Exhibit 4(r)
AMENDED AND RESTATED INVESTMENT AGREEMENT
dated as of December 14, 1999
between
TPG MAGELLAN LLC
and
MAGELLAN HEALTH SERVICES, INC.
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS; AMENDMENT AND RESTATEMENT
Section 1.01. Definitions..................................................................................2
Section 1.02. General Interpretive Principles.............................................................16
Section 1.03. Effect of Amendment and Restatement.........................................................16
ARTICLE II
INITIAL SHARE PURCHASE AND OPTION
Section 2.01. Initial Share Purchase......................................................................16
Section 2.02. Option......................................................................................16
Section 2.03. Initial Share Purchase Closing..............................................................18
Section 2.04. Option Closing..............................................................................19
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.01. Corporate Organization and Qualification....................................................20
Section 3.02. Authorization of Agreements.................................................................20
Section 3.03. Consents; No Conflicts......................................................................20
Section 3.04. Capitalization; Securities..................................................................22
Section 3.05. Subsidiaries; Equity Investments............................................................23
Section 3.06. Dividends, Stock Repurchases, Etc...........................................................23
Section 3.07. Company Reports; Financial Statements.......................................................24
Section 3.08. Undisclosed Liabilities.....................................................................25
Section 3.09. Absence of Certain Changes..................................................................25
Section 3.10. Property....................................................................................27
Section 3.11. Litigation..................................................................................27
Section 3.12. Compliance with Laws; Regulatory Approvals..................................................28
Section 3.13. Taxes.......................................................................................28
Section 3.14. ERISA and Other Employment Matters..........................................................30
Section 3.15. Contracts...................................................................................31
Section 3.16. Client Relations............................................................................32
Section 3.17. Financial Advisors and Brokers; Fairness Opinion............................................32
Section 3.18. Exemption from Registration.................................................................32
Section 3.19. Insurance...................................................................................32
Section 3.20. Rights Agreement............................................................................33
Section 3.21. Disclosure..................................................................................33
Section 3.22. Year 2000 Compliance........................................................................33
Section 3.23. Environmental Matters.......................................................................33
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Section 3.24. Controls....................................................................................34
Section 3.25. Joint Venture Matters.......................................................................34
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
Section 4.01. Organization................................................................................35
Section 4.02. Authorization of Agreements.................................................................35
Section 4.03. Consents; No Conflicts......................................................................35
Section 4.04. Financial Advisors and Brokers..............................................................35
Section 4.05. Ownership of Equity Securities; Purpose of Investment.......................................36
ARTICLE V
GOVERNANCE
Section 5.01. Board Size..................................................................................36
Section 5.02. Board Representation........................................................................36
Section 5.03. Committees; Meetings........................................................................37
ARTICLE VI
STANDSTILL
Section 6.01. Standstill Agreement........................................................................38
ARTICLE VII
PRE-CLOSING COVENANTS
Section 7.01. Taking of Necessary Action..................................................................40
Section 7.02. Conduct of Business.........................................................................40
Section 7.03. Notifications...............................................................................41
Section 7.04. Alternative Transactions....................................................................41
Section 7.05. Debenture Indentures........................................................................42
ARTICLE VIII
ADDITIONAL COVENANTS
Section 8.01. Financial and Other Information.............................................................42
Section 8.02. Limitation on Dividend Payments and Repurchases.............................................43
Section 8.03. Limitation on Indebtedness..................................................................43
Section 8.04. Acquisitions and Dispositions...............................................................43
Section 8.05. Equity Issuances............................................................................44
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Section 8.06. Publicity...................................................................................46
Section 8.07. Status of Dividends.........................................................................46
Section 8.08. Director and Officer Indemnification........................................................46
Section 8.09. Listing; Reservation........................................................................46
Section 8.10. Legend......................................................................................47
Section 8.11. Limitation on Restrictions on Payment of Dividends..........................................47
Section 8.12. Chief Executive Officer.....................................................................48
Section 8.13. Shareholder Approvals.......................................................................48
Section 8.14. Organic Change..............................................................................49
Section 8.15. No Adjustments; Maintenance of Shelf........................................................49
ARTICLE IX
CONDITIONS
Section 9.01. Conditions to Investor's Obligations with Respect to the Initial Share
Purchase....................................................................................50
Section 9.02. Conditions of the Company's Obligations with Respect to the Initial Share
Purchase....................................................................................52
Section 9.03. Conditions of the Investor's Obligation with Respect to the Option Purchase.................53
Section 9.04. Conditions of the Company's Obligation with Respect to the Option Purchase..................54
ARTICLE X
TERMINATION
Section 10.01. Termination of Agreement....................................................................55
Section 10.02. Effect of Termination.......................................................................55
ARTICLE XI
MISCELLANEOUS
Section 11.01. Fees and Expenses...........................................................................56
Section 11.02. Survival of Representations and Warranties..................................................57
Section 11.03. Specific Performance........................................................................57
Section 11.04. Indemnification.............................................................................57
Section 11.05. Notices.....................................................................................58
Section 11.06. Entire Agreement; Amendment.................................................................59
Section 11.07. Counterparts................................................................................60
Section 11.08. Governing Law...............................................................................60
Section 11.09. Successors and Assigns......................................................................60
Section 11.10. No Third-Party Beneficiaries................................................................61
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Section 11.11. Allocation..................................................................................61
Section 11.12. Pre-emptive Rights..........................................................................61
Section 11.13. NOL Letter..................................................................................62
Section 11.14. Certain Amendments to the Series B Certificate of Designations..............................62
EXHIBIT A Form of Series A Certificate of Designations
EXHIBIT B Series B Certificate of Designations
EXHIBIT C Junior Certificate of Designations
EXHIBIT D Form of King & Spalding Opinion
EXHIBIT E Form of Independent Counsel Opinion
EXHIBIT F Form of Cleary, Gottlieb, Steen & Hamilton Opinion
EXHIBIT G Company Representation and Warranty Letter
EXHIBIT H Investor Representation and Warranty Letter
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AMENDED AND RESTATED INVESTMENT AGREEMENT
THIS AMENDED AND RESTATED INVESTMENT AGREEMENT (the
"AGREEMENT"), dated as of December 14, 1999, by and between TPG Magellan LLC, a
Delaware limited liability company (the "INVESTOR"), and Magellan Health
Services, Inc., a Delaware corporation (the "COMPANY").
W I T N E S S E T H:
WHEREAS, each of the Investor and the Company is a party to
that certain Investment Agreement, dated as of July 19, 1999 (as amended by
Amendment Number One, the "INVESTMENT AGREEMENT"), as amended by Amendment
Number One to Investment Agreement, dated as of September 30, 1999 ("AMENDMENT
NUMBER ONE"), by and between the Investor and the Company;
WHEREAS, each of the Investor and the Company desires to amend
and restate the Investment Agreement as hereinafter set forth;
WHEREAS, each of the Company and the Investor has determined
to enter into this Agreement pursuant to which (i) the Investor has agreed to
purchase from the Company, and the Company has agreed to issue and sell to the
Investor, 59,063 shares of the Company's Series A Cumulative Convertible
Preferred Stock, without par value (the "SERIES A PREFERRED STOCK"), having the
rights, preferences, privileges and restrictions set forth in the Form of
Certificate of Designations attached hereto as Exhibit A (the "SERIES A
CERTIFICATE OF DESIGNATIONS"), each share convertible at the option of the
holder at any time following the Initial Closing into shares (the "SERIES A
CONVERSION SHARES") of common stock, par value $0.25 per share (the "COMMON
STOCK"), of the Company, and (ii) the Company has agreed, subject to the
satisfaction of certain conditions, to grant to the Investor an option to
purchase an additional 21,000 shares of Series A Preferred Stock (the "OPTION"),
which option is exercisable by the Investor as set forth herein and which option
the Company can compel the Investor to exercise under certain circumstances as
set forth herein;
WHEREAS, in certain circumstances set forth in the Series A
Certificate of Designations, the Company may be required, in lieu of payment in
cash of accrued and unpaid dividends on the Series A Preferred Stock upon
conversion of the Series A Preferred Stock, to deliver shares of Series B
Cumulative Convertible Preferred Stock, without par value (the "SERIES B
PREFERRED STOCK," and together with the Series A Preferred Stock, the "SENIOR
PREFERRED STOCK"), having the rights, preferences, privileges and restrictions
set forth in the Form of Certificate of Designations attached hereto as Exhibit
B (the "SERIES B CERTIFICATE OF DESIGNATIONS," and together with the Series A
Certificate of Designations, the "SENIOR CERTIFICATES OF DESIGNATIONS"), each
share convertible at the option of the holder at any time (A) prior to the
Series B Shareholder Approval (as defined herein), into shares of the Company's
Series C Junior Participating Preferred Stock, par value $0.01 per share (the
"Junior Preferred Stock"), having the rights, preferences, privileges and
restrictions set forth in the Form of Certificate of Designations attached
hereto as Exhibit C (the "JUNIOR CERTIFICATE OF DESIGNATIONS," and together with
the Senior Certificates of Designations, the "CERTIFICATES OF DESIGNATIONS"), or
(B) following the Series B Shareholder Approval, shares of Common Stock (such
shares of Common Stock, together with the Series A Conversion Shares, the
"CONVERSION SHARES");
WHEREAS, the Series A Preferred Stock is exchangeable under
certain circumstances at the option of the Company into Series A Junior
Subordinated Convertible Debentures Due 2009 of the Company (the "SERIES A
DEBENTURES"), having the terms and conditions provided for in Section 7.05
hereof, and the Series B Preferred Stock is exchangeable under certain
circumstances at the option of the Company into Series B Junior Subordinated
Convertible Debentures Due 2009 of the Company (the "SERIES B DEBENTURES," and
together with the Series A Debentures, the "DEBENTURES"), having the terms and
conditions provided for in Section 7.05 hereof; and
WHEREAS, the Company and the Investor desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises and the
mutual representations, warranties, covenants and agreements contained herein,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS; AMENDMENT AND RESTATEMENT
Section 1.01. DEFINITIONS. As used in this Agreement, the
following terms shall have the meanings set forth below:
"ACCEPTANCE NOTICE" has the meaning set forth in
Section 8.05(b) hereof.
"AFFILIATE" has the meaning set forth in Rule 12b-2 under the
Exchange Act as in effect on the date hereof. The term "Affiliated" has a
correlative meaning. Notwithstanding the foregoing, for all purposes hereof, the
Investor, and each Person controlled by, controlling or under common control
with the Investor (each, a "TPG PERSON"), shall not be deemed an "Affiliate" of
any Designated Purchaser Person (as defined below), and no Designated Purchaser,
and no Person controlled by, controlling or under common control with such
Designated Purchaser (each, a "DESIGNATED PURCHASER PERSON"), shall be deemed an
"Affiliate" of any TPG Person or any other Designated Purchaser Person, in any
such case solely as a consequence of this Agreement or the transactions
contemplated hereby.
"AGREEMENT" has the meaning set forth in the preamble hereto.
"ALTERNATIVE TRANSACTION" means any (A) direct or indirect
acquisition or purchase of any Equity Securities of the Company or any of its
Significant Subsidiaries or any tender offer or exchange offer, that if
consummated would result in any Person (other than the Investor or any of its
Affiliates or, solely as a result of an assignment by the Investor pursuant to
Section 11.09(b) hereof, a Designated Purchaser or any of its Affiliates)
Beneficially Owning 10% or more of any class of Equity Securities of the Company
or Equity Securities of any of its Significant Subsidiaries, (B) Control
Transaction, liquidation, dissolution or similar transaction involving the
Company or any of its Significant Subsidiaries (other than such a transaction
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involving a Significant Subsidiary that does not involve the transfer of, or the
transfer of control of, all or a substantial portion of the assets of the
Company and its Subsidiaries, taken as a whole), or (C) other transaction the
consummation of which would prevent the consummation of the transactions
contemplated hereby or would delay the Initial Closing Date to a date later than
the date set forth in Section 10.01(a) hereof; PROVIDED, HOWEVER, that,
notwithstanding the foregoing, (i) no transaction expressly permitted pursuant
to Section 7.02 hereof, (ii) no transaction set forth in the Proposed Asset Sale
Letter concluded on terms not materially worse to the Company than those terms
set forth in the Proposed Asset Sale Letter and (iii) no exercise of the
Rainwater-Magellan Warrant or Rainwater Pre-emptive Rights shall constitute an
Alternative Transaction.
"ALTERNATIVE TRANSACTION FEE" means $2,828,437.
"AMENDMENT NUMBER ONE" has the meaning set forth in the
recitals hereto.
"APPLICABLE INSURANCE DEPARTMENT" has the meaning set forth in
Section 3.07(c).
"BALANCE SHEET" has the meaning set forth in Section 3.08
hereof.
"BANK APPROVAL" means the approval of the Required Lenders (as
such term is defined in the Credit Agreement) of the Company's issuance of the
Option and of the terms thereof and of any amendments to the Credit Agreement
required to permit the issuance of the Option and the exercise thereof.
