. 5% Convertible Subordinated Notes Due 2003 THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A) (1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT PRIOR TO THE DATE THAT IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY AND THE LAST DATE ON WHICH HEALTHSOURCE, INC. (THE "COMPANY") OR ANY "AFFILIATE" (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY WAS THE OWNER OF THE NOTE (THE "RESTRICTION TERMINATION DATE") RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE BANK OF NEW YORK, AS TRUSTEE, A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED HEREBY BEFORE THE RESTRICTION TERMINATION DATE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS A-1 102 CERTIFICATE TO THE BANK OF NEW YORK, AS TRUSTEE. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE BANK OF NEW YORK, AS TRUSTEE, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. HEALTHSOURCE, INC., a corporation duly organized and validly existing under the laws of the State of New Hampshire (the "Company"), which term includes any Successor Company under the Indenture referred to on the reverse hereof, for value received hereby promises to pay to ___________ ________________, or registered assigns, the principal sum of ______________________________________ Dollars on March 1, 2003, at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or, at the option of the holder of this Note, at the Corporate Trust Office of the Trustee, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on March 1 and September 1 of each year, commencing September 1, 1996, on said principal sum at said office or agency, in like coin or currency, at the rate per annum specified in the title of this Note, from the March 1 or September 1 as the case may be, next preceding the date of this Note to which interest has been paid or duly provided for, unless the date hereof is a date to which interest has been paid or duly provided for, in which case from the date of this Note, or unless no interest has been paid or duly provided for on the Notes, in which case from March 6, 1996, until payment of said principal sum has been made or duly provided for; provided that if the Company shall default in the payment of interest due on such March 1 or September 1, then this Note shall bear interest from the next preceding March 1 or September 1 to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for on such Note, from March 6, 1996. The interest so payable on any March 1 or September 1 will be paid to the person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on the record date, which shall be the February 15 or August 15 (whether or not a Business Day) next preceding such March 1 or September 1, respectively; provided that any such interest not punctually paid or duly provided for shall be payable as provided in the Indenture. Interest shall be paid by check mailed to the registered holder at the registered address of such person unless other arrangements are made in accordance with the provisions of the Indenture. A-2 103 Reference is made to the further provisions of this Note set forth on the reverse hereof, including, without limitation, provisions giving the holder of this Note the right to convert this Note into Common Stock of the Company on the terms and subject to the limitations referred to on the reverse hereof and as more fully specified in the Indenture. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Note shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with and governed by the laws of said State, without regard to conflicts of laws principles thereof. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by the Trustee, or a duly authorized authenticating agent under the Indenture. A-3 104 IN WITNESS WHEREOF, the Company has caused this Note to be duly executed under its corporate seal. HEALTHSOURCE, INC. By: _____________________________________ Name: Title: Attest: __________________________________ Secretary A-4 105 [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION Dated: March 6, 1996 This is one of the Notes described in the within-named indenture. THE BANK OF NEW YORK, as Trustee By: ___________________________________ Authorized Signatory [FORM OF REVERSE OF NOTE] HEALTHSOURCE, INC. 5% Convertible Subordinated Notes Due 2003 This Note is one of a duly authorized issue of Notes of the Company, designated as its 5% Convertible Subordinated Notes due 2003 (herein called the "Notes"), limited to the aggregate principal amount of $247,250,000 all issued or to be issued under and pursuant to an Indenture dated as of March 6, 1996 (the "Indenture"), between the Company and The Bank of New York, as trustee (the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a complete description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Notes. Each Note is subject to, and qualified by, all such terms as set forth in the Indenture certain of which are summarized hereon and each holder of a Note is referred to the corresponding provisions of the Indenture for a complete statement of such terms. To the extent that there is any inconsistency between the summary provisions set forth in the Notes and the Indenture, the provisions of the Indenture shall govern. Capitalized terms used but not defined in this Note shall have the meanings ascribed to them in the Indenture. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of, premium, if any, and accrued interest on all Notes may be declared, and upon said declaration shall become, due and payable, in the manner, with A-5 106 the effect and subject to the conditions provided in the Indenture. The payment of principal of, premium, if any, and interest on the Notes will, to the extent set forth in the Indenture, be subordinated in right of payment to the prior payment in full of all Senior Indebtedness (as defined in the Indenture). Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding related to the Company or its property, in an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities, the holders of all Senior Indebtedness will first be entitled to receive payments in full of all amounts due or to become due thereon before the holders of the Notes will be entitled to receive any payment in respect of the principal of, premium, if any, or interest on the Notes (except that holders of Notes may receive securities that are subordinated at least to the same extent as the Notes to Senior Indebtedness and any securities issued in exchange for Senior Indebtedness). The Company also may not make any payment upon or in respect of the Notes (except in such subordinated securities) if (a) a default in the payment of the principal of, premium, if any, or interest on Senior Indebtedness occurs and is continuing beyond any applicable period of grace or (b) any other default occurs and is continuing with respect to Senior Indebtedness that permits holders of the Senior Indebtedness as to which such default relates to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the representative or representatives of holders of at least a majority in principal amount of Senior Indebtedness then outstanding. Payments on the Notes may and shall be resumed (i) in the case of a payment default, upon the date on which such default is cured or waived, or (ii) in the case of a non-payment default, 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Senior Indebtedness has been accelerated. No new period of payment blockage may be commenced within 360 days after the receipt by the Trustee of any prior Payment Blockage Notice. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of not less than 180 days. In the event that the Trustee (or paying agent if other than the Trustee) or any holder of the Notes receives any payment of principal or interest with respect to the Notes at a time when such payment is prohibited under the Indenture, such payment shall be held in trust for the benefit of, and shall be paid over and delivered to, the holders of Senior Indebtedness or their representative as their respective interests may appear. After all Senior Indebtedness is paid in full and until the Notes are paid in A-6 107 full, the holders of the Notes shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Indebtedness to receive distributions applicable to Senior Indebtedness to the extent that distributions otherwise payable to the holders of the Notes have been applied to the payment of Senior Indebtedness. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding, evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Notes; provided that no such supplemental indenture shall (i) extend the fixed maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or premium, if any, thereon, or reduce any amount payable on redemption thereof, alter the obligation of the Company to redeem the Notes at the option of the holders upon the occurrence of a Change of Control or impair or affect the right of any Noteholder to institute suit for the payment thereof, or make the principal thereof or interest or premium, if any, thereon payable in any coin or currency other than that provided in the Notes, modify the subordination provisions in a manner adverse to the holders of the Notes, or impair the right to convert the Notes into Common Stock subject to the terms set forth in the Indenture without the consent of the holder of each Note so affected or (ii) reduce the aforesaid percentage of Notes, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Notes then outstanding. It is also provided in the Indenture that, prior to any declaration accelerating the maturity of the Notes, the holders of a majority in aggregate principal amount of the Notes at the time outstanding may on behalf of the holders of all of the Notes waive any past default or Event of Default under the Indenture and its consequences except a default in the payment of interest or any premium on or the principal of any of the Notes, a failure by the Company to convert any Notes into Common Stock of the Company or a default in respect of a covenant or provision of the Indenture that under Article X thereof cannot be modified or amended without the consent of the holders of all Notes then outstanding. Any such consent or waiver by the holder of this Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Note and any Notes that may be issued in exchange or substitution hereof, irrespective of whether or not any notation thereof is made upon this Note or such other Notes. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the A-7 108 principal of and any premium and interest on this Note at the place, at the respective times, at the rate and in the coin or currency herein prescribed. Interest on the Notes shall be computed on the basis of a 360-day year composed of twelve 30-day months. The Notes are issuable in registered form without coupons in denominations of $1,000 principal amount and integral multiples thereof. At the office or agency of the Company referred to on the face hereof, and in the manner and subject to the limitations provided in the Indenture, without payment of any service charge but with payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration or exchange of Notes, Notes may be exchanged for a like aggregate principal amount of Notes of other authorized denominations. The Notes are not redeemable at the option of the Company prior to March 1, 1999. At any time on or after that date, the Notes may be redeemed at the Company's option, upon notice as set forth in the Indenture, in whole at any time or in part from time to time, at the optional redemption prices set forth below, together with accrued interest to the date fixed for redemption. If redeemed during the 12-month period beginning:
Date Percentage ---- ---------- March 1, 1999 102.5% March 1, 2000 101.7% March 1, 2001 100.8%
and 100% on or after March 1, 2002; provided that if the date fixed for redemption is a date on or after the record date and on or before the next following interest payment date, then the interest payable on such date shall be paid to the holder of record on the next preceding February 15 or August 15, respectively. If a Change of Control (as defined in the Indenture) shall occur at any time, then each holder of Notes shall have the right to require that the Company purchase such holder's Notes in whole or in part in integral multiples of $1,000, at a purchase price in cash in an amount equal to 101% of the principal amount of such Notes, plus accrued and unpaid interest, if any, to the repurchase date pursuant to an offer to be made by the Company and in accordance with the procedures set forth in the Indenture. Subject to the provisions of the Indenture, the holder hereof has the right, at its option, at any time after 60 days following the latest date of original issuance of the Notes and prior to the close of business on March 1, 2003, or, as to all or A-8 109 any portion hereof called for redemption, prior to the close of business on the Trading Day next preceding the date fixed for redemption (unless the Company shall default in payment due upon redemption thereof), to convert the principal hereof or any portion of such principal that is $1,000 or an integral multiple thereof, into that number of fully paid and non-assessable shares of Company's Common Stock, as said shares shall be constituted at the date of conversion, obtained by dividing the principal amount of this Note or portion thereof to be converted by the conversion price of $46.965 or such conversion price as adjusted from time to time as provided in the Indenture, upon surrender of this Note, together with a conversion notice as provided in the Indenture, to the Company at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or at the option of such holder, the Corporate Trust Office of the Trustee, and, unless the shares issuable on conversion are to be issued in the same name as this Note, duly endorsed by, or accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or by his duly authorized attorney. No adjustment in respect of interest or dividends will be made upon any conversion; provided that if this Note shall be surrendered for conversion during the period from the close of business on any record date for the payment of interest and prior to the close of business on the next succeeding interest payment date, this Note (unless it or the portion being converted shall have been called for redemption on a date in such period) must be accompanied by an amount, in funds acceptable to the Company, equal to the interest payable on such interest payment date on the principal amount being converted. The interest payment with respect to a Note called for redemption on a date during the period from the close of business on or after any record date to the opening of business on the business day following the corresponding payment date will be payable on the corresponding interest payment date to the registered Holder at the close of business on that record date (notwithstanding the conversion of such Note before the corresponding interest payment date) and a Holder who elects to convert need not include funds equal to the interest paid. No fractional shares will be issued upon any conversion, but an adjustment in cash will be made, as provided in the Indenture, in respect of any fraction of a share that would otherwise be issuable upon the surrender of any Note or Notes for conversion. Upon due presentment for registration of transfer of this Note at the office or agency of the Company in the Borough of Manhattan, The City of New York, or at the option of the holder of this Note, at the Corporate Trust Office of the Trustee, a new Note or Notes of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange thereof, subject to the conditions and limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith. A-9 110 The Company, the Trustee, any authenticating agent, any paying agent, any conversion agent and any Note registrar may deem and treat the registered holder hereof as the absolute owner of this Note (whether or not this Note shall be overdue and notwithstanding any notation of ownership or other writing hereon made by anyone other than the Company or any Note registrar), for the purpose of receiving payment hereof, or on account hereof, for the conversion hereof and for all other purposes, and neither the Company nor the Trustee nor any other authenticating agent nor any paying agent nor any other conversion agent nor any Note registrar shall be affected by any notice to the contrary. All payments made to or upon the order of such registered holder shall, to the extent of the sum or sums paid, satisfy and discharge liability for monies payable on this Note. No recourse for the payment of the principal of or any premium or interest on this Note, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any Successor Company, either directly or through the Company or any Successor Company, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. A-10 111 ABBREVIATIONS The following abbreviations, when used in the inscription of the face of this Note, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - TEN ENT - as tenants by the ___________________ Custodian entireties (Cust) JT TEN - as joint tenants with right of survivorship ___________________ under and not as tenants in (Minor) common Uniform Gifts to Minors Act_________________________ (State) Additional abbreviations may also be used though not in the above list. A-11 112 [FORM OF CONVERSION NOTICE] CONVERSION NOTICE To: Healthsource, Inc. The undersigned registered owner of this Note hereby irrevocably exercises the option to convert this Note, or the portion hereof (which is $1,000 principal amount or an integral multiple thereof) below designated, into shares of Common Stock, par value $.10 per share, of the Company in accordance with the terms of the Indenture referred to in this Note, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Notes representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Note not converted are to be issued in the name of a person other than the undersigned, the undersigned will check the appropriate box below and pay all transfer taxes payable with respect thereto. Any amount required to be paid to the undersigned on account of interest accompanies this Note. Dated:_______________________ ____________________________________ ____________________________________ Signature(s) Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and credit unions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or Notes to be delivered, other than to and in the name of the registered holder. ____________________________________________ Signature Guarantee Fill in for registration of shares if to A-12 113 be issued, and Notes if to be delivered, other than to and in the name of the registered holder: ____________________________________________ (Name) ____________________________________________ (Street Address) ____________________________________________ (City, State and Zip Code) Please print name and address Principal amount to be converted (if less than all) $____________________ ____________________________________ Social Security or other Taxpayer Identification Number A-13 114 [FORM OF OPTION TO ELECT REPAYMENT UPON A CHANGE OF CONTROL] To: Healthsource, Inc. The undersigned registered owner of this Note hereby irrevocably acknowledges receipt of a notice from Healthsource, Inc. (the "Company") as to the occurrence of a Change of Control with respect to the Company and requests and instructs the Company to repay the entire principal amount of this Note, or the portion thereof (which is $1,000 principal amount or an integral multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Note, together with accrued interest to such date, to the registered holder hereof. Dated:_________________________________ _________________________________________ _________________________________________ Signature(s) _________________________________________ Social Security or Other Taxpayer Identification Number Principal amount to be repaid (if less than all): $_______________________ A-14 115 [FORM OF ASSIGNMENT] For value received _____________________________ hereby sell(s), assign(s) and transfer(s) unto _________________________ (Please insert social security or other identifying number of assignee) the within Note, and hereby irrevocably constitutes and appoints ________________________________ attorney to transfer the said Note on the books of the Company, with full power of substitution in the premises. In connection with any transfer of the within Note (or any issuance of shares of Common Stock upon conversion of the within Note) occurring prior to the third anniversary of the date of original issuance of such Note, the undersigned confirms that such Note (or shares of Common Stock, as the case may be) are being transferred: / / To Healthsource, Inc. or a subsidiary thereof; or / / Pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or / / To an Institutional Accredited Investor pursuant to and in compliance with the Securities Act of 1933, as amended; or / / Pursuant to and in compliance with Regulation S under the Securities Act of 1933, as amended; or / / Pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended. Unless one of the boxes above is checked, the Trustee will refuse to register any of the within Notes (or such shares of Common Stock, as the case may be) in the name of any person other than the registered holder thereof (or hereof); provided, however, that the Trustee may, in its sole discretion, register the transfer of such Notes (or such shares of Common Stock, as the case may be) if it has received such certifications, legal opinions and/or other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended. In addition, if the transferee is an institutional accredited investor or a purchaser who is not a U.S. person, the holder must furnish to the Trustee (i) in the case of an institutional accredited investor, a signed letter A-15 116 containing certain representations and agreements relating to the restrictions on transfer of the security evidenced hereby in substantially the form of Exhibit D to the Indenture and (ii) such other certifications, legal opinions or other information as it may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended. Dated:__________________ ________________________ ________________________ Signature(s) Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and credit unions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15. _______________________________________ Signature Guarantee NOTICE: The signature on the conversion notice, the option to elect payment upon a Change of Control or the assignment must correspond with the name as written upon the face of the Note in every particular without alteration or enlargement or any change whatever. A-16 117 EXHIBIT B - FORM OF RESTRICTED GLOBAL NOTE [FORM OF FACE OF NOTE] No. B-1 $________________________ CUSIP 42221EAA2 HEALTHSOURCE, INC. 5% Convertible Subordinated Notes Due 2003 UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS RESTRICTED GLOBAL NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (THE "DEPOSITARY"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT PRIOR TO THE DATE THAT IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY AND B-1 118 THE LAST DATE ON WHICH HEALTHSOURCE, INC. (THE "COMPANY") OR ANY "AFFILIATE" (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY WAS THE OWNER OF THE NOTE (THE "RESTRICTION TERMINATION DATE") RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE BANK OF NEW YORK, AS TRUSTEE, A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED HEREBY BEFORE THE RESTRICTION TERMINATION DATE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE BANK OF NEW YORK, AS TRUSTEE. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE BANK OF NEW YORK, AS TRUSTEE, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. HEALTHSOURCE, INC., a corporation duly organized and validly existing under the laws of the State of New Hampshire (the "Company"), which term includes any Successor Company under the Indenture referred to on the reverse hereof, for value received hereby promises to pay to ________________________________________________________________________________ ________________________________________________________________________________ ____________________, or registered assigns, the principal sum of B-2 119 ________________________________________________________________________________ ________________________________________________________________________________ _____________________________ Dollars (subject to adjustment as set forth in the next paragraph hereof) on March 1, 2003, at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or, at the option of the holder of this Restricted Global Note, at the Corporate Trust Office of the Trustee, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on March 1 and September 1 of each year, commencing September 1, 1996, on said principal sum at said office or agency, in like coin or currency, at the rate per annum specified in the title of this Restricted Global Note, from the March 1 or September 1, as the case may be, next preceding the date of this Restricted Global Note to which interest has been paid or duly provided for, unless the date hereof is a date to which interest has been paid or duly provided for, in which case from the date of this Restricted Global Note, or unless no interest has been paid or duly provided for on the Notes, in which case from March 6, 1996, until payment of said principal sum has been made or duly provided for; provided that if the Company shall default in the payment of interest due on such March 1 or September 1, then this Restricted Global Note shall bear interest from the next preceding March 1 or September 1, to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for on such Note, from March 6, 1996. The interest so payable on any March 1 or September 1 will be paid to the person in whose name this Restricted Global Note (or one or more Predecessor Notes) is registered at the close of business on the record date, which shall be the February 15 or August 15 (whether or not a Business Day) next preceding such March 1 or September 1, respectively; provided that any such interest not punctually paid or duly provided for shall be payable as provided in the Indenture. Interest shall be paid by check mailed to the registered holder at the registered address of such person unless other arrangements are made in accordance with the provisions of the Indenture. The aggregate principal amount of this Restricted Global Note represented hereby may from time to time be reduced or increased to reflect exchanges of a part of this Restricted Global Note for interests in the Regulation S Global Note or definitive Notes or exchanges of interests in the Regulation S Global Note or definitive Notes for a part of this Restricted Global Note or conversions or redemptions of a part of this Restricted Global Note or cancellations of a part of this Restricted Global B-3 120 Note or transfers of interests in the Regulation S Global Note or definitive Notes in return for a part of this Restricted Global Note or transfers of a part of this Restricted Global Note effected by delivery of interests in the Regulation S Global Note or definitive Notes, in each case, and in any such case, by means of notations on the Schedule of Exchanges, Conversions, Redemptions, Cancellations and Transfers on the last page hereof. Notwithstanding any provision of this Restricted Global Note to the contrary, (i) exchanges of a part of this Restricted Global Note for interests in the Regulation S Global Note or definitive Notes, (ii) exchanges of interests in the Regulation S Global Note or definitive Notes for a part of this Restricted Global Note, (iii) conversions or redemptions of a part of this Restricted Global Note, (iv) cancellations of a part of this Restricted Global Note, (v) transfers of interests in the Regulation S Global Note or definitive Notes in return for a part of this Restricted Global Note and (vi) transfers of a part of this Restricted Global Note effected by delivery of interests in the Regulation S Global Note or definitive Notes may be effected without the surrendering of this Restricted Global Note, provided that appropriate notations on the Schedule of Exchanges, Conversions, Redemptions, Cancellations and Transfers are made by the Trustee, or the Custodian at the direction of the Trustee, to reflect the appropriate reduction or increase, as the case may be, in the aggregate principal amount of this Restricted Global Note resulting therefrom or as a consequence thereof. Reference is made to the further provisions of this Restricted Global Note set forth on the reverse hereof, including, without limitation, provisions giving the holder of this Restricted Global Note the right to convert this Restricted Global Note into Common Stock of the Company on the terms and subject to the limitations referred to on the reverse hereof and as more fully specified in the Indenture. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Restricted Global Note shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with and governed by the laws of said State, without regard to conflicts of laws principles thereof. This Restricted Global Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by the Trustee or a duly authorized authenticating agent under the Indenture. B-4 121 IN WITNESS WHEREOF, the Company has caused this Restricted Global Note to be duly executed under its corporate seal. HEALTHSOURCE, INC. By: _________________ Name: Title: Attest: _____________________________ Secretary B-5 122 [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION Dated: March 6, 1996 This is one of the Notes described in the within-named indenture. THE BANK OF NEW YORK, as Trustee By: ____________________________________ Authorized Signatory [FORM OF REVERSE OF RESTRICTED GLOBAL NOTE] HEALTHSOURCE, INC. 5% Convertible Subordinated Notes Due 2003 This Restricted Global Note is one of a duly authorized issue of Notes of the Company, designated as its 5% Convertible Subordinated Notes Due 2003 (herein called the "Notes"), limited to the aggregate principal amount of $247,250,000 all issued or to be issued under and pursuant to an Indenture dated as of March 6, 1996 (the "Indenture"), between the Company and The Bank of New York, as trustee (the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a complete description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Notes. Each Note is subject to, and qualified by, all such terms as set forth in the Indenture certain of which are summarized hereon and each holder of a Note is referred to the corresponding provisions of the Indenture for a complete statement of such terms. To the extent that there is any inconsistency between the summary provisions set forth in the Notes and the Indenture, the provisions of the Indenture shall govern. Capitalized terms used but not defined in this Note shall have the meanings ascribed to them in the Indenture. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of, premium, if any, and accrued interest on B-6 123 all Notes may be declared, and upon said declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The payment of principal of, premium, if any, and interest on the Notes will, to the extent set forth in the Indenture, be subordinated in right of payment to the prior payment in full of all Senior Indebtedness (as defined in the Indenture). Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding related to the Company or its property, in an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities, the holders of all Senior Indebtedness will first be entitled to receive payments in full of all amounts due or to become due thereon before the holders of the Notes will be entitled to receive any payment in respect of the principal of, premium, if any, or interest on the Notes (except that holders of Notes may receive securities that are subordinated at least to the same extent as the Notes to Senior Indebtedness and any securities issued in exchange for Senior Indebtedness). The Company also may not make any payment upon or in respect of the Notes (except in such subordinated securities) if (a) a default in the payment of the principal of, premium, if any, or interest on Senior Indebtedness occurs and is continuing beyond any applicable period of grace or (b) any other default occurs and is continuing with respect to Senior Indebtedness that permits holders of the Senior Indebtedness as to which such default relates to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the representative or representatives of holders of at least a majority in principal amount of Senior Indebtedness then outstanding. Payments on the Notes may and shall be resumed (i) in the case of a payment default, upon the date on which such default is cured or waived, or (ii) in the case of a non-payment default, 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Senior Indebtedness has been accelerated. No new period of payment blockage may be commenced within 360 days after the receipt by the Trustee of any prior Payment Blockage Notice. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of not less than 180 days. In the event that the Trustee (or paying agent if other than the Trustee) or any holder of the Notes B-7 124 receives any payment of principal or interest with respect to the Notes at a time when such payment is prohibited under the Indenture, such payment shall be held in trust for the benefit of, and shall be paid over and delivered to, the holders of Senior Indebtedness or their representative as their respective interests may appear. After all Senior Indebtedness is paid in full and until the Notes are paid in full, the holders of the Notes shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Indebtedness to receive distributions applicable to Senior Indebtedness to the extent that distributions otherwise payable to the holders of the Notes have been applied to the payment of Senior Indebtedness. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding, evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Notes; provided that no such supplemental indenture shall (i) extend the fixed maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or premium, if any, thereon, or reduce any amount payable on redemption thereof, alter the obligation of the Company to redeem the Notes at the option of the holders upon the occurrence of a Change of Control or impair or affect the right of any Noteholder to institute suit for the payment thereof, or make the principal thereof or interest or premium, if any, thereon payable in any coin or currency other than that provided in the Notes, modify the subordination provisions in a manner adverse to the holders of the Notes, or impair the right to convert the Notes into Common Stock subject to the terms set forth in the Indenture without the consent of the holder of each Note so affected or (ii) reduce the aforesaid percentage of Notes, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Notes then outstanding. It is also provided in the Indenture that, prior to any declaration accelerating the maturity of the Notes, the holders of a majority in aggregate principal amount of the Notes at the time outstanding may on behalf of the holders of all of the Notes waive any past default or Event of Default under the Indenture and its consequences except a default in the payment of interest or any premium on or the principal of any of the Notes, a failure by the Company to convert any Notes into Common Stock of the Company or a default in respect of a covenant or provision of the B-8 125 Indenture that under Article X thereof cannot be modified or amended without the consent of the holders of all Notes then outstanding. Any such consent or waiver by the holder of this Restricted Global Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Restricted Global Note and any Notes that may be issued in exchange or substitution hereof, irrespective of whether or not any notation thereof is made upon this Restricted Global Note or such other Notes. No reference herein to the Indenture and no provision of this Restricted Global Note 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 Restricted Global Note at the place, at the respective times, at the rate and in the coin or currency herein prescribed. Interest on the Notes shall be computed on the basis of a 360-day year composed of twelve 30-day months. The Notes are issuable in registered form without coupons in denominations of $1,000 principal amount and integral multiples thereof. At the office or agency of the Company referred to on the face hereof, and in the manner and subject to the limitations provided in the Indenture, without payment of any service charge but with payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration or exchange of Notes, Notes may be exchanged for a like aggregate principal amount of Notes of other authorized denominations. The Notes are not redeemable at the option of the Company prior to March 1, 1999. At any time on or after that date, the Notes may be redeemed at the Company's option, upon notice as set forth in the Indenture, in whole at any time or in part from time to time, at the optional redemption prices set forth below together with accrued interest to the date fixed for redemption. If redeemed during the 12-month period beginning:
Date Percentage ---- ---------- March 1, 1999 102.5% March 1, 2000 101.7% March 1, 2001 100.8%
and 100% on or after March 1, 2002; provided that if the date fixed for redemption is on a date or after the B-9 126 record date and on or before the next following interest payment date, then the interest payable on such date shall be paid to the holder of record on the next preceding February 15 or August 15, respectively. If a Change of Control (as defined in the Indenture) shall occur at any time, then each holder of Notes shall have the right to require that the Company purchase such holder's Notes in whole or in part in integral multiples of $1,000, at a purchase price in cash in an amount equal to 101% of the principal amount of such Notes, plus accrued and unpaid interest, if any, to the repurchase date pursuant to an offer to be made by the Company and in accordance with the procedures set forth in the Indenture. Subject to the provisions of the Indenture, the holder hereof has the right, at its option, at any time after 60 days following the latest date of original issuance of the Notes and prior to the close of business on March 1, 2003, or, as to all or any portion hereof called for redemption, prior to the close of business on the Trading Day next preceding the date fixed for redemption (unless the Company shall default in payment due upon redemption thereof), to convert the principal hereof or any portion of such principal that is $1,000 or an integral multiple thereof, into that number of fully paid and non-assessable shares of Company's Common Stock, as said shares shall be constituted at the date of conversion, obtained by dividing the principal amount of this Restricted Global Note or portion thereof to be converted by the conversion price of $46.965 or such conversion price as adjusted from time to time as provided in the Indenture, upon surrender of this Restricted Global Note, together with a conversion notice as provided in the Indenture, to the Company at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or at the option of such holder, the Corporate Trust Office of the Trustee, and, unless the shares issuable on conversion are to be issued in the same name as this Restricted Global Note, duly endorsed by, or accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or by his duly authorized attorney. No adjustment in respect of interest or dividends will be made upon any conversion; provided that if this Restricted Global Note shall be surrendered for conversion during the period from the close of business on any record date for the payment of interest and prior to the close of business on the next succeeding interest payment date, this Restricted Global Note (unless it or the portion being converted shall have been called for redemption on a date in such period) must be accompanied by an amount, in funds acceptable to the Company, equal to the interest payable on such interest payment date on the principal amount being converted. B-10 127 The interest payment with respect to a Note called for redemption on a date during the period from the close of business on or after any record date to the opening of business on the business day following the corresponding payment date will be payable on the corresponding interest payment date to the registered Holder at the close of business on that record date (notwithstanding the conversion of such Note before the corresponding interest payment date) and a Holder who elects to convert need not include funds equal to the interest paid. No fractional shares will be issued upon any conversion, but an adjustment in cash will be made, as provided in the Indenture, in respect of any fraction of a share that would otherwise be issuable upon the surrender of any Note or Notes for conversion. Upon due presentment for registration of transfer of this Restricted Global Note at the office or agency of the Company in the Borough of Manhattan, The City of New York, or at the option of the holder of this Restricted Global Note, at the Corporate Trust Office of the Trustee, a new Note or Notes of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange thereof, subject to the conditions and limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith. The Company, the Trustee, any authenticating agent, any paying agent, any conversion agent and any Note registrar may deem and treat the registered holder hereof as the absolute owner of this Restricted Global Note (whether or not this Restricted Global Note shall be overdue and notwithstanding any notation of ownership or other writing hereon made by anyone other than the Company or any Note registrar), for the purpose of receiving payment hereof, or on account hereof, for the conversion hereof and for all other purposes, and neither the Company nor the Trustee nor any other authenticating agent nor any paying agent nor any other conversion agent nor any Note registrar shall be affected by any notice to the contrary. All payments made to or upon the order of such registered holder shall, to the extent of the sum or sums paid, satisfy and discharge liability for monies payable on this Restricted Global Note. No recourse for the payment of the principal of or any premium or interest on this Restricted Global Note, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer or director, as such, past, B-11 128 present or future, of the Company or of any Successor Company, either directly or through the Company or any Successor Company, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. B-12 129 ABBREVIATIONS The following abbreviations, when used in the inscription of the face of this Restricted Global Note, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - __________________ Custodian (Cust) TEN ENT - as tenants by the __________________ under entireties (Minor) JT TEN - as joint tenants with right of survivorship Uniform Gifts to and not as tenants in Minors Act____________________________ common (State) Additional abbreviations may also be used though not in the above list. B-13 130 [FORM OF CONVERSION NOTICE] CONVERSION NOTICE To: Healthsource, Inc. The undersigned registered owner of this Restricted Global Note hereby irrevocably exercises the option to convert