"BANK APPROVAL DATE" means the effective date of the Bank
Approval.
"BENEFICIALLY OWN" with respect to any securities means having
"beneficial ownership" of such securities (as determined pursuant to Rule 13d-3
under the Exchange Act as in effect on the date hereof, except that a Person
shall be deemed to Beneficially Own all such securities that such Person has the
right to acquire whether such right is exercisable immediately or after the
passage of time). The terms "Beneficial Ownership" and "Beneficial Owner" have
correlative meanings. Notwithstanding the foregoing, for all purposes hereof,
(i) no TPG Person shall be deemed to Beneficially Own any securities that are
held by any Designated Purchaser Person, and no Designated Purchaser Person
shall be deemed to Beneficially Own any securities that are held by any TPG
Person or any other Designated Purchaser Person, in any such case solely as a
consequence of this Agreement or the transactions contemplated hereby, and (ii)
no member of the Investor Group shall be deemed to Beneficially Own any Option
Shares or securities issuable upon conversion or exchange of the Option Shares
unless and until the Option is exercised.
"BIDDING PROCESS" has the meaning set forth in Section 6.01(b)
hereof.
"BOARD APPROVAL" means the approval of the Board of Directors
of the Company's issuance of the Option and of the terms thereof.
"BOARD APPROVAL DATE" means the effective date of the Board
Approval.
"BOARD OF DIRECTORS" means the board of directors of the
Company.
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"BUSINESS DAY" means any day, other than a Saturday, 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.
"BYLAWS" means the Bylaws of the Company, as amended from time
to time.
"CAPITAL FUNDING REQUIREMENTS DISCLOSURE" has the meaning set
forth in Section 3.07(d) hereof.
"CERTIFICATE OF DESIGNATIONS" has the meaning set forth in the
recitals hereto.
"CERTIFICATE OF INCORPORATION" means the Restated Certificate
of Incorporation of the Company, as amended from time to time.
"CHANGE OF CONTROL" has the meaning set forth in the Series A
Certificate of Designations.
"CHARTER" means Charter Behavioral Health Systems, LLC.
"CLAIM" has the meaning set forth in Section 11.04(c) hereof.
"CLASS I" means the class of directors of the Board of
Directors with a term expiring at the annual meeting of stockholders of the
Company in 2000 and every third annual meeting thereafter.
"CLASS II" means the class of directors of the Board of
Directors with a term expiring at the annual meeting of stockholders of the
Company in 2001 and every third annual meeting thereafter.
"CLASS III" means the class of directors of the Board of
Directors with a term expiring at the annual meeting of stockholders of the
Company in 2002 and every third annual meeting thereafter.
"CLOSING PRICE" means, with respect to a share of Common Stock
on any Trading Day, the last reported sale price on that day or, in case no such
reported sale takes place on such day, the average of the last reported bid and
asked prices, regular way, on that day, in either case, as reported in the
consolidated transaction reporting system with respect to securities listed on
the NYSE or, if the shares of Common Stock are not listed on the NYSE, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
shares of Common Stock are listed or, if the shares of Common Stock are not
listed on the NYSE and not listed on any national securities exchange, the last
quoted price on such other nationally recognized quotation system then in use.
"CODE" means the Internal Revenue Code of 1986, as amended,
and all regulations promulgated thereunder, as in effect from time to time.
"COMMISSION" means the U.S. Securities and Exchange
Commission.
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"COMMON STOCK" has the meaning set forth in the recitals
hereto.
"COMPANY" has the meaning set forth in the preamble hereto.
"COMPANY DOCUMENTS" means each document, instrument or
certificate, other than the Transaction Agreements, to be executed and delivered
by the Company in connection with the consummation of the transactions
contemplated by this Agreement, including, without limitation, the Certificates
of Designations.
"COMPANY REPRESENTATION AND WARRANTY LETTER" means a letter
from the Company to the Investor, dated the Option Closing Date, substantially
in the form of Exhibit G hereto.
"COMPANY WARRANTS" means the 2002 Warrants, the 2006 Warrants,
the Crescent Warrants and the Rainwater-Magellan Warrant, as such terms are
defined in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998, as amended through the date hereof.
"CONTROL TRANSACTION" means any transaction (other than a
transaction set forth on Schedule 1.01(A) hereof) that involves a (i) merger,
consolidation, recapitalization (involving a business combination) or similar
business combination transaction involving the Company or a Significant
Subsidiary of the Company (other than such a transaction involving a Significant
Subsidiary that does not involve the transfer of, or the transfer of control of,
all or a substantial portion of the assets of the Company and its Subsidiaries,
taken as a whole), (ii) sale of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole, or (iii) sale or issuance of
Voting Securities of the Company to a Person or Group or an acquisition of
Equity Securities of the Company by a Person or Group which, following the
completion of such sale, issuance or acquisition, will Beneficially Own Voting
Securities of the Company representing a majority of the Voting Power of the
Voting Securities of the Company; PROVIDED, HOWEVER, that, notwithstanding the
foregoing, (i) no transaction expressly permitted pursuant to Section 7.02
hereof, (ii) no transaction set forth in the Proposed Asset Sale Letter
concluded on terms not materially worse to the Company than those terms set
forth in the Proposed Asset Sale Letter and (iii) no exercise of the
Rainwater-Magellan Warrant or Rainwater Pre-emptive Rights shall constitute a
Control Transaction.
"CONVERSION PRICE" has the meaning set forth in the Series A
Certificate of Designations.
"CONVERSION SHARES" has the meaning set forth in the recitals
hereto. For the purposes of determining the percentage of Conversion Shares that
is Beneficially Owned by the Investor, any Designated Purchaser or any of their
respective Affiliates, such calculation shall be made assuming all conditions
precedent to receipt of Conversion Shares in respect of the then-outstanding
shares of Senior Preferred Stock have occurred or been satisfied, including,
without limitation, receipt by the Company of the necessary Shareholder
Approvals, and conversion of such Senior Preferred Stock in accordance with the
terms thereof.
"COVERED SECURITIES" has the meaning set forth in
Section 8.05(b) hereof.
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"CREDIT AGREEMENT" means the Credit Agreement, dated as of
February 12, 1998, among the Company, the banks and other financial institutions
named therein, and The Chase Manhattan Bank, as Administrative Agent, together
with all other documents entered into under or in connection with the Credit
Agreement, in each case, as the same may be amended, restated, supplemented,
extended, renewed or increased from time to time, replaced, substituted,
refunded or refinanced or otherwise modified from time to time, in whole or in
part, and any successive replacements, substitutions, refundings or
refinancings.
"DEBENTURES" has the meaning set forth in the recitals hereto.
"DERIVATIVE SECURITIES" means any subscriptions, options,
conversion rights, warrants, or other agreements, securities or commitments of
any kind obligating the Company or any of its Significant Subsidiaries to issue,
grant, deliver or sell, or cause to be issued, granted, delivered or sold, any
Equity Securities of the Company or any of its Significant Subsidiaries.
"DESIGNATED PURCHASER" has the meaning set forth in
Section 11.09(b) hereof.
"DESIGNATED PURCHASER PERSON" has the meaning set forth in the
definition of "Affiliate."
"DIVIDEND SHARES" means securities issued as dividends in
respect of Senior Preferred Stock.
"DGCL" means the Delaware General Corporation Law.
"DGCL SECTION 203" has the meaning set forth in
Section 3.02(a) hereof.
"EMPLOYMENT AGREEMENT" means any employment or consulting
agreement or other similar arrangement between the Company or any of its
Significant Subsidiaries, on the one hand, and any Representative of the Company
or any of its Significant Subsidiaries, on the other.
"ENVIRONMENTAL LAWS" means any federal, state or local law,
statute, ordinance, order, decree, rule or regulation relating to releases,
discharges, emissions or disposals to air, water, land or groundwater of
Hazardous Materials; to the use handling or disposal of polychlorinated
byphenyls, asbestos or urea formaldehyde or any other Hazardous Material; to the
treatment, storage, disposal or management of Hazardous Materials; to exposure
to toxic, hazardous or other controlled, prohibited or regulated substances; and
to the transportation, release or any other use of Hazardous Materials,
including the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. 9601, et seq. ("CERCLA"), the Resource Conservation and Recovery
Act, 42 U.S.C. 6901, et seq. ("RCRA"), the Toxic Substances Control Act, 15
U.S.C. 2601, et seq. ("TSCA"), the Occupational, Safety and Health Act, 29
U.S.C. 651, et seq., the Clean Air Act, 42 U.S.C. 7401, et seq., the Federal
Water Pollution Control Act, 33 U.S.C. 1251, et seq., the Safe Drinking Water
Act, 42 U.S.C. 300f, et seq., the Hazardous Materials Transportation act, 49
U.S.C. 1802 et seq. ("HMTA") and the Emergency Planning and Community Right to
Know Act, 42 U.S.C. 11001 et seq. ("EPCRA"), and other comparable state and
local laws and all rules and regulations promulgated pursuant thereto or
published thereunder.
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"EQUITY SECURITIES" of any Person, means any and all common
stock, preferred stock and any other class of capital stock of, and any
partnership or limited liability company interests in, such Person or any other
similar interests of any Person that is not a corporation, partnership or
limited liability company.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and all regulations promulgated thereunder, as in effect from
time to time.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder from time to time.
"EXCLUSIVITY PERIOD" has the meaning set forth in
Section 7.04(b) hereof.
"EXPIRATION DATE" means the date that is 30 calendar months
after the later to occur of the (i) Series A Shareholder Approval Date; (ii)
Bank Approval Date; (iii) Board Approval Date; and (iv) Option Approval Date;
PROVIDED, HOWEVER, that in the event a Restriction Event occurs, the Expiration
Date shall occur no earlier than the date that is 90 days after the first day
after such Restriction Event on which the Company may sell Option Shares to the
Investor without restriction under the Indenture; PROVIDED FURTHER, HOWEVER,
that in any event, the Expiration Date shall occur no later than the date that
is 54 calendar months after the Series A Shareholder Approval Date.
"45-TRADING DAY REFERENCE PERIOD" means a period of 45
consecutive Trading Days; PROVIDED, that the final Trading Day in such period
shall occur no earlier than the 180th day after the Series A Shareholder
Approval Date.
"GAAP" means U.S. generally accepted accounting principles as
in effect at the relevant time or for the relevant period.
"GOVERNMENTAL ENTITY" means any government or political
subdivision or department thereof, any governmental or regulatory body,
commission, board, bureau, agency or instrumentality, or any court or arbitrator
or alternative dispute resolution body, in each case whether federal, state,
local or foreign.
"GROUP" has the same meaning as is used with respect to that
term in Rule 13d-5 under the Exchange Act as in effect on the date hereof.
"GUARANTEE" means any direct or indirect obligation,
contingent or otherwise, to guarantee (or having the economic effect of
guaranteeing) Indebtedness in any manner, including, without limitation, any
monetary obligation to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness (whether arising by agreement to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise).
"HAZARDOUS MATERIALS" shall mean each and every element,
compound, chemical mixture, contaminant, pollutant, material, waste or other
substance which is defined, determined or identified as hazardous or toxic under
Environmental Laws or the release of which is regulated under Environmental
Laws. Without limiting the generality of the foregoing, the term
7
includes: "hazardous substances" as defined in CERCLA; "extremely hazardous
substances" as defined in EPCRA; "hazardous waste" as defined in RCRA;
"hazardous materials" as defined in HMTA; "chemical substance or mixture" as
defined in TSCA; crude oil, petroleum products or any fraction thereof;
radioactive materials including source, byproduct or special nuclear
materials; asbestos or asbestos-containing materials; chlorinated
fluorocarbons ("CFCs"); and radon.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the regulations promulgated thereunder.
"INDEBTEDNESS" means, with respect to any Person, without
duplication, (i) all obligations of such Person for money borrowed, (ii) all
obligations of such Person evidenced by bonds, debentures, notes, or other
similar instruments, (iii) all obligations of such Person upon which interest
charges are customarily paid, (iv) all obligations of such Person under
conditional sale or other title retention agreements relating to property or
assets purchased by such Person, (v) all obligations of such Person issued or
assumed as the deferred purchase price of property or services (excluding (x)
trade accounts payable and accrued obligations incurred in the ordinary course
of business and (y) deferred earn-out and other performance-based payment
obligations incurred in connection with any Permitted Acquisition (as such term
is defined in the Credit Agreement as in effect on the date hereof) or any
similar transactions consummated prior to February 12, 1998), (vi) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed, (vii) all Guarantees by such Person of
Indebtedness of others, (viii) all capital lease obligations of such Person,
(ix) all obligations (determined on the basis of actual, not notional,
obligations) of such Person in respect of interest rate protection agreements,
foreign currency exchange agreements or other interest or exchange rate hedging
arrangements and (x) all obligations of such Person as an account party in
respect of letters of credit and bankers' acceptances issued in support of
obligations that constitute Indebtedness under any other clause of this
definition (unless such obligations are fully cash collateralized), PROVIDED
that all obligations in respect of letters of credit shall be deemed
Indebtedness to the extent drawings thereunder are unreimbursed (after any
applicable grace period) regardless of the purpose for which such letter of
credit was issued. The Indebtedness of any Person shall include the recourse
Indebtedness of any partnership in which such Person is a general partner.