this Restricted Global Note, or the portion hereof (which is $1,000 principal amount or an integral multiple thereof) below designated, into shares of Common Stock in accordance with the terms of the Indenture referred to in this Restricted Global Note, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Notes representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Restricted Global Note not converted are to be issued in the name of a person other than the undersigned, the undersigned will check the appropriate box below and pay all transfer taxes payable with respect thereto. Any amount required to be paid to the undersigned on account of interest accompanies this Restricted Global Note. Dated:_______________________ ___________________________________ ___________________________________ Signature(s) Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and credit unions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or Notes to be delivered, other than to and in the name of the registered holder. ____________________________________________ Signature Guarantee B-14 131 Fill in for registration of shares if to be issued, and Notes if to be delivered, other than to and in the name of the registered holder: ____________________________________________ (Name) ____________________________________________ (Street Address) ____________________________________________ (City, State and Zip Code) Please print name and address Principal amount to be converted (if less than all) $_____________ ________________________________ B-15 132 [FORM OF OPTION TO ELECT REPAYMENT UPON A CHANGE OF CONTROL] To: Healthsource, Inc. The undersigned registered owner of this Restricted Global Note hereby irrevocably acknowledges receipt of a notice from Healthsource, Inc. (the "Company") as to the occurrence of a Change of Control with respect to the Company and requests and instructs the Company to repay the entire principal amount of this Restricted Global Note, or the portion thereof (which is $1,000 principal amount or an integral multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Restricted Global Note, together with accrued interest to such date, to the registered holder hereof. Dated:____________________________ ____________________________________ ____________________________________ Signature(s) ____________________________________ Social Security or Other Taxpayer Identification Number Principal amount to be repaid (if less than all): $________________________ B-16 133 [FORM OF ASSIGNMENT] For value received ____________________________________ hereby sell(s), assign(s) and transfer(s) unto ____________________ (please insert social security or other identifying number of assignee) the within Note, and hereby irrevocably constitutes and appoints attorney to transfer the said Note on the books of the Company, with full power of substitution in the premises. In connection with any transfer of the within Note (or any issuance of shares of Common Stock upon conversion of the within Note) occurring prior to the third anniversary of the date of original issuance of such Note, the undersigned confirms that such Note (or shares of Common Stock, as the case may be) are being transferred: / / To Healthsource, Inc. or a subsidiary thereof; or / / Pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or / / To an Institutional Accredited Investor pursuant to and in compliance with the Securities Act of 1933, as amended; or / / Pursuant to and in compliance with Regulation S under the Securities Act of 1933, as amended; or / / Pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended. Unless one of the boxes above is checked, the Trustee will refuse to register any of the within Notes (or such shares of Common Stock, as the case may be) in the name of any person other than the registered holder thereof (or hereof); provided, however, that the Trustee may, in its sole discretion, register the transfer of such Notes (or such shares of Common Stock, as the case may be) if it has received such certifications, legal opinions and/or other information as the Company has B-17 134 reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended. In addition, if the transferee is an institutional accredited investor or a purchaser who is not a U.S. person, the holder must furnish to the Trustee (i) in the case of an institutional accredited investor, a signed letter containing certain representations and agreements relating to the restrictions on transfer of the security evidenced hereby in substantially the form of Exhibit D to the Indenture, and (ii) such other certifications, legal opinions or other information as it may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended. Dated:____________________________ __________________________________ __________________________________ Signature(s) Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and credit unions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15. _______________________________________ Signature Guarantee NOTICE: The signature on the conversion notice, the option to elect payment upon a Change of Control or the assignment must correspond with the name as written upon the face of the Note in every particular without alteration or enlargement or any change whatever. B-18 135 SCHEDULE A SCHEDULE OF EXCHANGES The initial principal amount of this Restricted Global Note is U.S. $_____________. The following additions to principal, redemptions, exchanges of a part of this Restricted Global Note for an interest in the Regulation S Global Note or definitive Note and conversions into Common Shares have been made:
============================================================================================== Principal Amount Re- Principal deemed, Amount Added Exchanged for on Interest in Exchange of the Regula- Remaining Date of Addi- Interest in tion S Principal tion to Prin- the Regula- Global Note Amount Out- cipal, Re- tion S Global or Definitive standing Notation demption, Note or De- Notes or Con- Following Made by or Exchange or finitive verted into such Transac- on behalf of Conversion Notes Common Shares tion the Trustee - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- ==============================================================================================
B-19 136 EXHIBIT C - FORM OF REGULATION S GLOBAL NOTE [FORM OF FACE OF NOTE] No. C-1 $_________________ CUSIP U42262AA0 HEALTHSOURCE, INC. 5% Convertible Subordinated Notes Due 2003 UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS REGULATION S GLOBAL NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS REGULATION S GLOBAL NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (THE "DEPOSITARY"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A) (1), (2), (3) C-1 137 OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT PRIOR TO THE DATE THAT IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY AND THE LAST DATE ON WHICH HEALTHSOURCE, INC. (THE "COMPANY") OR ANY "AFFILIATE" (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY WAS THE OWNER OF THE NOTE (THE "RESTRICTION TERMINATION DATE") RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE BANK OF NEW YORK, AS TRUSTEE, A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED HEREBY BEFORE THE RESTRICTION TERMINATION DATE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE BANK OF NEW YORK, AS TRUSTEE. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE BANK OF NEW YORK, AS TRUSTEE, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" C-2 138 AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. HEALTHSOURCE, INC., a corporation duly organized and validly existing under the laws of the State of New Hampshire (the "Company"), which term includes any Successor Company under the Indenture referred to on the reverse hereof, for value received hereby promises to pay to ________________________________________________________________________________ ________________________________________________________________________________ ______________________, or registered assigns, the principal sum of ________________________________________________________________________________ ________________________________________________________________________________ _______________________________ Dollars (subject to adjustment as set forth in the next paragraph hereof) on March 1, 2003, at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or, at the option of the holder of this Regulation S Global Note, at the Corporate Trust Office of the Trustee, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on March 1 and September 1 of each year, commencing September 1, 1996, on said principal sum at said office or agency, in like coin or currency, at the rate per annum specified in the title of this Regulation S Global Note, from the March 1 or September 1, as the case may be, next preceding the date of this Regulation S Global Note to which interest has been paid or duly provided for, unless the date hereof is a date to which interest has been paid or duly provided for, in which case from the date of this Regulation S Global Note, or unless no interest has been paid or duly provided for on the Notes, in which case from March 6, 1996, until payment of said principal sum has been made or duly provided for; provided that if the Company shall default in the payment of interest due on such March 1 or September 1, then this Regulation S Global Note shall bear interest from the next preceding March 1 or September 1, to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for on such Note, from March 6, 1996. The interest so payable on any March 1 or September 1 will be paid to the person in whose name this Regulation S Global Note (or one or more Predecessor Notes) is registered at C-3 139 the close of business on the record date, which shall be the February 15 or August 15 (whether or not a Business Day) next preceding such March 1 or September 1, respectively; provided that any such interest not punctually paid or duly provided for shall be payable as provided in the Indenture. Interest shall be paid by check mailed to the registered holder at the registered address of such person unless other arrangements are made in accordance with the provisions of the Indenture. The aggregate principal amount of this Regulation S Global Note represented hereby may from time to time be reduced or increased to reflect exchanges of a part of this Regulation S Global Note for interests in the Restricted Global Note or definitive Notes or exchanges of interests in the Restricted Global Note or definitive Notes for a part of this Regulation S Global Note or conversions or redemptions of a part of this Regulation S Global Note or cancellations of a part of this Regulation S Global Note or transfers of interests in the Restricted Global Note or definitive Notes in return for a part of this Regulation S Global Note or transfers of a part of this Regulation S Global Note effected by delivery of interests in the Restricted Global Note or definitive Notes, in each case, and in any such case, by means of notations on the Schedule of Exchanges, Conversions, Redemptions, Cancellations and Transfers on the last page hereof. Notwithstanding any provision of this Regulation S Global Note to the contrary, (i) exchanges of a part of this Regulation S Global Note for interests in the Restricted Global Note or definitive Notes, (ii) exchanges of interests in the Restricted Global Note or definitive Notes for a part of this Regulation S Global Note, (iii) conversions or redemptions of a part of this Regulation S Global Note, (iv) cancellations of a part of this Regulation S Global Note, (v) transfers of interests in the Restricted Global Note or definitive Notes in return for a part of this Regulation S Global Note and (vi) transfers of a part of this Regulation S Global Note effected by delivery of interests in the Restricted Global Note or definitive Notes may be effected without the surrendering of this Regulation S Global Note, provided that appropriate notations on the Schedule of Exchanges, Conversions, Redemptions, Cancellations and Transfers are made by the Trustee, or the Custodian at the direction of the Trustee, to reflect the appropriate reduction or increase, as C-4 140 the case may be, in the aggregate principal amount of this Regulation S Global Note resulting therefrom or as a consequence thereof. Reference is made to the further provisions of this Regulation S Global Note set forth on the reverse hereof, including, without limitation, provisions giving the holder of this Regulation S Global Note the right to convert this Regulation S Global Note into Common Stock of the Company on the terms and subject to the limitations referred to on the reverse hereof and as more fully specified in the Indenture. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Regulation S Global Note shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with and governed by the laws of said State, without regard to conflicts of laws principles thereof. This Regulation S Global Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by the Trustee or a duly authorized authenticating agent under the Indenture. C-5 141 IN WITNESS WHEREOF, the Company has caused this Regulation S Global Note to be duly executed under its corporate seal. HEALTHSOURCE, INC. By: ___________________ Name: Title: Attest: _____________________________ Secretary C-6 142 [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION Dated: March 6, 1996 This is one of the Notes described in the within-named indenture. THE BANK OF NEW YORK, as Trustee By: ____________________________________ Authorized Signatory As Authenticating Agent (if different from Trustee) [FORM OF REVERSE OF REGULATION S GLOBAL NOTE] HEALTHSOURCE, INC. 5% Convertible Subordinated Notes Due 2003 This Regulation S Global Note is one of a duly authorized issue of Notes of the Company, designated as its 5% Convertible Subordinated Notes Due 2003 (herein called the "Notes"), limited to the aggregate principal amount of $247,250,000 all issued or to be issued under and pursuant to an Indenture dated as of March 6, 1996 (the "Indenture"), between the Company and The Bank of New York, the trustee (the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a complete description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Notes. Each Note is subject to, and qualified by, all such terms as set forth in the Indenture certain of which are summarized hereon and each holder of a Note is referred to the corresponding provisions of the Indenture for a complete statement of such terms. To the extent that there is any inconsistency between the summary provisions set forth in the Notes and the Indenture, the C-7 143 provisions of the Indenture shall govern. Capitalized terms used but not defined in this Note shall have the meanings ascribed to them in the Indenture. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of, premium, if any, and accrued interest on all Notes may be declared, and upon said declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The payment of principal of, premium, if any, and interest on the Notes will, to the extent set forth in the Indenture, be subordinated in right of payment to the prior payment in full of all Senior Indebtedness (as defined in the Indenture). Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding related to the Company or its property, in an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities, the holders of all Senior Indebtedness will first be entitled to receive payments in full of all amounts due or to become due thereon before the holders of the Notes will be entitled to receive any payment in respect of the principal of, premium, if any, or interest on the Notes (except that holders of Notes may receive securities that are subordinated at least to the same extent as the Notes to Senior Indebtedness and any securities issued in exchange for Senior Indebtedness). The Company also may not make any payment upon or in respect of the Notes (except in such subordinated securities) if (a) a default in the payment of the principal of, premium, if any, or interest on Senior Indebtedness occurs and is continuing beyond any applicable period of grace or (b) any other default occurs and is continuing with respect to Senior Indebtedness that permits holders of the Senior Indebtedness as to which such default relates to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the representative or representatives of holders of at least a majority in principal amount of Senior Indebtedness then outstanding. Payments on the Notes may and shall be resumed (i) in the case of a payment default, upon the date on which such default is C-8 144 cured or waived, or (ii) in the case of a non-payment default, 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Senior Indebtedness has been accelerated. No new period of payment blockage may be commenced within 360 days after the receipt by the Trustee of any prior Payment Blockage Notice. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of not less than 180 days. In the event that the Trustee (or paying agent if other than the Trustee) or any holder of the Notes receives any payment of principal or interest with respect to the Notes at a time when such payment is prohibited under the Indenture, such payment shall be held in trust for the benefit of, and shall be paid over and delivered to, the holders of Senior Indebtedness or their representative as their respective interests may appear. After all Senior Indebtedness is paid in full and until the Notes are paid in full, the holders of the Notes shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Indebtedness to receive distributions applicable to Senior Indebtedness to the extent that distributions otherwise payable to the holders of the Notes have been applied to the payment of Senior Indebtedness. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding, evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Notes; provided that no such supplemental indenture shall (i) extend the fixed maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or premium, if any, thereon, or reduce any amount payable on redemption thereof, alter the obligation of the Company to redeem the Notes at the option of the holders upon the occur- C-9 145 rence of a Change of Control or impair or affect the right of any Noteholder to institute suit for the payment thereof, or make the principal thereof or interest or premium, if any, thereon payable in any coin or currency other than that provided in the Notes, modify the subordination provisions in a manner adverse to the holders of the Notes, or impair the right to convert the Notes into Common Stock subject to the terms set forth in the Indenture without the consent of the holder of each Note so affected or (ii) reduce the aforesaid percentage of Notes, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Notes then outstanding. It is also provided in the Indenture that, prior to any declaration accelerating the maturity of the Notes, the holders of a majority in aggregate principal amount of the Notes at the time outstanding may on behalf of the holders of all of the Notes waive any past default or Event of Default under the Indenture and its consequences except a default in the payment of interest or any premium on or the principal of any of the Notes, a failure by the Company to convert any Notes into Common Stock of the Company or a default in respect of a covenant or provision of the Indenture that under Article X thereof cannot be modified or amended without the consent of the holders of all Notes then outstanding. Any such consent or waiver by the holder of this Regulation S Global Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Regulation S Global Note and any Notes that may be issued in exchange or substitution hereof, irrespective of whether or not any notation thereof is made upon this Regulation S Global Note or such other Notes. No reference herein to the Indenture and no provision of this Regulation S Global Note 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 Regulation S Global Note at the place, at the respective times, at the rate and in the coin or currency herein prescribed. C-10 146 Interest on the Notes shall be computed on the basis of a 360-day year composed of twelve 30-day months. The Notes are issuable in registered form without coupons in denominations of $1,000 principal amount and integral multiples thereof. At the office or agency of the Company referred to on the face hereof, and in the manner and subject to the limitations provided in the Indenture, without payment of any service charge but with payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration or exchange of Notes, Notes may be exchanged for a like aggregate principal amount of Notes of other authorized denominations. The Notes are not redeemable at the option of the Company prior to March 1, 1999. At any time on or after that date, the Notes may be redeemed at the Company's option, upon notice as set forth in the Indenture, in whole at any time or in part from time to time, at the optional redemption prices set forth below, together with accrued interest to the date fixed for redemption. If redeemed during the 12-month period beginning: Date Percentage ---- ---------- March 1, 1999 102.5% March 1, 2000 101.7% March 1, 2001 100.8% and 100% on or after March 1, 2002; provided that if the date fixed for redemption is on a date or after the record date and on or before the next following interest payment date, then the interest payable on such date shall be paid to the holder of record on the next preceding February 15 or August 15, respectively. If a Change of Control (as defined in the Indenture) shall occur at any time, then each holder of Notes shall have the right to require that the Company purchase such holder's Notes in whole or in part in integral multiples of $1,000, at a purchase price in cash in an amount equal to 101% of the principal amount of such Notes, plus accrued and unpaid interest, if any, to the repurchase date pursuant to an offer to be made by C-11 147 the Company and in accordance with the procedures set forth in the Indenture. Subject to the provisions of the Indenture, the holder hereof has the right, at its option, at any time after 60 days following the latest date of original issuance of the Notes and prior to the close of business on March 1, 2003, or, as to all or any portion hereof called for redemption, prior to the close of business on the Trading Day next preceding the date fixed for redemption (unless the Company shall default in payment due upon redemption thereof), to convert the principal hereof or any portion of such principal that is $1,000 or an integral multiple thereof, into that number of fully paid and non-assessable shares of Company's Common Stock, as said shares shall be constituted at the date of conversion, obtained by dividing the principal amount of this Regulation S Global Note or portion thereof to be converted by the conversion price of $46.965 or such conversion price as adjusted from time to time as provided in the Indenture, upon surrender of this Regulation S Global Note, together with a conversion notice as provided in the Indenture, to the Company at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or at the option of such holder, the Corporate Trust Office of the Trustee, and, unless the shares issuable on conversion are to be issued in the same name as this Regulation S Global Note, duly endorsed by, or accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or by his duly authorized attorney. No adjustment in respect of interest or dividends will be made upon any conversion; provided that if this Regulation S Global Note shall be surrendered for conversion during the period from the close of business on any record date for the payment of interest and prior to the close of business on the next succeeding interest payment date, this Regulation S Global Note (unless it or the portion being converted shall have been called for redemption on a date in such period) must be accompanied by an amount, in funds acceptable to the Company, equal to the interest payable on such interest payment date on the principal amount being converted. The interest payment with respect to a Note called for redemption on a date during the period from the close of business on or after any record date to the opening of business on the business day following the corresponding payment date will be payable on the C-12 148 corresponding interest payment date to the registered Holder at the close of business on that record date (notwithstanding the conversion of such Note before the corresponding interest payment date) and a Holder who elects to convert need not include funds equal to the interest paid. No fractional shares will be issued upon any conversion, but an adjustment in cash will be made, as provided in the Indenture, in respect of any fraction of a share that would otherwise be issuable upon the surrender of any Note or Notes for conversion. Upon due presentment for registration of transfer of this Regulation S Global Note at the office or agency of the Company in the Borough of Manhattan, The City of New York, or at the option of the holder of this Regulation S Global Note, at the Corporate Trust Office of the Trustee, a new Note or Notes of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange thereof, subject to the conditions and limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith. The Company, the Trustee, any authenticating agent, any paying agent, any conversion agent and any Note registrar may deem and treat the registered holder hereof as the absolute owner of this Regulation S Global Note (whether or not this Regulation S Global Note shall be overdue and notwithstanding any notation of ownership or other writing hereon made by anyone other than the Company or any Note registrar), for the purpose of receiving payment hereof, or on account hereof, for the conversion hereof and for all other purposes, and neither the Company nor the Trustee nor any other authenticating agent nor any paying agent nor any other conversion agent nor any Note registrar shall be affected by any notice to the contrary. All payments made to or upon the order of such registered holder shall, to the extent of the sum or sums paid, satisfy and discharge liability for monies payable on this Regulation S Global Note. No recourse for the payment of the principal of or any premium or interest on this Regulation S Global Note, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any C-13 149 Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any Successor Company, either directly or through the Company or any Successor Company, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. C-14 150 ABBREVIATIONS The following abbreviations, when used in the inscription of the face of this Regulation S Global Note, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - __________ Custodian (Cust) TEN ENT - as tenants by the ______________________ under entireties (Minor) JT TEN - as joint tenants with right of survivorship Uniform Gifts to and not as tenants in Minors Act__________________________ common (State) Additional abbreviations may also be used though not in the above list. C-15 151 [FORM OF CONVERSION NOTICE] CONVERSION NOTICE To: Healthsource, Inc. The undersigned registered owner of this Regulation S Global Note hereby irrevocably exercises the option to convert this Regulation S Global Note, or the portion hereof (which is $1,000 principal amount or an integral multiple thereof) below designated, into shares of Common Stock in accordance with the terms of the Indenture referred to in this Regulation S Global Note, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Notes representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Regulation S Global Note not converted are to be issued in the name of a person other than the undersigned, the undersigned will check the appropriate box below and pay all transfer taxes payable with respect thereto. Any amount required to be paid to the undersigned on account of interest accompanies this Regulation S Global Note. Dated:_______________________ _______________________________________ _______________________________________ Signature(s) Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and credit unions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or Notes to be delivered, other than to and in the name of the registered holder. _______________________________________ Signature Guarantee C-16 152 Fill in for registration of shares if to be issued, and Notes if to be delivered, other than to and in the name of the registered holder: _______________________________________ (Name) _______________________________________ (Street Address) _______________________________________ (City, State and Zip Code) Please print name and address Principal amount to be converted (if less than all) $____________ ________________________________ C-17 153 [FORM OF OPTION TO ELECT REPAYMENT UPON A CHANGE OF CONTROL] To: Healthsource, Inc. The