Notwithstanding the foregoing, no portion of Indebtedness that becomes the
subject of a defeasance (whether a legal defeasance or a "covenant" or "in
substance" defeasance) shall, at any time that such defeasance remains in
effect, be treated as Indebtedness for purposes hereof.
"INDEMNIFIED COMPANY PARTIES" has the meaning set forth in
Section 11.04(b) hereof.
"INDEMNIFIED PARTIES" has the meaning set forth in
Section 11.04(a) hereof.
"INDENTURE" means the Indenture entered into between the
Company and Marine Midland Bank, as Trustee, dated as of February 12, 1998, as
the same may be amended, restated, supplemented, extended, renewed or increased
from time to time, replaced, substituted, refunded
8
or refinanced or otherwise modified from time to time, in whole or in part, and
any successive replacements, substitutions, refundings or refinancings.
"INITIAL CLOSING" means the closing of the Initial Share
Purchase pursuant to Section 2.03 hereof.
"INITIAL CLOSING DATE" has the meaning set forth in
Section 2.03(a) hereof.
"INITIAL SHARE PURCHASE" has the meaning set forth in
Section 2.01 hereof.
"INITIAL SHARE PURCHASE PRICE" has the meaning set forth in
Section 2.01 hereof.
"INSOLVENCY EVENT" means (i) the Company or any of its
Subsidiaries commences a voluntary case concerning itself under Title 11 of the
United States Code as now or hereafter in effect, or under any state insolvency,
liquidation, rehabilitation or similar statute or any successor statutes thereto
("INSOLVENCY STATUTES"); (ii) an involuntary case is commenced against the
Company or any of its Subsidiaries under an Insolvency Statute; (iii) a
custodian is appointed under any applicable Insolvency Statute for, or takes
charge of, all or any substantial part of the property of the Company or any of
its Subsidiaries; (iv) any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution or similar law
of any jurisdiction, whether now or hereafter in effect, relating to the Company
or any of its Subsidiaries is commenced (a) by the Company or any of its
Subsidiaries or (b) by any other Person; (v) the Company or any of its
Subsidiaries is adjudicated insolvent or bankrupt; (vi) any order of relief or
other order approving any such case or proceeding is entered; (vii) the Company
or any of its Subsidiaries makes a general assignment for the benefit of
creditors; or (viii) the Company or any of its Subsidiaries shall state in
writing that it is unable to pay, or shall be unable to pay, its debts,
generally as they become due.
"INSOLVENCY STATUTES" has the meaning set forth in the
definition of "Insolvency Event."
"INTELLECTUAL PROPERTY" means all intellectual property rights
including, but not limited to, patents, patent rights, trade secrets, know-how,
trademarks, service marks, trade names, copyrights, licenses and proprietary
processes and formulae.
"INVESTMENT AGREEMENT" has the meaning set forth in the
recitals hereto.
"INVESTOR" has the meaning set forth in the preamble hereto.
"INVESTOR DOCUMENTS" means each document, instrument or
certificate, other than the Transaction Agreements, to be executed and delivered
by the Investor in connection with the consummation of the transactions
contemplated by this Agreement.
"INVESTOR GROUP" means, collectively, the Investor, the
Designated Purchasers, if any, and the respective Affiliates of such Persons.
"INVESTOR INFORMATION" has the meaning set forth in
Section 8.13(b) hereof.
9
"INVESTOR NOMINEES" has the meaning set forth in
Section 5.02(a) hereof.
"INVESTOR ORIGINAL NUMBER OF CONVERSION SHARES" means that
number of the Original Number of Conversion Shares Beneficially Owned by the
Investor and its Affiliates, in the aggregate, as of the Initial Closing. For
the purposes of this definition, from and after the Option Closing, the
Conversion Shares issuable in respect of the Option Shares shall be deemed to
have existed as of and following the Initial Closing. For the purposes of
determining the percentage of the Investor Original Number of Conversion Shares
that is Beneficially Owned by the Investor or any of its Affiliates, such
calculation shall be made assuming all conditions precedent to the receipt of
Conversion Shares in respect of then-outstanding shares of Senior Preferred
Stock have occurred or been satisfied, including, without limitation, receipt by
the Company of the necessary Shareholder Approvals and conversion of the Senior
Preferred Stock in accordance with the terms thereof.
"INVESTOR PRICE" has the meaning set forth in Section 8.05(b)
hereof.
"INVESTOR REPRESENTATION AND WARRANTY LETTER" means a letter
from the Investor to the Company, dated the Option Closing Date, substantially
in the form of Exhibit H hereto.
"JOINT VENTURES" means (i) Charter and its Subsidiaries and
(ii) the entities listed on Schedule 1.01(B) hereto.
"JUNIOR CERTIFICATE OF DESIGNATIONS" has the meaning set forth
in the recitals hereto.
"JUNIOR PREFERRED STOCK" has the meaning set forth in the
recitals hereto.
"JUNIOR SHARES" means the shares of Junior Preferred Stock
issued or issuable upon conversion of the Series B Preferred Stock.
"TO THE KNOWLEDGE OF THE COMPANY AND ITS SUBSIDIARIES" and
similar phrases with respect to the Company or to the Company and its
Subsidiaries, mean to the actual knowledge of any of Henry T. Harbin, Cliff
Donnelly, Clarissa C. Marques, David J. Hansen, James R. Bedenbaugh, Linton
Newlin or Jeff Hudkins.
"LAW" means any law, treaty, statute, ordinance, code, rule,
regulation, judgment, decree, order, writ, award, injunction or determination of
any Governmental Entity.
"LIEN" means any mortgage, pledge, lien, security interest,
claim, voting agreement, conditional sale agreement, title retention agreement,
restriction, option or encumbrance of any kind, character or description
whatsoever.
"LOSSES" has the meaning set forth in Section 11.04(a) hereof.
"MANDATORY EXERCISE NOTICE" has the meaning set forth in
Section 2.02(b) hereof.
10
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
the financial condition, results of operations, prospects, business, or
regulatory status of the Company and its Subsidiaries taken as a whole.
"NOLS" has the meaning set forth in Section 3.13(d) hereof.
"NOTICE DATE" has the meaning set forth in Section 8.05(b)
hereof.
"NYSE" means the New York Stock Exchange, Inc.
"NYSE RULES" has the meaning set forth in Section 3.03(c)
hereof.
"OFFER TO PURCHASE" has the meaning set forth in
Section 8.05(b) hereof.
"OPTION" has the meaning set forth in Section 2.02(a) hereof.
"OPTION APPROVAL" means the last Regulatory Approval that is
required to be obtained to permit the exercise of the Option by the Investor as
contemplated by this Agreement.
"OPTION APPROVAL DATE" means the effective date of the Option
Approval.
"OPTION CLOSING" means the closing of the Option Purchase
pursuant to Section 2.04 hereof.
"OPTION CLOSING DATE" has the meaning set forth in
Section 2.04(a) hereof.
"OPTION EXERCISE NOTICE" has the meaning set forth in
Section 2.02(a) hereof.
"OPTION CARRY FEE" means $500,000.
"OPTION FUNDING FEE" means $250,000.
"OPTION PLANS" means the Company's 1989 Deferred Compensation
Plan, 1992 Stock Option Plan, 1994 Stock Option Plan, 1996 Stock Option Plan,
1997 Stock Option Plan, 1998 Stock Option Plan, 1992 Directors' Stock Option
Plan and Directors' Unit Award Plan, 1996 Directors' Stock Option Plan, the 1997
Employee Stock Purchase Plan and the 2000 Employee Stock Purchase Plan.
"OPTION PURCHASE" has the meaning set forth in Section 2.02(a)
hereof.
"OPTION PURCHASE PRICE" has the meaning set forth in
Section 2.02(a) hereof.
"OPTION SHARES" has the meaning set forth in Section 2.02(a)
hereof.
"ORGANIC CHANGE" means, with respect to the Company, any
transaction (including without limitation any recapitalization, capital
reorganization or reclassification of any class of capital stock, any
consolidation or amalgamation of the Company with, or merger of the Company
into, any other Person, any merger of another Person into the Company (other
than a merger which does not result in a reclassification, conversion, exchange
or cancellation of
11
outstanding shares of capital stock of the Company), any sale or transfer or
lease of all or substantially all of the assets of the Company or any compulsory
share exchange) pursuant to which any class of capital stock of the Company is
converted into the right to receive other securities, cash or other property.
"ORIGINAL NUMBER OF CONVERSION SHARES" means the number of
Conversion Shares as of the Initial Closing (assuming that all conditions
precedent to receipt of Conversion Shares in respect of the then-outstanding
shares of Senior Preferred Stock have occurred, including conversion of the
Senior Preferred Stock), which number shall be adjusted in accordance with any
adjustment made to the number of Conversion Shares issuable upon conversion of
the Senior Preferred Stock pursuant to the provisions set forth in Article IX of
each Senior Certificate of Designations. For the purposes of this definition,
from and after the Option Closing, the Conversion Shares issuable in respect of
the Option Shares shall be deemed to have existed as of and following the
Initial Closing. For the purposes of determining the percentage of the Original
Number of Conversion Shares that is Beneficially Owned by the Investor, any
Designated Purchaser or any of their respective Affiliates, such calculation
shall be made assuming all conditions precedent to receipt of Conversion Shares
in respect of the then-outstanding shares of Senior Preferred Stock have
occurred or been satisfied, including, without limitation, receipt by the
Company of the necessary Shareholder Approvals and conversion of the Senior
Preferred Stock in accordance with the terms thereof.
"PERSON" means any individual, corporation, company,
association, partnership, limited liability company, joint venture, trust,
unincorporated organization, or Governmental Entity.
"PLACEMENT FEE" means $1,625,000.
"PLAN" has the meaning set forth in Section 3.14(a) hereof.
"POLICIES" has the meaning set forth in Section 3.19 hereof.
"PREFERRED STOCK" means the Junior Preferred Stock and the
Senior Preferred Stock.
"PRIVATE PLACEMENT LEGEND" has the meaning set forth in
Section 8.10(a) hereof.
"PROCEEDING" has the meaning set forth in Section 3.11 hereof.
"PROPOSAL" means any inquiry, indication of interest, proposal
or offer from any Person relating to an Alternative Transaction.
"PROPOSED ASSET SALE LETTER" means the letter from the Company
to the Investor dated as of the date hereof.
"PROXY STATEMENT" means a proxy statement used in connection
with a Shareholder Meeting.
12
"PURCHASE AGREEMENT" means a legal, valid and binding
agreement of a Person or Persons (each, a "PURCHASER") pursuant to which such
Purchaser or Purchasers agrees to purchase Covered Securities which agreement is
enforceable against such Purchaser or Purchasers in accordance with its terms
(subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and to general principles of equity).
"RAINWATER-MAGELLAN WARRANT" has the meaning set forth in the
definition of "Company Warrants."
"RAINWATER PRE-EMPTIVE RIGHTS" means the pre-emptive rights
set forth in Section 5.11 of the Stock and Warrant Purchase Agreement, dated as
of December 22, 1995, between the Company and Richard E. Rainwater.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement of even date herewith between the Company and the Investor, which
agreement shall not become effective until the Initial Closing.
"REGULATORY APPROVALS" means (i) any and all certificates,
permits, licenses, franchises, concessions, grants, consents, approvals, orders,
registrations, authorizations, waivers, variances or clearances from, or filings
or registrations with, Governmental Entities, and (ii) any and all waiting
periods imposed by applicable laws.
"REPRESENTATIVES" means, with respect to any Person, any of
such Person's officers, directors, employees, agents, attorneys, accountants,
consultants, equity financing partners or financial advisors or other Person
associated with, or acting on behalf of, such Person.
"REQUIRED REGULATORY APPROVAL" means a Regulatory Approval (i)
necessary under the HSR Act or required under the Securities Act, the Exchange
Act or the securities laws of the several states of the United States, for or in
connection with the consummation by the parties thereto of the transactions
contemplated by the Transaction Agreements; (ii) consisting of the filing by the
Company of the Certificates of Designations with the Secretary of State of the
State of Delaware; (iii) set forth on Schedule 1.01(C) hereto; (iv) with respect
to which a filing, notification or similar action has been made or taken with
insurance regulatory authorities in the State of Tennessee prior to the Initial
Closing; or (v) relating to the Option and with respect to which a filing,
notification or similar action with the appropriate Governmental Entity will be
taken following the Initial Closing.
"RESPONSE PERIOD" has the meaning set forth in Section 8.05(b)
hereof.