undersigned registered owner of this Regulation S Global Note hereby irrevocably acknowledges receipt of a notice from Healthsource, Inc. (the "Company") as to the occurrence of a Change of Control with respect to the Company and requests and instructs the Company to repay the entire principal amount of this Regulation S Global Note, or the portion thereof (which is $1,000 principal amount or an integral multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Regulation S Global Note, together with accrued interest to such date, to the registered holder hereof. Dated:__________________ ___________________________________ ___________________________________ Signature(s) ___________________________________ Social Security or Other Taxpayer Identification Number Principal amount to be repaid (if less than all): $__________________ C-18 154 [FORM OF ASSIGNMENT] For value received _______________________________ hereby sell(s), assign(s) and transfer(s) unto _____________________ (please insert social security or other identifying number of assignee) the within Note, and hereby irrevocably constitutes and appoints attorney to transfer the said Note on the books of the Company, with full power of substitution in the premises. In connection with any transfer of the within Note (or any issuance of shares of Common Stock upon conversion of the within Note) occurring prior to the third anniversary of the date of original issuance of such Note, the undersigned confirms that such Note (or shares of Common Stock, as the case may be) are being transferred: / / To Healthsource, Inc. or a subsidiary thereof; or / / Pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or / / To an Institutional Accredited Investor pursu- ant to and in compliance with the Securities Act of 1933, as amended; or / / Pursuant to and in compliance with Regulation S under the Securities Act of 1933, as amended; or / / Pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended. Unless one of the boxes above is checked, the Trustee will refuse to register any of the within Notes (or such shares of Common Stock, as the case may be) in the name of any person other than the registered holder thereof (or hereof); provided, however, that the Trustee may, in its sole discretion, register the transfer of such Notes (or such shares of Common Stock, as the case may be) if it has received such certifications, legal opinions and/or other information as the Company has C-19 155 reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended. In addition, if the transferee is an institutional accredited investor or a purchaser who is not a U.S. person, the holder must furnish to the Trustee (i) in the case of an institutional accredited investor, a signed letter containing certain representations and agreements relating to the restrictions on transfer of the security evidenced hereby in substantially the form of Exhibit D to the Indenture, and (ii) such other certifications, legal opinions or other information as it may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended. Dated:____________________________ __________________________________ __________________________________ Signature(s) Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and credit unions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15. ____________________________________________ Signature Guarantee NOTICE: The signature on the conversion notice, the option to elect payment upon a Change of Control or the assignment must correspond with the name as written upon the face of the Note in every particular without alteration or enlargement or any change whatever. C-20 156 SCHEDULE A SCHEDULE OF EXCHANGES The initial principal amount of this Regulation S Global Note is U.S.$ _____________. The following additions to principal, redemptions, exchanges of a part of this Regulation S Global Note for an interest in the Restricted Global Note, definitive Note and conversions into Common Shares have been made:
============================================================================================== Principal Amount Re- Principal deemed, Amount Added Exchanged for on Interest in Exchange of the Regula- Remaining Date of Addi- Interest in tion S Principal tion to Prin- the Regula- Global Note Amount Out- cipal, Re- tion S Global or Definitive standing Notation demption, Note or De- Notes or Con- Following Made by or Exchange or finitive verted into such Transac- on behalf of Conversion Notes Common Shares tion the Trustee - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- ==============================================================================================
C-21 157 EXHIBIT D - FORM OF TRANSFEREE CERTIFICATE FOR NOTES TO BE ISSUED TO ACCREDITED INVESTORS The Bank of New York, as Trustee 101 Barclay Street, Floor 21 West New York, New York 10286 Attention: Corporate Trust Trustee Administration Re: Healthsource, Inc. 5% Convertible Subordinated Notes Due 2003 (the "Notes") Reference is hereby made to the Indenture dated as of March 6, 1996 (as supplemented from time to time, the "Indenture") between Healthsource, Inc. and The Bank of New York, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. The undersigned is delivering this letter in connection with the transfer of Notes to the undersigned, which Notes are to be held by the undersigned in definitive registered form. The undersigned hereby confirms that: (i) the undersigned is an "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the "Securities Act"), or an entity in which all of the equity owners are accredited investors within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act (an "Institutional Accredited Investor"); (ii) (A) any purchase of Notes by the undersigned will be for the undersigned's own account or for the account of one or more other Institutional Accredited Investors or as fiduciary for the account of one or more trusts, each of which is an "accredited investor" within the meaning of Rule 501(a)(7) under the Securities Act and for each of which we exercise sole investment discretion or (B) we are a "bank," within the meaning of Section 3(a)(2) of the Securities Act, or a D-1 158 "savings and loan association" or other institution described in Section 3(a)(5)(A) of the Securities Act that is acquiring Notes as fiduciary for the account of one or more institutions for which we exercise sole investment discretion; (iii) the undersigned has such knowledge and experience in financial and business matters that the undersigned is capable of evaluating the merits and risks of purchasing Notes; (iv) the undersigned is not acquiring Notes with a view to distribution thereof or with any present intention of offering or selling Notes or the Common Stock issuable upon conversion thereof, except as permitted below; provided that the disposition of the undersigned's property and property of any accounts for which the undersigned is acting as fiduciary shall remain at all times within the undersigned's control; and (v) the undersigned acknowledges that it has had access to such financial and other information as the undersigned deems necessary in connection with the undersigned's decision to purchase Notes. The undersigned understands that the Notes have been issued in a transaction not involving any public offering within the United States within the meaning of the Securities Act and that the Notes and the shares of Common Stock issuable upon conversion thereof (collectively, the "Securities") have not been registered under the Securities Act or any applicable state securities laws, and the undersigned agrees, on the undersigned's own behalf and on behalf of each account for which the undersigned acquires any Securities, that if in the future the undersigned decides to resell or otherwise transfer such Securities, such Securities may be resold or otherwise transferred only (a) to the Company or any subsidiary thereof, (b) to a person who is a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in a transaction meeting the requirements of Rule 144A, (c) to an Institutional Accredited Investor that, prior to such transfer, furnishes to the trustee (or transfer agent, as the case may be) for such Securities a signed letter containing certain representations and agreements relating to the restrictions on transfer of such Securities (the form of D-2 159 which letter can be obtained from such trustee, or transfer agent, as the case may be), (d) outside the United States in a transaction meeting the requirements of Regulation S under the Securities Act, (e) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if applicable) or (f) pursuant to a registration statement which has been declared effective under the Securities Act. The undersigned agrees that any such transfer of Securities referred to in this paragraph shall be in accordance with applicable securities laws of any State of the United States or any other applicable jurisdiction and in accordance with the legends set forth on the Securities. The undersigned further agrees to provide any person purchasing any of the Securities from the undersigned a notice advising such purchaser that resales of such Securities are restricted as stated herein. The undersigned understands that the registrar and transfer agent for the Securities will not be required to accept for registration or transfer any Securities, except upon presentation of evidence satisfactory to the Company that the foregoing restrictions on transfer have been complied with. The undersigned further understands that any Securities will be in the form of definitive physical certificates and that such certificates will bear a legend (unless the sale of the Securities has been registered under the Securities Act) reflecting the substance of this paragraph. The undersigned acknowledges that the Transferor, others and you will rely upon the undersigned's confirmation, acknowledgments and agreements set forth herein, and the undersigned agrees to notify you promptly in writing if any of the D-3 160 undersigned's representations or warranties herein ceases to be accurate and complete. Dated: __________, ____ _____________________________________ (Name of Transferor) By:__________________________________ Name: Title: Address: D-4 161 EXHIBIT E - FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM DEFINITIVE REGISTERED FORM TO RESTRICTED GLOBAL NOTE The Bank of New York as Trustee 101 Barclay Street, Floor 21 West New York, New York 10286 Attention: Corporate Trust Trustee Administration Re: Healthsource, Inc. 5% Convertible Subordinated Notes Due 2003 (the "Notes") Reference is hereby made to the Indenture dated as of March 6, 1996 (as supplemented from time to time, the "Indenture") between Healthsource, Inc. and The Bank of New York, as Trustee. Capitalized terms used but not defined herein shall have the meanings given them in the Indenture. This letter relates to U.S.$__________ (being U.S.$1,000 and any integral multiple of U.S.$1,000 in excess thereof) principal amount of Notes held of record in definitive registered form through Note No. _______ (the "Definitive Note") in the name of _______________ (the "Transferor"). The Transferor hereby requests that on [INSERT DATE] such beneficial interest represented by the Definitive Note be transferred or exchanged for an interest in the Restricted Global Note (CUSIP No. 42221EAA2.) in the same principal denomination and transferred to ______________ (the Depositary account no. ________). If this is a partial transfer, a minimum of U.S.$1,000 and any integral multiple of U.S.$1,000 in excess thereof of the Definitive Note will remain outstanding. In connection with such request, and in respect of such Notes, the Transferor does hereby certify that such Notes are being transferred in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), to a transferee that the Transferor reasonably believes is purchasing the Notes for its own account or an account with respect to which the transferee exercises sole investment discretion and the transferee and any such account is a "qualified institutional buyer" E-1 162 within the meaning of Rule 144A, in each case in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. The Transferor does hereby certify that it has notified the transferee that it has relied on Rule 144A under the Securities Act on a basis for the exemption from the registration requirements of the Securities Act used in connection with such transfer. E-2 163 This certificate and the statements contained herein are made for your benefit and the benefit of the Company. Dated: ____________, _______ [Name of Transferor] By: _________________________ Name: Title: Telephone No.: Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the transfer agent, which requirements include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the transfer agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. _____________________________ Signature Guarantee Please print name and address (including zip code number) cc: Healthsource, Inc. E-3 164 EXHIBIT F - FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM DEFINITIVE REGISTERED FORM TO REGULATION S GLOBAL NOTE The Bank of New York, as Trustee 101 Barclay Street, Floor 21 West New York, New York 10286 Attention: Corporate Trust Trustee Administration Re: Healthsource, Inc. 5% Convertible Subordinated Notes Due 2003 (the "Notes") Reference is hereby made to the Indenture dated as of March 6, 1996 (as supplemented from time to time, the "Indenture") between Healthsource, Inc. and The Bank of New York, as Trustee. Capitalized terms used but not defined herein shall have the meanings given them in the Indenture. This letter relates to U.S.$_________ (being U.S.$1,000 and any integral multiple of U.S.$1,000 in excess thereof) principal amount of Notes held of record in definitive registered form through Note No. _________ (the "Definitive Note") in the name of ________(the "Transferor"). The Transferor hereby requests that on [INSERT DATE] such beneficial interest represented by the Definitive Note be transferred or exchanged for an interest in the Regulation S Global Note (CUSIP (CINS) No. U42262AA0) in the same principal denomination and transfer to (account no. ________). If this is a partial transfer, a minimum amount of U.S.$1,000 and any- integral multiple of U.S.