"RESTRICTION EVENT" has the meaning set forth in
Section 2.02(d) hereof.
"REVOCATION NOTICE" has the meaning set forth in
Section 2.01(b) hereof.
"RIGHTS" has the meaning set forth in Section 3.20 hereof.
"RIGHTS PLAN" has the meaning set forth in Section 3.20
hereof.
13
"SEC REPORTS" has the meaning set forth in Section 3.07(a)
hereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder from time to time.
"SENIOR CERTIFICATES OF DESIGNATIONS" has the meaning set
forth in the recitals hereto.
"SENIOR PREFERRED STOCK" has the meaning set forth in the
recitals hereto.
"SENIOR SUBORDINATED NOTES" means the Senior Subordinated
Notes of the Company issued pursuant to the Indenture.
"SERIES A CERTIFICATE OF DESIGNATIONS" has the meaning set
forth in the recitals hereto.
"SERIES A DEBENTURES" has the meaning set forth in the
recitals hereto.
"SERIES A PREFERRED STOCK" has the meaning set forth in the
recitals hereto.
"SERIES A SHAREHOLDER APPROVAL" means the approval by the
stockholders of the Company, in accordance with the DGCL and in accordance with
and in satisfaction of Paragraph 312.00 of the NYSE's Listed Company Manual and
the related NYSE Rules and interpretations of (i) the issuance of Common Stock
in respect of accrued and unpaid dividends on the Series A Preferred Stock
(including upon the conversion or exchange thereof), (ii) the issuance of the
Option Shares upon the exercise of the Option, and (iii) the issuance of Common
Stock upon the conversion or exchange of the Option Shares, in each case in
accordance with the terms hereof and the Series A Certificate of Designations.
"SERIES A SHAREHOLDER APPROVAL DATE" means the date on which
the Company obtains the Series A Shareholder Approval.
"SERIES A SHAREHOLDER APPROVAL PROPOSAL" means a proposal made
by the Board of Directors to the stockholders of the Company in accordance with
the DGCL to consider and vote on the Series A Shareholder Approval.
"SERIES B CERTIFICATE OF DESIGNATIONS" has the meaning set
forth in the recitals hereto.
"SERIES B DEBENTURES" has the meaning set forth in the
recitals hereto.
"SERIES B PREFERRED STOCK" has the meaning set forth in the
recitals hereto.
"SERIES B SHAREHOLDER APPROVAL" means the approval by the
stockholders of the Company, in accordance with the DGCL and in accordance with
and in satisfaction of Paragraph 312.00 of the NYSE's Listed Company Manual and
the related NYSE Rules and interpretations of (i) the issuance of Common Stock
in respect of accrued and unpaid dividends on the Series B Preferred Stock
(including upon the conversion or exchange thereof), (ii) the issuance of
14
Common Stock upon the conversion or exchange of the Series B Preferred Stock,
and (iii) the vesting of voting rights in respect of the Series B Preferred
Stock, in each case in accordance with the terms hereof and the Series B
Certificate of Designations.
"SERIES B SHAREHOLDER APPROVAL PROPOSAL" means a proposal made
by the Board of Directors to the stockholders of the Company in accordance with
the DGCL to consider and vote on the Series B Shareholder Approval.
"SHAREHOLDER APPROVALS" means the Series A Shareholder
Approval and the Series B Shareholder Approval.
"SHAREHOLDER APPROVAL PROPOSALS" means the Series A
Shareholder Approval Proposal and the Series B Shareholder Approval Proposal.
"SHAREHOLDER MEETING" has the meaning set forth in
Section 8.13(a) hereof.
"SIGNIFICANT SUBSIDIARY" means any direct or indirect
Subsidiary of the Company listed on Schedule 1.01(D) hereto.
"SOLICITATION DATE" means, with respect to any Covered
Securities, the earlier of (i) the eleventh day following the day on which an
Offer to Purchase with respect to such Covered Securities is given and (ii) the
date on which the Investor shall have, or shall be deemed to have, declined to
purchase such Covered Securities, in each case pursuant to Section 8.05(b)
hereof.
"STANDSTILL PERIOD" has the meaning set forth in
Section 6.01(a) hereof.
"STATE STATUTORY ACCOUNTING PRACTICES" has the meaning set
forth in Section 3.07(c) hereto.
"SUBSEQUENT REPORTS" has the meaning set forth in
Section 3.07(a) hereof.
"SUBSIDIARY" means as to any Person, any other Person of which
more than 50% of the shares of the voting stock or other voting interests are
owned or controlled, or the ability to select or elect more than 50% of the
directors or similar managers is held, directly or indirectly, by such first
Person or one or more of its Subsidiaries or by such first Person and one or
more of its Subsidiaries; PROVIDED, HOWEVER, that no Joint Venture shall be
considered (i) a "Subsidiary" of the Company or (ii) a "Subsidiary" of any
Subsidiary of the Company.
"TAX" or "TAXES" means all taxes, including any interest,
liabilities, fines, penalties or additions to tax that may become payable in
respect thereof, imposed by any Governmental Entity, which taxes shall include,
without limiting the generality of the foregoing, income taxes (including, but
not limited to, United States federal income taxes and state income taxes),
payroll and employee withholding taxes, unemployment insurance, social security,
sales and use taxes, excise taxes, franchise taxes, gross or net receipts taxes,
occupation taxes, real and personal property taxes, AD VALOREM taxes, stamp
taxes, transfer taxes, capital taxes, import duties, withholding taxes, workers'
compensation, and other obligations of the same or of a similar nature whether
arising before, on or after the Closing Date.
15
"TPG PERSON" has the meaning set forth in the definition of
"Affiliate."
"TRADING DAY" means any day on which the NYSE is open for
trading, or if the shares of Common Stock are not listed on the NYSE, any day on
which the principal national securities exchange or national quotation system on
which the shares of Common Stock are listed, admitted to trading or quoted is
open for trading.
"TRANSACTION AGREEMENTS" means this Agreement and the
Registration Rights Agreement.
"VOTING POWER" means, with respect to any Voting Securities,
the aggregate number of votes attributable to such Voting Securities that could
generally be cast by the holders thereof for the election of directors at the
time of determination (assuming such election were then being held).
"VOTING SECURITIES" means, (i) with respect to the Company,
the Equity Securities of the Company entitled to vote generally for the election
of directors of the Company, and (ii) with respect to any other Person, any
securities of or interests in such Person entitled to vote generally for the
election of directors or any similar managing person of such Person.
"WHOLLY-OWNED SUBSIDIARY" means, as to any Person, a
Subsidiary of such Person of which 100% of the Equity Securities (other than
directors' qualifying shares or similar shares) is owned, directly or
indirectly, by such Person.
"YEAR 2000 PROBLEM" means the risk that computer hardware or
software applications will not record, store, process, calculate and present
calendar dates falling on and after January 1, 2000, and calculate information
dependent upon or relating to such dates, in the same manner and with the same
functionality, data integrity and performance as such products record, store,
process, calculate and present calendar dates falling on or before December 31,
1999, and calculate information dependent on or relating to such dates.
Section 1.02. GENERAL INTERPRETIVE PRINCIPLES. Whenever
used in this Agreement, except as otherwise expressly provided or unless the
context otherwise requires, any noun or pronoun shall be deemed to include the
plural as well as the singular and to cover all genders. The name assigned this
Agreement and the Section captions used herein are for convenience of reference
only and shall not be construed to affect the meaning, construction or effect
hereof. Unless otherwise specified, the terms "hereof," "herein" and similar
terms refer to this Agreement as a whole (including the exhibits and schedules
hereto), and references herein to Articles or Sections refer to Articles or
Sections of this Agreement.
Section 1.03. EFFECT OF AMENDMENT AND RESTATEMENT. The
parties hereto agree that the Investment Agreement shall be amended and restated
as set forth herein. Except as expressly set forth herein, and except for
representations, warranties and agreements set forth in the Company
Representation and Warranty Letter or in the Investor Representation and
Warranty Letter, all representations, warranties, covenants and agreements
contained herein shall for the purposes hereof be deemed to have been made as of
July 19, 1999. When used herein, the phrases "as of the date hereof," "the date
of this Agreement," "of even date herewith" and substantially similar phrases
shall be deemed to refer to July 19, 1999.
16
ARTICLE II
INITIAL SHARE PURCHASE AND OPTION
SECTION 2.01. INITIAL SHARE PURCHASE. Upon the terms and subject to the
conditions set forth in this Agreement, and in reliance upon the representations
and warranties hereinafter set forth, at the Initial Closing, the Company will
issue, sell and deliver to the Investor, and the Investor will purchase from the
Company 59,063 shares of Series A Preferred Stock, free and clear of all Liens,
for an aggregate purchase price of $59,063,000 (the "INITIAL SHARE PURCHASE
PRICE"). The transaction described in this Section 2.01 is referred to herein as
the "INITIAL SHARE PURCHASE."
SECTION 2.02. OPTION. (a) Following the later to occur of the (i)
Series A Shareholder Approval Date, (ii) Bank Approval Date, (iii) Board
Approval Date and (iv) Option Approval Date, the Investor shall have an
irrevocable option (the "OPTION") to purchase an additional 21,000 shares of
Series A Preferred Stock (the "OPTION SHARES") for an aggregate purchase price
of $21,000,000 (the "OPTION PURCHASE PRICE"). The Option may be exercised by the
Investor at any time, in whole and not in part, during the period commencing on
the later to occur of the (i) Series A Shareholder Approval Date, (ii) Bank
Approval Date, (iii) Board Approval Date and (iv) Option Approval Date and
ending on the Expiration Date. Except as expressly provided in Section 2.02(b)
hereof, exercise of the Option shall be at the Investor's sole discretion. In
the event that the Investor elects to exercise the Option, the Investor shall
deliver a written notice (an "OPTION EXERCISE NOTICE") to that effect to the
Company not later than the Expiration Date. Delivery of the Option Exercise
Notice in accordance with the terms hereof shall constitute a binding agreement
on the part of the Investor to purchase, and on the part of the Company to
issue, sell and deliver, the Option Shares at the Option Closing on the terms
and subject to the conditions set forth herein. The purchase of the Option
Shares pursuant to the Option is referred to herein as the "OPTION PURCHASE."
(b) Subject to Section 2.02(c) hereof, in the event that the Closing
Price exceeds the Conversion Price on each Trading Day in a 45-Trading Day
Reference Period, the Company shall have the right, at its option and election,
to require the Investor to exercise the Option, in whole and not in part, and to
purchase the Option Shares on the terms and subject to the conditions set forth
herein. In the event that the Company elects to require the Investor to exercise
the Option and to purchase the Option Shares in accordance with this
Section 2.02(b), the Company shall deliver a written notice (a "MANDATORY
EXERCISE NOTICE") to that effect to the Investor not later than the third
Business Day after the last day of the relevant 45-Trading Day Reference Period.
The Mandatory Exercise Notice shall set forth in reasonable detail the
supporting data used by the Company in its determination that it has the right
to require the Investor to exercise the Option. Delivery of the Mandatory
Exercise Notice in accordance with the terms hereof shall constitute exercise
of the Option by the Investor, and shall constitute a binding agreement on the
part of the Investor to purchase, and on the part of the Company to issue, sell
and deliver, the Option Shares at the Option Closing, on the terms and subject
to the conditions set forth herein; PROVIDED, HOWEVER, that in the event the
conditions set forth in Section 9.03 hereof are not satisfied or waived on or
prior to the tenth Business Day following the delivery of the Mandatory
Exercise Notice, (i) the Investor shall not be deemed to have exercised the
Option, (ii) the Investor shall not be obligated to purchase the Option Shares,
(iii)
17
the Mandatory Exercise Notice shall be deemed to have been withdrawn, and
(iv) the Company shall not have the right to require exercise of the Option and
shall not deliver a subsequent Mandatory Exercise Notice for a period of 30 days
following such tenth Business Day. The Company shall not deliver a Mandatory
Exercise Notice if, to the knowledge of the Company, the conditions set forth in
Section 9.04(b), (c) or (d) hereof cannot be satisfied. The Company's right to
require the Investor to exercise the Option and purchase the Option Shares
pursuant to this Section 2.02(b) shall expire on, and no Mandatory Exercise
Notice may be delivered later than, the date that is 30 calendar months after
the Series A Shareholder Approval Date.
(c) Notwithstanding anything in this Section 2.02 to the contrary, the
Company shall not require the Investor to exercise the Option and the Investor
shall not be required to purchase the Option Shares pursuant to a Mandatory
Exercise Notice unless (i) the Common Stock shall have been validly listed for
trading on the NYSE or other national securities exchange or quoted on a
nationally recognized quotation system on each day in the relevant 45-Trading
Day Reference Period and on the Option Closing Date, (ii) the average daily
trading volume in the Common Stock during the relevant 45-Trading Day Reference
Period is at least 60% of the average daily trading volume in the Common Stock
for the 180-day period ending on the date of the Investment Agreement, (iii) as
of the Option Closing, the Shelf Registration Statement (as such term is defined
in the Registration Rights Agreement) is effective under the Securities Act and
is available for use in connection with the offer and sale of shares of Series A
Preferred Stock and Common Stock by those holders that have such right under the
Registration Rights Agreement (it being understood that if a Shelf Suspension
(as such term is defined in the Registration Rights Agreement) is in effect, the
Shelf Registration Statement shall not be deemed effective or available for
use), (iv) no Change of Control shall have occurred since the date hereof,
(v) the Company shall not have breached or defaulted under this Agreement or the
Certificates of Designations in any material respect, (other than breaches or
defaults that have been cured or waived prior to the date of the Mandatory
Exercise Notice) and (vi) the Company is permitted to sell all of the Option
Shares to the Investor on the Option Closing Date under the Indenture.
Notwithstanding anything in this Section 2.02 to the contrary, the Company may
not require the Investor to exercise the Option and purchase the Option Shares
pursuant to a Mandatory Exercise Notice if such exercise or purchase would:
(a) violate any provision of the Certificate of Incorporation or Bylaws;
(b) conflict with, contravene or result in a breach or violation of any of the
terms or provisions of, or constitute a default (with or without notice or the
passage of time) under, or result in or give rise to a right of termination,
cancellation, acceleration or modification of any right or obligation under, or
give rise to a right to put or to compel a tender offer for outstanding
securities of the Company or any of its Subsidiaries under, or require any
consent, waiver or approval under, any note, bond, debt instrument, indenture,
mortgage, deed of trust, lease, loan agreement, joint venture agreement,
Regulatory Approval, contract or any other agreement, instrument or obligation
to which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries or any property of the Company or any of its
Subsidiaries is bound; (c) result in the creation or imposition of any Lien upon
any assets or properties of the Company or any of its Subsidiaries; or
(d) violate any Law applicable to the Company or any of its Subsidiaries.
(d) Notwithstanding anything in this Section 2.02 to the contrary, in
the event (a "RESTRICTION EVENT") that an Option Exercise Notice has been
delivered and the Company is prohibited from selling any Option Shares to the
Investor pursuant to (A) the provisions set forth
18
in Section 4.03(a) of the Indenture (as in effect on the date hereof) or
(B) under comparable provisions of any Indenture so long as such comparable
provisions are not materially more restrictive than those referred to in clause
(A), the Company shall not be required to sell Option Shares to the Investor at
the Option Closing to the extent that the Company is prohibited from doing so
pursuant to such provisions. In such event, the Investor shall have the right to
(i) exercise the Option in part and purchase (a "PARTIAL PURCHASE") at the
Option Closing that number of Option Shares that the Company is permitted to
sell under the Indenture (as in effect on the date hereof) or (ii) withdraw the
Option Exercise Notice (a "WITHDRAWAL"). In connection with any Partial
Purchase, the Option Purchase Price shall be proportionately reduced to reflect
the actual number of Option Shares purchased at the Option Closing. Following
the Option Closing at which a Partial Purchase is completed, the Option shall
remain effective with respect to the Option Shares that the Company was not
permitted to sell at the Option Closing under the Indenture on the same terms
and conditions set forth herein, except that the Option Purchase Price shall be
proportionately reduced to reflect the number of Option Shares still subject to
the Option. In the event of a Withdrawal, no Option Exercise Notice shall deemed
to have been delivered hereunder, except for the purposes of this
Section 2.02(d).
SECTION 2.03. INITIAL SHARE PURCHASE CLOSING. (a) Subject to the
satisfaction or, if permissible, waiver of the conditions set forth in
Sections 9.01 and 9.02 hereof, the Initial Closing shall take place at the
offices of Cleary, Gottlieb, Steen & Hamilton, One Liberty Plaza, New York,
New York, at 10:00 a.m., New York City time, on the third Business Day
following satisfaction or, if permissible, waiver, of the conditions set forth
in Sections 9.01 and 9.02 hereof, or at such other time and place as the
parties may agree (the date on which the Initial Closing occurs, the "INITIAL
CLOSING DATE").
(b) At the Initial Closing, (i) the Company will deliver to the
Investor certificates representing the shares of Series A Preferred Stock to be
purchased by, and sold to, the Investor pursuant to Section 2.01 hereof
(registered in the names and in the denominations designated by the Investor at
least two Business Days prior to the Initial Closing Date), together with the
other documents, certificates and opinions to be delivered pursuant to
Section 9.01 hereof, and (ii) the Investor, in full payment for the shares of
Series A Preferred Stock to be purchased by, and sold to, the Investor pursuant
to Section 2.01 hereof, will pay to the Company as provided in Section 2.01
hereof, an aggregate amount equal to the Initial Share Purchase Price, against
which amount to be paid to the Company any amounts due to the Investor pursuant
to Section 11.01(a) hereof or otherwise shall be netted (PROVIDED, that the
Investor shall continue to be entitled to seek reimbursement after the Initial
Closing for amounts that are properly reimbursable pursuant to Section 11.01(a)
hereof), in immediately available funds, and the Investor shall deliver to the
Company the other documents, certificates and opinions to be delivered pursuant
to Section 9.02 hereof. The amount to be paid to the Company will be paid by
wire transfer to First Union National Bank, Macon, Georgia, Acct. Name: Magellan
Health Services, Inc., Acct. No.: 2080000077640, ABA No. 061000227.
SECTION 2.04. OPTION CLOSING. (a) In the event the Option is exercised
in accordance with the terms hereof, subject to the satisfaction or, if
permissible, waiver of the conditions set forth in Sections 9.03 and 9.04
hereof, the Option Closing shall take place at the offices of Cleary, Gottlieb,
Steen & Hamilton, One Liberty Plaza, New York, New York, at 10:00 a.m., New York
City time, on the third Business Day following exercise or deemed
19
exercise, as the case may be, of the Option by delivery of the relevant notice
and satisfaction or, if permissible, waiver, of the conditions set forth in
Sections 9.03 and 9.04 hereof, or at such other time and place as the parties
may agree (the date on which Option Closing occurs, the "OPTION CLOSING DATE").
In the event the Option is exercised or deemed exercised in accordance with the
terms hereof, the Company and the Investor shall use their best efforts so as to
effect the Option Closing no later than the third Business Day following the
date of delivery of the relevant notice relating to exercise; PROVIDED, HOWEVER,
that if a Mandatory Exercise Notice has been delivered, the Investor shall have
right to delay the Option Closing for a period of ten Business Days from the
date of delivery of the Mandatory Exercise Notice.
(b) At the Option Closing, (i) the Company will deliver to the Investor
certificates representing the shares of Series A Preferred Stock to be purchased
by, and sold to, the Investor pursuant to Section 2.02 hereof (registered in the
names and in the denominations designated by the Investor at least two Business
Days prior to the Option Closing Date), together with the other documents,
certificates and opinions to be delivered pursuant to Section 9.03 hereof
(including, without limitation, the Company Representation and Warranty Letter),
and (ii) the Investor, in full payment for the shares of Series A Preferred
Stock to be purchased by, and sold to, the Investor pursuant to Section 2.02
hereof, will pay to the Company an amount equal to the Option Purchase Price,
against which amount to be paid to the Company any amounts due to the Investor
pursuant to Section 11.01(a) hereof or otherwise shall be netted (PROVIDED, that
the Investor shall continue to be entitled to seek reimbursement after the
Option Closing for amounts that are properly reimbursable pursuant to
Section 11.01(a) hereof), in immediately available funds, and the Investor shall
deliver to the Company the other documents and certificates to be delivered
pursuant to Section 9.04 hereof (including, without limitation, the Investor
Representation and Warranty Letter). The amount to be paid to the Company will
be paid by wire transfer to First Union National Bank, Macon, Georgia, Acct.
Name: Magellan Health Services, Inc., Acct. No.: 2080000077640, ABA
No. 061000227, or as otherwise directed by the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to, and agrees with, the
Investor as follows:
SECTION 3.01. CORPORATE ORGANIZATION AND QUALIFICATION. Each of the
Company and each of its Significant Subsidiaries is a corporation or limited
liability company duly organized or formed, as the case may be, validly existing
and in good standing under the laws of the jurisdiction of its organization and
has all requisite power and authority to own or lease and operate its properties
and to conduct its business as it is currently being conducted and is proposed
to be conducted. Each of the Company and each of its Significant Subsidiaries is
duly licensed, authorized or qualified as a foreign corporation or limited
liability company for the transaction of business and is in good standing under
the laws of each other jurisdiction in which its ownership, lease or operation
of property or conduct of business requires such qualification, except where its
failure to be so licensed, authorized or qualified would not have, individually
or in the aggregate, a Material Adverse Effect. The Company has delivered to the
20
Investor a complete and correct copy of the certificate of incorporation and the
bylaws or comparable governing instruments of the Company and each of its
Significant Subsidiaries, each as amended to date and each of which as so
delivered is in full force and effect. The Company has delivered to the Investor
a complete and correct copy of the minute books of the Company and each of its
Significant Subsidiaries, and each such minute book includes minutes of the
meetings of, and resolutions adopted by, the stockholders or members of such
entity, the board of directors or comparable governing body of such entity and
the committees of the board of directors or comparable governing body of such
entity to date.
SECTION 3.02. AUTHORIZATION OF AGREEMENTS. (a) The Company has all
requisite corporate power and authority to execute, deliver and perform its
obligations under the Transaction Agreements and the Company Documents. The
execution, delivery and performance of the Transaction Agreements and the
Company Documents, and the consummation by the Company of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action on the part of the Company. The Board of Directors has approved
the entry by the Company into this Agreement and has approved the consummation
of the transactions contemplated by the Transaction Agreements for all purposes
under the DGCL, including for purposes of paragraph (a)(1) of Section 203 of the
DGCL ("DGCL SECTION 203"). The Company has delivered to the Investor true and
correct copies of resolutions adopted by the Board of Directors to the foregoing
effects.
(b) This Agreement and the Registration Rights Agreement have been duly
executed and delivered by the Company, and each such agreement constitutes a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and to general
principles of equity.
SECTION 3.03. CONSENTS; NO CONFLICTS. (a) Except for the Required
Regulatory Approvals, no Regulatory Approval from, or registration, disclosure,
declaration or filing with, any Governmental Entity is required to be made or
obtained by the Company or any of its Significant Subsidiaries in connection
with the execution, delivery and performance of the Transaction Agreements and
the Company Documents and the consummation of the transactions contemplated
thereby.
(b) Except as set forth on Schedule 3.03(b) hereto, the execution and
delivery of each of this Agreement and the Registration Rights Agreement does
not, and the execution and delivery of each of the Company Documents will not,
and, subject to the receipt of the Required Regulatory Approvals, the
performance of the obligations set forth herein and therein and the consummation
of the transactions contemplated hereby and thereby will not, (i) violate any
provision of the Certificate of Incorporation or the Bylaws or the comparable
governing instruments of any of the Significant Subsidiaries; (ii) give rise to
any preemptive rights, rights of first refusal or other similar rights on behalf
of any Person under any applicable Law or any provision of the Certificate of
Incorporation or Bylaws or any agreement or instrument applicable to the Company
or any of its Significant Subsidiaries; (iii) conflict with, contravene or
result in a breach or violation of any of the terms or provisions of, or
constitute a default (with or without notice or the passage of time) under, or
result in or give rise to a right of termination, cancellation, acceleration or
modification of any right or obligation under, or give rise to a right
21
to put or to compel a tender offer for outstanding securities of the Company or
any of its Significant Subsidiaries under, or require any consent, waiver or
approval under, any note, bond, debt instrument (including, without limitation,
the Credit Agreement), indenture, mortgage, deed of trust, lease, loan
agreement, joint venture agreement, Regulatory Approval, contract or any other
agreement, instrument or obligation to which the Company or any of its
Significant Subsidiaries is a party or by which the Company or any of its
Significant Subsidiaries or any property of the Company or any of its
Significant Subsidiaries is bound (other than in each case in connection with a
"Change in Control," as such term is defined in the Credit Agreement, or a
"Change of Control," as such term is defined in the Indenture, resulting from
the appointment of members of the Board of Directors pursuant to Section D of
Article VIII of the Senior Certificates of Designations or resulting from any
action taken by the Investor or any of its Affiliates that is permitted under
Section 6.01(b) hereof); PROVIDED, HOWEVER, that the issuance of the Option
Shares may be subject to a Restriction Event at the time the Company is
obligated to issue the Option Shares; (iv) result in the creation or imposition
of any Lien upon any assets or properties of the Company or any of its
Significant Subsidiaries or (v) violate any Law applicable to the Company or any
of its Significant Subsidiaries.
(c) Except for the Shareholder Approvals, no consent or approval of the
Company's stockholders is required by Law, the Certificate of Incorporation, the
Bylaws, the rules and regulations of the NYSE (the "NYSE RULES"), or otherwise,
for the execution, delivery and performance by the Company of the Transaction
Agreements and the Company Documents and the consummation of the transactions
contemplated thereby.