$1,000 in excess thereof of the Definitive Note will remain outstanding. In connection with such request and in respect of such Notes, the Transferor does hereby certify that such transfer has been effected in accordance with the transfer restrictions set forth in the Indenture and the Notes and pursuant to and in accordance with Rule 903 or 904 of Regulation S under the Securities Act of 1933, as amended (the "Securities Act"), and accordingly, the Transferor further certifies that: F-1 165 (A) (1) the offer of the Notes was not made to a person in the United States; (2) either (a) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States or (b) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither the Transferor nor any person acting on our behalf knows that the transaction was prearranged with a buyer in the United States; (3) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable; and (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. OR (B) Such transfer is being made in accordance with Rule 144A under the Securities Act to a transferee that the Transferor reasonably believes is purchasing the Notes for its own account or an account with respect to which the transferee exercises sole investment discretion and the transferee and any such account is a "qualified institutional buyer" within the meaning of Rule 144A, in each case in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. The Transferor does hereby certify that it has notified the transferee that it has relied on Rule 144A under the Securities Act as a basis for the exemption from the registration requirements of the Securities Act used in connection with such transfer. F-2 166 This certificate and the statements contained herein are made for your benefit and the benefit of the Company. Terms used in this certificate and not otherwise defined in the Indenture have the meaning set forth in Regulation S under the Securities Act. Dated: ____________, ______ [Name of Transferor] By: ___________________________ Name: Title: Telephone No.: Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the transfer agent, which requirements include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the transfer agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. __________________________________ Signature Guarantee Please print name and address (including zip code number) cc: Healthsource, Inc. F-3 167 EXHIBIT G - FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM RESTRICTED GLOBAL NOTE TO REGULATION S GLOBAL NOTE (Transfers pursuant to Section 2.5(c) of the Indenture) The Bank of New York, as Trustee 101 Barclay Street, Floor 21 West New York, New York 10286 Attention: Corporate Trust Trustee Administration Re: Healthsource, Inc. 5% Convertible Subordinated Notes Due 2003 (the "Notes") Reference is hereby made to the Indenture dated as of March 6, 1996 (as supplemented from time to time, the "Indenture") between Healthsource, Inc. and The Bank of New York, as Trustee. Capitalized terms used but not defined herein shall have the meanings given them in the Indenture. This letter relates to U.S.$_________ (being U.S.$1,000 and any integral multiple of U.S.$1,000 in excess thereof) principal amount of Notes beneficially held through interests in the Restricted Global Note (CUSIP No. 42221EAA2 (the "Definitive Note") in the name of ________(the "Transferor") account no. _________. The Transferor hereby requests that on [INSERT DATE] such beneficial interest in the Restricted Global Note be transferred or exchanged for an interest in the Regulation S Global Note (CUSIP (CINS) No. U42262AA0) in the same principal denomination and transfer to (account no. ________). If this is a partial transfer, a minimum amount of U.S.$1,000 and any integral multiple of U.S.$1,000 in excess thereof of the Restricted Global Note will remain outstanding. In connection with such request and in respect of such Notes, the Transferor does hereby certify that such transfer has been effected in accordance with the transfer restrictions set forth in the Indenture and the Notes and pursuant to and in accordance with Rule 903 or G-1 168 904 of Regulation S under the Securities Act of 1933, as amended (the "Securities Act"), and accordingly, the Transferor further certifies that: (A) (1) the offer of the Notes was not made to a person in the United States; (2) either (a) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States or (b) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither the Transferor nor any person acting on our behalf knows that the transaction was prearranged with a buyer in the United States; (3) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable; and (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. OR (B) Such transfer is being made in accordance with Rule 144A under the Securities Act to a transferee that the Transferor reasonably believes is purchasing the Notes for its own account or an account with respect to which the transferee exercises sole investment discretion and the transferee and any such account is a "qualified institutional buyer" within the meaning of Rule 144A, in each case in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. The Transferor does hereby certify that it has notified the transferee that it has relied on Rule 144A under the Securities Act as a basis for the exemption from the registration requirements of the Securities Act used in connection with such transfer. G-2 169 This certificate and the statements contained herein are made for your benefit and the benefit of the Company. Terms used in this certificate and not otherwise defined in the Indenture have the meaning set forth in Regulation S under the Securities Act. Dated: _______________, _______ [Name of Transferor] By: ______________________________ Name: Title: Telephone No.: Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the transfer agent, which requirements include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the transfer agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. __________________________________ Signature Guarantee Please print name and address (including zip code number) cc: Healthsource, Inc. G-3 170 EXHIBIT H - FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM REGULATION S GLOBAL NOTE TO RESTRICTED GLOBAL NOTE PRIOR TO EXPIRATION OF RESTRICTED PERIOD (Transfers pursuant to Section 2.5(c) of the Indenture) The Bank of New York, as Trustee 101 Barclay Street, Floor 21 West New York, New York 10286 Attention: Corporate Trust Trustee Administration Re: Healthsource, Inc. 5% Convertible Subordinated Notes Due 2003 (the "Notes") Reference is hereby made to the Indenture dated as of March 6, 1996 (as supplemented from time to time, the "Indenture") between Healthsource, Inc. and The Bank of New York, as Trustee. Capitalized terms used but not defined herein shall have the meanings given them in the Indenture. This letter relates to U.S.$_________ (being U.S.$1,000 and any integral multiple of U.S.$1,000 in excess thereof) principal amount of Notes beneficially held through interests in the Restricted Global Note (CUSIP No. 42221EAA2 (the "Definitive Note") in the name of ________(the "Transferor") account no. _________. The Transferor hereby requests that on [INSERT DATE] such beneficial interest in the Restricted Global Note be transferred or exchanged for an interest in the Regulation S Global Note (CUSIP (CINS) No. U42262AA0) in the same principal denomination and transfer to (account no. ________). If this is a partial transfer, a minimum amount of U.S.$1,000 and any integral multiple of U.S.$1,000 in excess thereof of the Restricted Global Note will remain outstanding. In connection with such request, and in respect of such Notes, the Transferor does hereby certify that such Notes are being transferred in accordance with Rule 144A under the Securities Act of 1933, as amended (the H-1 171 "Securities Act"), to a transferee that the Transferor reasonably believes is purchasing the Notes for its own account or an amount with respect to which the transferee exercises sole investment discretion and the transferee and any such account is a "qualified institutional buyer" within the meaning of Rule 144A, in each case in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. The Transferor does hereby certify that it has notified the transferee that it has relied on Rule 144A under the Securities Act as a basis for the exemption from the registration requirements of the Securities Act used in connection with such transfer. H-2 172 This certificate and the statements contained herein are made for your benefit and the benefit of the Company. Terms used in this certificate and not otherwise defined in the Indenture have the meaning set forth in Regulation S under the Securities Act. Dated: _______________, ______ [Name of Transferor] By: ______________________________ Name: Title: Telephone No.: Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the transfer agent, which requirements include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the transfer agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. __________________________________ Signature Guarantee Please print name and address (including zip code number) cc: Healthsource, Inc. H-3 173 ================================================================================ HEALTHSOURCE, INC. Issuer AND THE BANK OF NEW YORK Trustee FIRST SUPPLEMENTAL INDENTURE Dated as of June 3, 1996 to INDENTURE Dated as of March 6, 1996 5% Convertible Subordinated Notes Due 2003 ================================================================================ 174 FIRST SUPPLEMENTAL INDENTURE dated as of June 3, 1996, between HEALTHSOURCE, INC., a New Hampshire corporation (the "Company"), and THE BANK OF NEW YORK, a New York banking corporation (the "Trustee"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Company and the Trustee have heretofore executed and delivered a certain indenture dated as of March 6, 1996 (the "Indenture"), pursuant to which 5% Convertible Subordinated Notes Due 2003 (the "Notes") in an aggregate principal amount of $247,250,000 have been issued; WHEREAS, Section 10.1(f) of the Indenture provides, among other things, that, without the consent of the holders of the Notes, the Company, when authorized by Board Resolutions, and the Trustee, may enter into an indenture supplemental to the Indenture to cure any ambiguity or to correct or supplement any provision contained therein or in any supplemental indenture that may be defective or inconsistent with any other provision contained therein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under the Indenture that shall not adversely affect the interests of the holders of the Notes; WHEREAS, the Company and the Trustee join in the execution of this First Supplemental Indenture for the purpose of amending certain provisions of the Indenture as hereinafter set forth; WHEREAS, the execution and delivery of this First Supplemental Indenture has been authorized by Board Resolutions and the Trustee; and WHEREAS, all conditions precedent and requirements necessary to make this First Supplemental Indenture a valid and legally binding instrument in accordance with its terms have been complied with, performed and fulfilled and the execution and delivery hereof have been in all respects duly authorized; NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH: For and in consideration of the premises and intending to be legally bound hereby, it is mutually covenanted and agreed, for the equal and proportionate benefit of all holders of the Notes, as follows: 2 175 ARTICLE I. AMENDMENTS SECTION 1.1. The first sentence of the fifth paragraph of Section 14.2 of the Indenture is hereby amended to read as follows: "Any Note or portion thereof surrendered for conversion during the period from the close of business on the record date for any interest payment date through the opening of business on the next succeeding interest payment date shall (unless such Note or portion thereof being converted shall have been called for redemption on a date during the period from the close of business on or after any record date to the opening of business on the business day following the corresponding payment date) be accompanied by payment, in funds acceptable to the Company, of an amount equal to the interest otherwise payable on such interest payment date on the principal amount being converted; provided, however, that no such payment need be made if there shall exist at the time of conversion a default in the payment of interest on the Notes. SECTION 1.2 The second sentence of the thirteenth paragraph within the "FORM OF REVERSE OF NOTE" portion of Exhibit A of the Indenture (which paragraph begins "Subject to the provisions of the Indenture") is hereby amended to read as follows: "No adjustment in respect of interest or dividends will be made upon any conversion; provided that if this Note shall be surrendered for conversion during the period from the close of business on any record date for the payment of interest through the opening of business on the next succeeding interest payment date, this Note (unless it or the portion being converted shall have been called for redemption on a date during the period from the close of business on or after any record date to the opening of business on the business day following the corresponding payment date) must be accompanied by an amount, in funds acceptable to the Company, equal to the interest payable on such interest payment date on the principal amount being converted." SECTION 1.3 The second sentence of the thirteenth paragraph within the "FORM OF REVERSE OF RESTRICTED GLOBAL NOTE" portion of Exhibit B of the Indenture (which paragraph begins "Subject to the provisions of the Indenture") is hereby amended to read as follows: "No adjustment in respect of interest or dividends will be made upon any conversion; provided that if this Restricted Global Note shall be surrendered for conversion 3 176 during the period from the close of business on any record date for the payment of interest and through the opening of business on the next succeeding interest payment date, this Restricted Global Note (unless it or the portion being converted shall have been called for redemption on a date during the period from the close of business on or after any record date to the opening of business on the business day following the corresponding payment date) must be accompanied by an amount, in funds acceptable to the Company, equal to the interest payable on such interest payment date on the principal amount being converted." SECTION 1.4 The second sentence of the thirteenth paragraph within the "FORM OF REVERSE OF REGULATION S GLOBAL NOTE" portion of Exhibit C of the Indenture (which paragraph begins "Subject to the provisions of the Indenture") is hereby amended to read as follows: "No adjustment in respect of interest or dividends will be made upon any conversion; provided that if this Regulation S Global Note shall be surrendered for conversion during the period from the close of business on any record date for the payment of interest and through the opening of business on the next succeeding interest payment date, this Regulation S Global Note (unless it or the portion being converted shall have been called for redemption on a date during the period from the close of business on or after any record date to the opening of business on the business day following the corresponding payment date) must be accompanied by an amount, in funds acceptable to the Company, equal to the interest payable on such interest payment date on the principal amount being converted." ARTICLE II. MISCELLANEOUS SECTION 2.1. Nothing in this First Supplemental Indenture is intended to or shall provide any rights to any parties other than those expressly contemplated by this First Supplemental Indenture. SECTION 2.2. This First Supplemental Indenture shall be deemed to be a contract made under the substantive laws of New York and for all purposes shall be construed in accordance with the substantive laws of New York. SECTION 2.3. This instrument may be executed in any 4 177 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. SECTION 2.4. Except as expressly modified hereby, all the provisions of the Indenture are and shall continue to be in full force and effect. Each reference in the Indenture to "this Indenture", "hereunder", "hereof" and words of like import referring to the Indenture and each reference in any other transaction document relating to the Indenture shall mean the Indenture as amended hereby. 