(d) The execution and delivery of the Transaction Agreements and the
consummation of transactions contemplated hereby and thereby will not constitute
a "Change of Control" or "Change in Control" (or similar concept) as such term
(or concept) is defined in the Credit Agreement, the Indenture or any other
material contract, agreement, indenture, mortgage, note, lease or other
instrument to which the Company or any of its Significant Subsidiaries is a
party or by which the Company or any such Subsidiary is bound or to which the
properties of the Company or any such Subsidiary is subject (other than in
connection with a "Change in Control," as such term is defined in the Credit
Agreement, or a "Change of Control," as such term is defined in the Indenture,
resulting from the appointment of additional members of the Board of Directors
pursuant to Section D of Article VIII of the Senior Certificates of Designations
or resulting from any action taken by the Investor or any of its Affiliates that
is permitted under Section 6.01(b) hereof).
SECTION 3.04. CAPITALIZATION; SECURITIES. (a) As of the date hereof,
the authorized capital stock of the Company consists of (i) 80,000,000 shares of
Common Stock, of which 31,788,288 shares were outstanding as of July 13, 1999,
6,034,079 shares are reserved for issuance under the Option Plans, 4,732,333
shares are reserved for issuance pursuant to the Company Warrants and 23,262
shares are reserved for issuance pursuant to the option granted to Paul G.
Shoffeit, which is disclosed on Schedule 3.04(d) hereto, and (ii) 10,000,000
shares of preferred stock, without par value, of which no shares are
outstanding, no shares have been designated and no shares are reserved for
issuance. All of such outstanding shares of Common Stock were duly authorized
and validly issued and are fully paid and non-assessable and are validly listed
for trading on the NYSE.
22
(b) Except for the Option, the Company Warrants and the options granted
pursuant to the Option Plans or as set forth on Schedule 3.04(b) hereto, there
are no authorized or outstanding (or any obligations to authorize or issue)
Derivative Securities.
(c) As of the date hereof, the Company and its Subsidiaries have no
outstanding Indebtedness other than (i) Indebtedness outstanding pursuant to the
Credit Agreement not in excess of $500,000,000 in principal amount in the
aggregate, (ii) Senior Subordinated Notes with an aggregate principal amount of
$625,000,000, (iii) inter-company Indebtedness among Subsidiaries of the Company
or among Subsidiaries of the Company and the Company, and (iv) other
Indebtedness not in excess of $25,000,000 in principal amount in the aggregate.
A true, complete and correct copy of each of the Credit Agreement, the Indenture
and each other instrument or agreement governing Indebtedness of the Company or
any of its Subsidiaries the principal amount of which exceeds $10,000,000,
including the respective exhibits and schedules thereto and any other material
documents executed in connection therewith, has been delivered to the Investor.
(d) Subject to the filing of the Certificates of Designations with the
Secretary of State of the State of Delaware, the shares of Preferred Stock
(other than the Option Shares or shares issuable in respect of the Option
Shares) to be issued pursuant to this Agreement have been duly and validly
authorized and, when issued as contemplated by this Agreement, will have been
validly issued and will be fully paid and non-assessable. The Conversion Shares
(other than shares issuable in respect of the Option Shares) have been duly and
validly authorized and validly reserved for issuance, and when issued upon the
conversion of the Senior Preferred Stock will have been validly issued and will
be fully paid and non-assessable. Subject to receipt of the Series A Shareholder
Approval, the Board Approval and the Option Approval, (i) the Option Shares to
be issued pursuant to this Agreement will be duly and validly authorized and
validly reserved for issuance and, when issued as contemplated by this
Agreement, will have been validly issued and will be fully paid and
non-assessable; and (ii) the Conversion Shares issuable in respect of the Option
Shares will have been duly and validly authorized and validly reserved for
issuance, and when issued upon the conversion of the Option Shares will have
been validly issued and will be fully paid and non-assessable. Except as set
forth in Schedule 3.04(d) hereto, the registration of the Senior Preferred
Stock, Junior Shares, Conversion Shares, Dividend Shares or Debentures pursuant
to the Registration Rights Agreement will not give rise to any registration
rights on behalf of any Person under any agreement or instrument applicable to
the Company (other than the Registration Rights Agreement). Except as set forth
in Schedule 3.04(d) hereto, other than pursuant to the Registration Rights
Agreement, no Person has any right to require the Company to register securities
of the Company under the Securities Act, and there are no shareholder or similar
agreements to which the Company is a party. Prior to the issuance thereof, the
Debentures will have been duly and validly authorized by the Company and, upon
execution and delivery thereof in accordance with the terms of the Senior
Preferred Stock, will constitute legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, subject
to applicable bankruptcy, insolvency and similar laws affecting creditors'
rights generally and to general principles of equity.
SECTION 3.05. SUBSIDIARIES; EQUITY INVESTMENTS. (a) Schedule 3.05(a)
hereto lists, for each Significant Subsidiary of the Company, the name of such
Subsidiary,
23
together with (i) the jurisdiction and nature (e.g., corporation, partnership,
limited liability company) of its organization, (ii) the number and percentage
of shares of each class of such Subsidiary's Equity Securities owned by the
Company or any of its Wholly-Owned Subsidiaries, (iii) the identity of the
record holder(s) and the name and number of shares of each class of such
Subsidiary's Equity Securities owned by any Person other than the Company or its
Wholly-Owned Subsidiaries, and (iv) the identity of any Person other than the
Company or its Wholly-Owned Subsidiaries that has the right (including upon the
passage of time or upon the occurrence of specified events) to acquire any of
such Subsidiary's Equity Securities. Such list is true, correct and complete as
of the date hereof. The Equity Securities of each such Subsidiary owned,
directly or indirectly, by the Company are held free and clear of all Liens
except as set forth on Schedule 3.05(a), and all Equity Securities of such
Subsidiary have been duly authorized and validly issued and are fully paid and
nonassessable.
(b) Except for the Equity Securities of the Subsidiaries of the
Company, the Equity Securities listed on Schedule 3.05(b) hereto, and any Equity
Securities acquired after the date hereof in transactions permitted pursuant to
Section 7.02(a) hereof, the Company does not, directly or indirectly,
(i) Beneficially Own or own of record any Equity Securities of, or any other
equity interest in, any other Person or (ii) have any other equity investment
or other ownership interest in any other Person other than, in each case, such
investments or other ownership interests valued at less than $1,000,000
individually and $5,000,000 in the aggregate.
(c) Other than as set forth on Schedule 3.05(c) hereto, as of the date
hereof, neither the Company nor any of its Significant Subsidiaries is
obligated, pursuant to any agreement or instrument applicable to the Company or
such Subsidiary, to purchase any Equity Securities of, or make any other equity
investment in, any Person, other than such Equity Securities or other equity
investments valued at less than $1,000,000 individually and $5,000,000 in the
aggregate.
(d) Schedule 1.01(D) hereto includes all Subsidiaries of the Company
that are "Significant Subsidiaries" (as such term is defined in Regulation S-X
under the Exchange Act, as in effect on the date hereof) of the Company.
SECTION 3.06. DIVIDENDS, STOCK REPURCHASES, ETC. Other than as set
forth on Schedule 3.06 hereto, pursuant to this Agreement, the Indenture (as in
effect on the date hereof) or the Credit Agreement (as in effect on the date
hereof), or as restricted or limited by applicable Law, there are no contractual
or other restrictions or limitations on the ability of the Company or any of its
Significant Subsidiaries to pay any dividends or make any other distributions
on, or to purchase, redeem or otherwise acquire, any of its Equity Securities.
Section 3.07. COMPANY REPORTS; FINANCIAL STATEMENTS. (a) The Company
has delivered to the Investor a true and complete copy of (i) the Company's
Annual Report on Form 10-K for each of the fiscal years ended September 30,
1998, 1997, 1996, 1995 and 1994; (ii) the Company's Quarterly Report on Form
10-Q for each of the periods ended December 31, 1998 and March 31, 1999 and
(iii) each registration statement, report on Form 8-K, proxy statement,
information statement or other report or statement filed by the Company with the
Commission since September 30, 1994 and prior to the date hereof, in each case
in the form (including exhibits and any amendments thereto) filed with the
Commission (collectively,
24
the "SEC REPORTS"). As of their respective dates, the SEC Reports and any
registration statement, report, proxy statement, information statement or other
statement filed by the Company with the Commission before the Initial Closing
Date (collectively, the "SUBSEQUENT REPORTS") (i) was, or will be, as the case
may be, timely filed with the Commission; (ii) complied, or will comply, as the
case may be, in all material respects, with the applicable requirements of the
Exchange Act and the Securities Act, and (iii) did not, or will not, as the case
may be, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Other than the SEC Reports or, with respect to Subsequent
Reports required to be filed after the date hereof, such filings as have been
made, the Company has not filed or been required to file any other reports or
statements with the Commission since September 30, 1994.
(b) Each of the consolidated balance sheets (including the related
notes and schedules) included in or incorporated by reference into the SEC
Reports or any Subsequent Reports fairly presents, or will fairly present, as
the case may be, in all material respects, the consolidated financial position
of the entities to which it applies as of the date thereof, and each of the
consolidated statements of income (or statements of results of operations),
stockholders' equity and cash flows (including the related notes and schedules)
included in or incorporated by reference into the SEC Reports or any Subsequent
Reports, fairly presents or will fairly present, as the case may be, in all
material respects, the results of operations, retained earnings and cash flows,
as the case may be, of the entities to which it applies (on a consolidated
basis) for the periods or as of the dates, as the case may be, set forth
therein, in each case in accordance with GAAP applied on a consistent basis
throughout the periods covered (except as stated therein or in the notes
thereto) and in compliance with the rules and regulations of the Commission.
(c) The Annual Statements and Quarterly Statements of each Subsidiary
of the Company that is required to file such statements (each, a "REGULATED
SUBSIDIARY"), as filed with the Department of Insurance, Superintendent of
Insurance or similar insurance regulatory authority of the state of domicile of
such Regulated Subsidiary (with respect to each Regulated Subsidiary, its
"APPLICABLE INSURANCE DEPARTMENT") for the fiscal year ended September 30, 1998
and the quarters ended December 31, 1998 and March 31, 1999, respectively,
together with any notes, exhibits and schedules thereto, have been prepared in
accordance with the accounting practices prescribed or permitted by the
Applicable Insurance Department for purposes of financial reporting to the
applicable state's insurance regulators ("STATE STATUTORY ACCOUNTING
PRACTICES"), and such accounting practices have been applied on a basis
consistent with State Statutory Accounting Practices throughout the periods
involved, except as expressly set forth in any notes, exhibits and schedules
thereto.
(d) The regulatory capital funding requirements of the Regulated
Subsidiaries are, in all material respects, as previously disclosed by the
Company to the Investor (the "CAPITAL FUNDING REQUIREMENTS DISCLOSURE").
(e) The Company is eligible to register securities for offer and sale
on Form S-3 under the Securities Act.
25
SECTION 3.08. UNDISCLOSED LIABILITIES. Except as disclosed on Schedule
3.08 hereto, at September 30, 1998, there were no liabilities or obligations of
any nature (whether accrued, absolute, fixed, contingent, liquidated,
unliquidated or otherwise and whether due or to become due) required by GAAP to
be set forth on (i) the Balance Sheet (as defined below) of the Company except
as reflected or reserved against on the consolidated balance sheet of the
Company at September 30, 1998 as set forth in the SEC Reports (the "BALANCE
SHEET") or in the notes thereto or (ii) the consolidated balance sheet of any
other entity included in the SEC Reports except as reflected or reserved against
on such balance sheet included in the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1998, as amended through the date hereof, or
in the notes thereto. Since September 30, 1998, the Company has not incurred any
liabilities or obligations except such as would not, individually or in the
aggregate, have a Material Adverse Effect.
SECTION 3.09. ABSENCE OF CERTAIN CHANGES. Except for transactions
contemplated by the Transaction Agreements (including, without limitation,
transactions expressly permitted pursuant to Section 7.02 hereof), transactions
with respect to which the Investor shall have given its prior written consent,
or transactions disclosed in the SEC Reports, on Schedule 3.09 hereto or in the
Proposed Asset Sale Letter, from September 30, 1998 to the Initial Closing, the
Company and its Significant Subsidiaries have conducted their business in the
ordinary and usual course, and there has not been any of the following:
(i) any change or amendment to the Certificate of Incorporation or
Bylaws or the certificate or articles of incorporation, bylaws or other
organizational documents of any Significant Subsidiaries of the Company;
(ii) any issuance or sale, or any direct or indirect purchase,
redemption or other acquisition of any shares of their respective Equity
Securities or any Derivative Securities by the Company or any of its
Significant Subsidiaries, other than pursuant to this Agreement, the Company
Warrants or the Option Plans;
(iii) any dividend or other distribution declared, set aside, paid or
made with respect to their respective Equity Securities by the Company or
any of its Significant Subsidiaries, except (x) dividends or other
distributions made to the Company or to any Subsidiary of the Company and
(y) dividends and distributions declared, set aside, paid or made by any
joint venture in which the Company or any Significant Subsidiary owns an
equity interest, which dividends and distributions were declared, set aside,
paid or made in accordance with the organizational documents or related
service agreements of such joint venture as in effect on the date of such
payment;
(iv) any acquisition or disposition of assets by the Company and its
Subsidiaries having a fair value or for a purchase price in excess of
$5,000,000, in the aggregate, other than acquisitions or dispositions made
in the ordinary course of business and acquisitions or dispositions among
the Company and its Subsidiaries or among such Subsidiaries;
(v) any increase in excess of $5,000,000 in the Indebtedness of the
Company and its Subsidiaries, taken as a whole, other than (x) advances to
the Company pursuant to the revolving credit facility under the Credit
Agreement in an amount not in excess of
26
$60,000,000, in the aggregate, outstanding at any time and (y) changes in
inter-company Indebtedness among the Company and its Subsidiaries or among
Subsidiaries of the Company, which changes were permitted under the Credit
Agreement (as in effect on the date hereof);
(vi) any amendment of any mortgage, Lien, lease, Regulatory Approval,
loan agreement, indenture or other agreement, instrument or document, which
amendment is material to the Company and its Subsidiaries, taken as a whole;
(vii) any default, event of default or breach (or any event which, with
notice or the passage of time or both, would constitute a default, event of
default or breach) by the Company or any of its Subsidiaries of any credit,
financing or other agreement or instrument relating to any Indebtedness
(including, without limitation, the Credit Agreement or the Indenture),
which default, event of default or breach is material to the Company and its
Subsidiaries, taken as a whole;
(viii) any damage, destruction, theft or other casualty loss (whether
or not covered by insurance) that is material to the Company and its
Subsidiaries taken as a whole;
(ix) any commitment, agreement or transaction entered into, amended, or
terminated (or any waiver of any rights or remedies under any of the
foregoing) by the Company or any of its Subsidiaries (including any
agreement with respect to any ongoing or threatened litigation) that is
material to the Company and its Subsidiaries, taken as a whole, other than
in the ordinary course of business;
(x) any entry into or amendment of any material employment, severance,
compensation, consulting, retention, change of control or similar agreement
with, or any material increase in the compensation or benefits payable or to
become payable by the Company or any of its Subsidiaries to, any employee of
the Company or any of its Subsidiaries (other than agreements terminable
without penalty or similar payment by the Company or such Subsidiary, as the
case may be, on not more than 30 days' notice and increases in compensation
payable or to become payable to employees (other than directors or officers)
in the ordinary course of business consistent with past practice);
(xi) any change in the financial accounting methods, principles or
practices of the Company and its Subsidiaries for financial accounting
purposes, except as required by GAAP or applicable Law;
(xii) any adoption of any agreement or understanding with respect to
any Control Transaction, merger, consolidation or other reorganization with
respect to the Company or any of its Significant Subsidiaries, or any
adoption of any plan, agreement or arrangement with respect to, or
resolutions providing for, the liquidation or dissolution of the Company or
any of its Significant Subsidiaries;
(xiii) any settlement or compromise of any Proceeding other than those
in which the amount paid (to the extent not reimbursed with the proceeds of
any Policy) does not exceed $2,000,000;
27
(xiv) any change, condition, occurrence, circumstance or other event
that, individually or in the aggregate, has had or is reasonably likely to
have a Material Adverse Effect; or
(xv) any commitment or agreement to do any of the foregoing, except as
otherwise required or expressly permitted by this Agreement.
SECTION 3.10. PROPERTY. (a) Except as set forth on Schedule 3.10(a)
hereto, each of the Company and its Significant Subsidiaries has good and
marketable title to all property owned by each of them, in each case free and
clear of any Liens, except for Liens created pursuant to the Credit Agreement
(as in effect on the date hereof) or permitted to exist under Section 6.02 under
the Credit Agreement (as in effect on the date hereof), and any real property
and buildings held under lease by the Company or any such Subsidiary are held
under a valid, subsisting and enforceable lease, with such exceptions as are not
material and do not interfere with the use made or proposed to be made of such
property and buildings by the Company or such Subsidiary.
(b) Each of the Company and its Significant Subsidiaries owns or
possesses the rights to use, and is in compliance with, in all material
respects, all Intellectual Property that is used or required by it in the
conduct of its business and all such Intellectual Property is in full force and
effect and will not cease to be in full force and effect in accordance with its
terms by virtue of the consummation of the transactions contemplated by the
Transaction Agreements. Neither the Company nor any of its Subsidiaries has
received any notice of, and they have no knowledge of, (i) any infringement of
or conflict with asserted rights of others with respect to any Intellectual
Property owned or used by the Company or any of its Subsidiaries, (ii) any
challenge to the ownership of or validity or effectiveness of any license for
the use of any Intellectual Property owned or used by the Company or any of its
Subsidiaries, or (iii) any claim against the use by the Company or any of its
Subsidiaries of any Intellectual Property owned or used by it, except, in each
case, for such matters that would not, individually or in the aggregate, have a
Material Adverse Effect.
SECTION 3.11. LITIGATION. Except as expressly disclosed in the SEC
Reports or on Schedule 3.11 hereto, there are no claims, suits, actions,
proceedings, arbitrations or investigations (each, a "PROCEEDING") pending or,
to the knowledge of the Company or its Subsidiaries, explicitly threatened,
against or affecting the Company or any of its Subsidiaries, that involve a
claim against the Company or any of its Subsidiaries in a stated amount in
excess of $5,000,000, that may involve criminal liability or result in or
involve criminal proceedings, that may affect the status of any Regulatory
Approval maintained by the Company or any Subsidiary, that may affect the
authority of the Company or any Subsidiary to participate in the federal
Medicare program, any state Medicaid program or any other material third party
payor program or that, individually or in the aggregate, are reasonably likely
to have a Material Adverse Effect; and except as so disclosed, there are no
judgments, decrees, injunctions, rules, stipulations or orders outstanding
against or applicable to the Company or any of its Subsidiaries or against or
applicable to any of their respective properties or businesses that,
individually or in the aggregate, are reasonably likely to have a Material
Adverse Effect. It is understood that this Section 3.11 shall not apply to any
Joint Venture.
28
SECTION 3.12. COMPLIANCE WITH LAWS; REGULATORY APPROVALS. Except as
disclosed in the SEC Reports or in Schedule 3.12 hereto, since January 1, 1994,
the businesses of the Company and its Significant Subsidiaries have been
conducted, and the businesses of the Company and its Significant Subsidiaries
currently are being conducted, in compliance with all applicable Laws in all
material respects. Since January 1, 1994, all material Regulatory Approvals
required by the Company and its Significant Subsidiaries to conduct their
respective businesses have been obtained, and all material Regulatory Approvals
required by the Company and its Significant Subsidiaries to conduct their
respective businesses as now conducted by them are in full force and effect.
Except as disclosed in the SEC Reports or on Schedule 3.12 hereto, the Company
and its Significant Subsidiaries are in compliance with the terms and
requirements of such Regulatory Approvals in all material respects. Except as
disclosed on Schedule 3.12 hereto, since January 1, 1994, none of the Company or
any of its Significant Subsidiaries has received any written notice or other
written communication from or on behalf of any Governmental Entity regarding
(i) any prior, pending, threatened or possible revocation, withdrawal,
suspension, termination or modification of, or the imposition of any material
conditions with respect to, any Regulatory Approval or the participation by the
Company, or any such Subsidiary, in the federal Medicare program, any state
Medicaid program, or any other third party payor program, except for any such
revocation, withdrawal, suspension, termination, modification or condition that
would not have a Material Adverse Effect, (ii) any material violation of any
Law by the Company or any such Subsidiary, (iii) any prior, pending, threatened
or possible investigation involving or otherwise relating to any material
Regulatory Approval or the participation by the Company, or any such
Subsidiary, in the federal Medicare Program, any state Medicaid program, or any
other material third party payor program or (iv) any other limitations on the
conduct of business by the Company or any such Subsidiary that would have a
Material Adverse Effect. To the knowledge of the Company and its Subsidiaries,
no currently proposed Law or proposed change in existing Law is reasonably
likely to have a Material Adverse Effect. It is understood that this
Section 3.12 shall not apply to any Joint Venture.
SECTION 3.13. TAXES. (a) Except as disclosed on Schedule 3.13 hereto,
the Company and its Subsidiaries have timely filed (taking into account
available extensions) all U.S. federal, state, local, foreign and other tax
returns (including any information returns), reports and statements that are
required to have been filed with the appropriate taxing authorities. All
information provided in such returns, reports and statements is complete and
accurate in all material respects. The Company and its Subsidiaries have paid
all amounts due in respect of Taxes (whether or not actually shown on such
returns, reports or statements), or have otherwise set up reserves in accordance
with GAAP in respect of all Taxes for the periods covered by such Tax Returns,
as well as all other Taxes, penalties, interest, fines, deficiencies,
assessments and governmental charges that have become due or payable (including,
without limitation, all Taxes that the Company and its Subsidiaries are
obligated to withhold from amounts paid or payable to or benefits conferred upon
employees, creditors and third parties). As of the date hereof, there is no
proposed liability for any material Tax to be imposed upon the Company or any of
the Subsidiaries for the fiscal year ended September 30, 1998 and all prior
years for which there is not an adequate reserve, considering such reserves in
the aggregate.
(b) Except as disclosed on Schedule 3.13 hereto, no audits or
investigations relating to any Taxes for which the Company or its Subsidiaries
may be liable are pending or
29
threatened in writing by any taxing authority. Except as disclosed on
Schedule 3.13 hereto, there are no agreements or applications by the Company or
any of its Subsidiaries for the extension of the time for filing any tax return
or paying any Tax nor have there been any waivers of any statutes of limitation
for the assessment of any Taxes.
(c) Neither the Company nor any of its Subsidiaries is a party to any
agreements relating to the sharing or allocation of Taxes.
(d) As of October 1, 1998, for federal income tax purposes, the Company
had net operating loss carryforwards ("NOLS") arising in the years, and for each
such year, in the amounts, disclosed on Schedule 3.13(d) hereto. Except as
disclosed on Schedule 3.13(d) hereto, to the knowledge of the Company and its
Subsidiaries, based on their reasonable good faith analysis of the applicable
facts (which, to the knowledge of the Company and its Subsidiaries, have in all
material respects been disclosed to, or have otherwise been obtained by, the
Investor and the accounting firm representing the Investor in connection with
this Agreement) and relevant legal authorities: (i) assuming the shares of
Series A Preferred Stock to be sold hereunder were deemed to be issued on the
date of this Agreement, (a) the NOLs of the Company and its Subsidiaries are not
subject to limitation under Code Section 382 and will not become subject to
limitation under Code Section 382 immediately following such deemed issuance of
the Series A Preferred Stock, and (b) taking into account such deemed issuance,
the increase in the percentage of the Company's stock owned by one or more 5%
shareholders, within the meaning of Code Section 382 and the relevant Treasury
Regulations promulgated thereunder, during the three-year testing period ending
on the date of such deemed issuance, relative to the lowest percentage of stock
owned by such shareholders during such testing period, does not exceed 35%;
(ii) the NOLs of the Company and its Subsidiaries are not separate return
limitation year ("SRLY") losses within the meaning of Code Section 1502 and the
Treasury Regulations promulgated thereunder; and (iii) the Investor and the
accounting firm representing the Investor are aware of all transfers or
issuances of the Company's shares which have occurred during the three-year
testing period ending on the date of issuance of the Series A Preferred Stock
of which the Company has knowledge and which involve more than 5% of the
Company's outstanding shares or which were issued to, or acquired by, an owner
of more than 5% of the Company's outstanding shares. The representations made
in clause (i) of this Section 3.13(d), when reaffirmed by the Company as of the
Initial Closing Date pursuant to Section 9.01(a) hereof, shall be modified by
taking into account the actual issuance of the Series A Preferred Stock at
the Initial Closing.
(e) Except as disclosed on Schedule 3.13(e) hereto, the Company or its
Subsidiaries have withheld from its employees and timely paid to the appropriate
taxing authority proper and accurate amounts in all material respects through
all periods in compliance in all material respects with all employee Tax
withholding provisions of all applicable Laws.
SECTION 3.14. ERISA AND OTHER EMPLOYMENT MATTERS.
(a) Schedule 3.14(a) lists each material employee benefit plan (within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), whether or not subject to ERISA, and each material
bonus, incentive or deferred compensation, stock option or other equity based,
severance, termination, or fringe benefit or
30
other material benefit, plan, program or policy, maintained, sponsored or
contributed to by the Company or any of its Subsidiaries or to which any such
Person is or has been obligated to contribute (collectively, the "PLANS").