5 178 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental 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. HEALTHSOURCE, INC. By__________________________ Name: Title: Attest: ________________________ THE BANK OF NEW YORK, as Trustee By__________________________ Name: Title: Attest: ________________________ 6 EX-5.1 3 OPINION OF SHEEHAN, PHINEY BASS & GREEN 1 EXHIBIT 5.1 SHEEHAN PHINNEY BASS + GREEN PROFESSIONAL ASSOCIATION [LOGO] WRITER'S DIRECT DIAL ATTORNEYS AT LAW (603) 627-8130 1000 ELM STREET June 4, 1996 P.O. BOX 3701 MANCHESTER NEW HAMPSHIRE Healthsource, Inc. 03105-3701 Two College Park Drive FAX 603-627-8121 Hooksett, New Hampshire 03106 603-668-0300 RE: Form S-3 Registration Statement 1 HARBOUR PLACE SUITE 325 Ladies and Gentlemen: PORTSMOUTH NEW HAMPSHIRE We have acted as counsel to Healthsource, Inc., a 03801-3856 New Hampshire corporation (the "Company"), in FAX 603-433-3126 connection with the registration on Form S-3 (the 603-433-2111 "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), of the Company's 143 NORTH MAIN STREET 5% Convertible Subordinated Notes Due 2003 (the "Notes") SUITE #103 and the Common Stock, $.10 par value, issuable upon CONCORD conversion thereof (the "Common Stock"). The Notes were NEW HAMPSHIRE issued on March 6 and 8, 1996 in transactions exempt from 03301-5089 the registration requirements of the Securities Act FAX 603-224-8899 pursuant to section 4(2) thereof. 603-223-2020 In connection with this opinion, we have examined the Registration Statement. We also have examined originals or duplicates certified to our satisfaction of (i) the Articles of Incorporation, as amended, of the Company, (ii) the By-Laws, as amended, of the Company, (iii) certain resolutions adopted by the Board of Directors of the Company and committees thereof, (iv) the Indenture dated as of March 6, 1996 between the Company and The Bank of New York, as Trustee, (the "Indenture"), under which the Notes were issued, and (v) such other documents and records as we have deemed necessary and relevant for the purposes hereof. In addition, we have made such investigations of fact and law as we have deemed necessary and relevant as a basis hereof. In expressing this opinion, we have assumed the genuineness of all signatures, the authenticity of all documents and records submitted to us as originals, the conformity to original documents and records of all documents and records submitted to us as copies, and the truthfulness of all matters of fact contained therein. We have also assumed that the Indenture is a valid and binding obligation of the Trustee, enforceable as to the Trustee in accordance with its terms. 2 Healthsource, Inc. June 4,1996 Page 2 Based on the foregoing, and subject to the limitations and assumptions set forth herein, and having due regard for such legal considerations as we deem relevant, we are of the opinion that: 1. The Company is duly incorporated, validly existing and in good standing under the laws of the State of New Hampshire. 2. The Notes constitute valid and binding obligations of the Company, enforceable in accordance with their terms, except that enforcement may be subject to or limited by (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights and remedies generally and (b) general principles of equity (regardless of whether such enforcement may be sought in a proceeding in equity or at law). 3. The Common Stock issuable upon conversion of the Notes has been duly authorized by the Company and, when isued and delivered upon such conversion in accordance with the terms and provisions of the Notes and the Indenture, will be validly issued, fully paid and non-assessable. The opinions expressed herein are limited to (a) the laws of the State of New Hampshire and, with regard to the enforceability of the Notes, the laws of the State of New York, and (b) the laws of the United States of America, and we render no opinion with respect to the law of any other jurisdiction. We hereby consent to the filing of this opinion with the Securities and Exchange Commission as an exhibit to the Registration Statement and to the use of our name therein. Very truly yours, SHEEHAN PHINNEY BASS + GREEN, PROFESSIONAL ASSOCIATION By: /s/ Daniel N. Gregoire ------------------------------- Daniel N. Gregoire EX-12 4 COMPUTATION OF HISTORICAL FINANCIAL RATIOS 1 EXHIBIT 12 HEALTHSOURCE, INC. COMPUTATION OF HISTORICAL FINANCIAL RATIOS
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, ------------------------------------------------------------------- ------------------------ 1995 1994 1993 1992 1991 1996 1995 ---------- ---------- ---------- ---------- ---------- ---------- ---------- HISTORICAL RATIO OF EARNINGS TO FIXED CHARGES: Pre-tax earnings............... 87,049,000 56,813,000 36,414,000 23,613,000 17,346,000 23,984,000 17,717,000 Interest....................... 5,392,000 0 0 0 0 2,373,000 0 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total earnings and fixed charges.................... 92,441,000 56,813,000 36,414,000 23,613,000 17,346,000 26,357,000 17,717,000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Interest expense.............. 5,392,000 0 0 0 0 2,373,000 0 Preferred stock dividends(A).. 6,412,000 0 0 0 0 1,735,000 0 ---------- ---------- ---------- ---------- ---------- ---------- ---------- 11,804,000 0 0 0 0 4,108,000 0 ---------- ---------- ---------- ---------- ---------- ---------- ---------- 7.8 0.0 0.0 0.0 0.0 6.4 0.0 ========== ========== ========== ========== ========== ========== ==========
YEAR ENDED THREE MONTHS DECEMBER 31, 1995 ENDED MARCH 31, 1996 ----------------- -------------------- PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES: Pre-tax earnings............... 67,246,000 17,789,000 Interest....................... 18,056,000 4,489,000 ---------- ---------- Total earnings and fixed charges.................... 85,302,000 22,278,000 ---------- ---------- Interest expense.............. 18,056,000 4,489,000 Preferred stock dividends(A).. 9,615,000 1,735,000 ---------- ---------- 27,671,000 6,224,000 ---------- ---------- 3.1 3.6 ========== ========== (A) Dividends have been tax effected to arrive at the pre-tax amount required to cover the dividend requirement.
EX-15 5 LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION 1 EXHIBIT 15 June 4, 1996 Healthsource, Inc. Two College Park Drive Hooksett New Hampshire 03106 We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of Healthsource, Inc. and Subsidiaries for the periods ended March 31, 1996 and 1995, as indicated in our report dated May 10, 1996; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which was included in your Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, is being used in this Registration Statement. We also are aware that the aforementioned reports, pursuant to Rule 436(c) under the Securities Act of 1933, are not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. Deloitte & Touche LLP Boston, Massachusetts EX-23.1 6 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT - ----------------------------- We consent to the incorporation by reference in this Registration Statement of Healthsource, Inc. and Subsidiaries on Form S-3 of our report dated February 16, 1996, appearing in the Annual Report on Form 10-K of Healthsource, Inc., and Subsidiaries for the year ended December 31, 1995. Deloitte & Touche LLP Boston, Massachusetts June 4, 1996 EX-25.1 7 STATEMENT OF THE BANK OF NEW YORK 1 EXHIBIT 25.1 ================================================================================ FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) / / THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) 48 Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) HEALTHSOURCE, INC. (Exact name of obligor as specified in its charter) New Hampshire 02-0387748 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Two College Park Drive Hooksett, New Hampshire 03106 (Address of principal executive offices) (Zip code) 5% Convertible Subordinated Notes Due 2003 (Title of the indenture securities) ================================================================================ 2 1. General information. Furnish the following information as to the Trustee: (a) Name and address of each examining or supervising authority to which it is subject. - -------------------------------------------------------------------------------- Name Address - -------------------------------------------------------------------------------- Superintendent of Banks of the State of 2 Rector Street, New York, New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York (b) Whether it is authorized to exercise corporate trust powers. Yes. 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. (See Note on page 3.) 16. List of Exhibits. Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and Rule 24 of the Commission's Rules of Practice. 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) -2- 3 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. NOTE Inasmuch as this Form T-1 is filed prior to the ascertainment by the Trustee of all facts on which to base a responsive answer to Item 2, the answer to said Item is based on incomplete information. Item 2 may, however, be considered as correct unless amended by an amendment to this Form T-1. - 3 - 4 SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 30th day of May, 1996. THE BANK OF NEW YORK By: /s/ Paul J. Schmalzel ------------------------------- Name: Paul J. Schmalzel Title: Assistant Treasurer -4- 5 Exhibit 7 Consolidated Report of Condition of THE BANK OF NEW YORK of 48 Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business December 31, 1995, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts ASSETS in Thousands Cash and balances due from depos- itory institutions: Noninterest-bearing balances and currency and coin .................. $ 4,500,312 Interest-bearing balances .......... 643,938 Securities: Held-to-maturity securities ........ 806,221 Available-for-sale securities ...... 2,036,768 Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank: Federal funds sold ................... 4,166,720 Securities purchased under agreements to resell........................... 50,413 Loans and lease financing receivables: Loans and leases, net of unearned income .................27,068,535 LESS: Allowance for loan and lease losses ..............520,024 LESS: Allocated transfer risk reserve......................1,000 Loans and leases, net of unearned income and allowance, and reserve 26,547,511 Assets held in trading accounts ...... 758,462 Premises and fixed assets (including capitalized leases) ................ 615,330 Other real estate owned .............. 63,769 Investments in unconsolidated subsidiaries and associated companies .......................... 223,174 Customers' liability to this bank on acceptances outstanding ............ 900,795 Intangible assets .................... 212,220 Other assets ......................... 1,186,274 Total assets ......................... $42,711,907 LIABILITIES Deposits: In domestic offices ................ $21,248,127 Noninterest-bearing .......9,172,079 Interest-bearing .........12,076,048 In foreign offices, Edge and Agreement subsidiaries, and IBFs ... 9,535,088 Noninterest-bearing ..........64,417 Interest-bearing ......... 9,470,671 Federal funds purchased and secu- rities sold under agreements to re- purchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: Federal funds purchased ............ 2,095,668 Securities sold under agreements to repurchase .................... 69,212 Demand notes issued to the U.S. Treasury ........................... 107,340 Trading liabilities .................. 615,718 Other borrowed money: With original maturity of one year or less .......................... 1,638,744 With original maturity of more than one year ......................... 120,863 Bank's liability on acceptances exe- cuted and outstanding .............. 909,527 Subordinated notes and debentures .... 1,047,860 Other liabilities .................... 1,836,573 Total liabilities .................... 39,224,720 EQUITY CAPITAL Common stock ........................ 942,284 Surplus ............................. 525,666 Undivided profits and capital reserves .......................... 1,995,316 Net unrealized holding gains (losses) on available-for-sale securities ........................ 29,668 Cumulative foreign currency transla- tion adjustments .................. (5,747) Total equity capital ................ 3,487,187 Total liabilities and equity capital ........................... $42,711,907
I, Robert E. Keilman, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Robert E. Keilman We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. J. Carter Bacot Thomas A. Renyi Directors Alan R. Griffith -----END PRIVACY-ENHANCED MESSAGE-----