Neither the Company nor any of its Subsidiaries is or, within the preceding six
years, has been obligated to contribute to any "multiemployer plan" as defined
in Section 3(37) of ERISA. Except as set forth on Schedule 3.14(a), none of the
Company nor any of its Subsidiaries has an express or implied commitment, (i) to
create, incur liability with respect to or cause to exist any material employee
benefit plan, program or arrangement other than the Plans or (ii) except for
amendments necessary or appropriate to comply with applicable Law, to modify,
change or terminate any Plan. Schedule 3.14(a) indicates which of such Plans is
subject to ERISA.
(b) Except as set forth in Schedule 3.14(b), neither the execution and
delivery of the Transaction Agreements nor the consummation of the transactions
contemplated thereby will (i) accelerate the time of payment, vesting or funding
of, or increase or modify the amount or terms of, any compensation or benefits
that are or may become payable from or by the Company or any of its Subsidiaries
to or in respect of any current or former executive officer or other key
employee of any such Person, or (ii) constitute a Change in Control under any of
the Employment Agreements with any such executive officer or other key employee.
(c) All employer and employee contributions, premiums and expenses
payable to or in respect of any Plan or required by Law or any Plan or labor
agreement or arrangement have been timely paid, or, if not yet due, have been
fully and adequately accrued as a liability on the Company's financial
statements included in the SEC Reports and no Plan is subject to Section 412 of
the Code or Section 302 of ERISA.
(d) Except as set forth on Schedule 3.14(d), (i) no trade or business,
whether or not incorporated, is or has been treated as a single employer
together with the Company for any purpose under ERISA or Section 414 of the Code
other than the Company's Subsidiaries, (ii) no material liability under Title I
or IV of ERISA or the penalty or excise tax provisions of the Code relating to
employee benefit plans or employee compensation has been incurred (directly or
indirectly, including as a result of any indemnification obligation or
agreement) by the Company or any of its Subsidiaries and is still outstanding,
and no event, transaction or condition has occurred or exists which is
reasonably expected to result in any material liability to the Company, any of
its Subsidiaries or, following the Initial Closing, the Investor or any
Affiliate thereof, and (iii) no reportable event, within the meaning of
Section 4043 of ERISA and the regulations of the PBGC promulgated thereunder,
has occurred that is reasonably expected to result in the imposition of any
material liability to the Company or any of its Subsidiaries, or will occur in
connection with the consummation of the transactions contemplated by this
Agreement, with respect to any Plan.
(e) Each Plan has been operated and administered and is in compliance
with all applicable Laws except for any failures that, individually and in the
aggregate, would not result in any material liability of the Company or any of
its Subsidiaries. Except as set forth in Schedule 3.14(e), each Plan that is
intended to qualify under Section 401(a) of the Code has received a favorable
determination from the Internal Revenue Service as to its qualification and, to
the knowledge of the Company and its Subsidiaries, no event or condition has
occurred or exists since the date of such letter that could result in the
disqualification of such Plan.
31
(f) Except for the agreements set forth on Schedule 3.14(f), none of
the Company or any of its Subsidiaries is a party to any collective bargaining
agreements and there are no labor unions or other organizations representing, or
to the knowledge of the Company and its Subsidiaries, purporting to represent or
attempting to represent, any employee of the Company or any of its Subsidiaries.
(g) Neither the Company nor any of its Subsidiaries has violated any
provision of Law regarding the terms and conditions of employment of employees,
former employees or prospective employees or other labor related matters,
including, without limitation, Laws relating to discrimination, fair labor
standards and occupational health and safety, wrongful discharge or violation of
the personal rights of employees, former employees or prospective employees,
which is reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect.
SECTION 3.15. CONTRACTS. (a) Except as set forth on Schedule 3.15(a)
hereto and other than the Option Plans, neither the Company nor any of its
Subsidiaries is a party or subject to any of the following (whether written or
oral, express or implied): (i) any Employment Agreement or understanding or
obligation, with respect to severance, termination, retention or change in
control, to pay liabilities or fringe benefits, with any present or former
Representative of the Company or any of its Subsidiaries, who is or may be
entitled to receive pursuant to the terms thereof, compensation in excess of
$400,000 upon termination of such Person's employment or engagement; or (ii) any
plan, contract or understanding providing for bonuses, pensions, options,
deferred compensation, retirement payments, royalty payments, profit sharing or
similar payment or benefit with respect to any present or former Representative
of the Company or any of its Subsidiaries, who is or may be entitled to receive
pursuant to the terms thereof, base compensation in excess of $400,000 in any
single year.
(b) Except as set forth on Schedule 3.15(b) hereto, none of the
Company, any of its Subsidiaries, or to the knowledge of the Company and its
Subsidiaries, any other party, is in breach or violation or in default in the
performance or observance of any term or provision of any contract, agreement,
indenture, mortgage, loan agreement, note, lease or other instrument to which
the Company or any such Subsidiary is a party or by which the Company or any
such Subsidiary is bound or to which any of the properties of the Company or any
such Subsidiary is subject, which breach, violation or default is reasonably
likely to, individually or in the aggregate, involve a claim against the Company
or any of its Subsidiaries in an amount in excess of $3,000,000 or have a
Material Adverse Effect.
(c) The maximum amount payable by the Company on or after the date
hereof pursuant to deferred earn-out and other performance-based payment
obligations in connection with any acquisition or similar transaction effected
prior to the date hereof will not exceed $294,000,000, in the aggregate.
SECTION 3.16. CLIENT RELATIONS. Schedule 3.16 hereto contains an
accurate and complete listing for the Company and its Subsidiaries, taken as a
whole, of the clients that generated in excess of $6,000,000 in revenues and the
revenues for each such client for the fiscal year ended September 30, 1998.
Except as set forth on Schedule 3.16 hereto, as of the date hereof, no current
client of the Company or any of its Subsidiaries that in the fiscal year ended
September 30, 1998 generated in excess of $6,000,000 in revenues has advised the
Company or
32
any of its Subsidiaries that it is not continuing, or is terminating, or is
making a material adverse change with respect to, its business with the Company
or any of its Subsidiaries.
SECTION 3.17. FINANCIAL ADVISORS AND BROKERS; FAIRNESS OPINION.
(a) Except for Evercore Partners, Inc. and Morgan Stanley Dean Witter no Person
has acted, directly or indirectly, as a broker, finder or financial advisor of
the Company in connection with the Transaction Agreements or the transactions
contemplated thereby, and no Person is entitled to receive any broker's,
finder's or similar fee or commission in respect thereof based in any way on any
agreement, arrangement or understanding made by or on behalf of the Company, any
of its Subsidiaries or any of their respective directors, officers or employees.
True and correct copies of all agreements between the Company, on the one hand,
and Evercore Partners, Inc. or Morgan Stanley Dean Witter (or any of their
respective Affiliates), on the other, have been delivered to the Investor.
(b) The Company has received an opinion of Morgan Stanley Dean Witter
to the effect that the consideration to be paid to the Company for the shares of
Series A Preferred Stock to be sold hereunder is fair, from a financial point of
view, to the Company.
SECTION 3.18.EXEMPTION FROM REGISTRATION. Assuming the representations
and warranties of the Investor set forth in Article IV hereof are true and
correct in all material respects, the offer and sale of the Series A Preferred
Stock made pursuant to this Agreement and the acquisition of the Conversion
Shares upon conversion of the Senior Preferred Stock will be in compliance with
the Securities Act and any applicable state securities laws and will be exempt
from the registration requirements of the Securities Act and such state
securities laws.
SECTION 3.19. INSURANCE. Set forth on Schedule 3.19 hereto is a
description that is correct and complete in all material respects (specifying
the insurer, the policy number or covering note number with respect to binders
and amount of coverage) of insurance policies, binders, contracts or instruments
(collectively, the "POLICIES") to which the Company or any of its Subsidiaries
is a party or by which any of their assets or any of their employees, officers
or directors (in such capacity) are covered by property, fire, professional
liability, fiduciary and other insurance. True and complete copies of all such
Policies have been made available to the Investor. Except as set forth on
Schedule 3.19 hereto, all such Policies are in full force and effect in
accordance with their respective terms and will remain in full force and effect
after the Initial Closing. Except as set forth on Schedule 3.19 hereto, neither
the Company nor any of its Subsidiaries has received any notice of default with
respect to any provision of any such Policies, or any notice that the Insurer is
unwilling to renew any such Policy following the currently scheduled expiration
of such Policy or intends to materially modify any term of any such renewed
Policy as compared to the existing Policy. With respect to its directors' and
officers' liability insurance policies, neither the Company nor any of its
Subsidiaries has failed to give any notice or present any claim thereunder in
due and timely fashion or as required by any such policies so as to jeopardize
full recovery under such Policies.
SECTION 3.20. RIGHTS AGREEMENT. No "Distribution Date" or "Stock
Acquisition Date" (as such terms are defined in the Rights Agreement, dated as
of July 21, 1992, between the Company and First Union Bank of North Carolina, as
Rights Agent (the "RIGHTS PLAN")) has occurred as of this date. The execution
and delivery of the Transaction Agreements
33
and the consummation of the transactions contemplated hereby will not result in
the ability of any Person to exercise any rights ("RIGHTS") issued under the
"Rights Plan" or cause the Rights to separate from the shares of Common Stock to
which they are attached or to be triggered or become exercisable.
SECTION 3.21. DISCLOSURE. No representation or warranty by the Company
in this Agreement, and no exhibit, document, statement, certificate or Schedule
furnished or to be furnished to the Investor pursuant to the terms hereof,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the statements or facts
contained herein or therein not misleading or necessary to provide the Investor
with adequate and complete information as to the Company, its Significant
Subsidiaries or its Subsidiaries, as the case may be, and the businesses, assets
and liabilities of the Company, its Significant Subsidiaries or its
Subsidiaries, as the case may be.
SECTION 3.22. YEAR 2000 COMPLIANCE. The Company has carried out a
review to evaluate the extent to which the business or operations of the Company
or any of its Subsidiaries will be affected by the Year 2000 Problem. The Year
2000 Problem will not have a Material Adverse Effect or result in any material
loss or interference with the business or operations of the Company or its
Subsidiaries. The Company reasonably believes, after due inquiry, that the
suppliers, vendors, customers or other material third parties used or served by
the Company and its Subsidiaries are addressing or will address the Year 2000
Problem in a timely manner. The Company is in compliance in all material
respects with all applicable requirements of any Governmental Entity or
applicable Law relating to the Year 2000 Problem. The Company has delivered to
the Investor complete and accurate copies of all of its internal plans,
including estimates of the anticipated associated costs, for addressing the Year
2000 Problem as it relates to the Company and its Subsidiaries.
SECTION 3.23. ENVIRONMENTAL MATTERS. Except as set forth on
Schedule 3.23 hereto, the Company and its Subsidiaries are (i) in compliance
in all material respects with any and all applicable Environmental Laws, (ii)
have received and are in compliance in all material respects with all permits,
licenses or other approvals required under applicable Environmental Laws for the
conduct of their respective businesses, and (iii) have not received notice of
any actual or potential material liability for the investigation or remediation
of any disposal or release of Hazardous Materials.
SECTION 3.24. CONTROLS. The Company and each of its Subsidiaries
maintains internal information systems and controls sufficient to provide
reasonable assurance that (i) material transactions are executed in accordance
with management's general or specific authorizations, and (ii) material
transactions (including payment of claims and collection of receivables) are
executed in accordance with their terms and applicable Law and are recorded as
necessary to permit preparation of financial statements in conformity with GAAP
and to maintain asset accountability.
SECTION 3.25. JOINT VENTURE MATTERS. Except as disclosed in the SEC
Reports or in Schedule 3.25 hereto, to the knowledge of the Company and its
Subsidiaries, since January 1, 1994 (or with respect to any Joint Venture (and
only with respect to such Joint Venture), if later, the date on which the
Company or any of its Subsidiaries first acquired an
34
equity interest in such Joint Venture or any of the businesses conducted by such
Joint Venture), none of the following has occurred that, individually or in the
aggregate, has had, or would be reasonably likely to have, a Material Adverse
Effect:
(a) the failure of any Joint Venture to comply with all
applicable Laws and Regulatory Approvals in the conduct of its
business;
(b) the failure of any Joint Venture to obtain and maintain in
full force and effect all Regulatory Approvals necessary to conduct its
business;
(c) the revocation, withdrawal, suspension or termination of,
or any threatened or pending revocation, withdrawal, suspension or
termination of, or the imposition of any material conditions with
respect to, any Regulatory Approval necessary for any Joint Venture to
conduct its business;
(d) the revocation, withdrawal, suspension or termination of,
or any threatened or pending revocation, withdrawal, suspension or
termination of, or the imposition of any material conditions with
respect to, the participation by any Joint Venture in the federal
Medicare program, any state Medicaid program, or any other third party
payor program;
(e) the initiation of, or explicit threat of initiation of,
any Proceeding by any Person, or the initiation of, or explicit threat
of initiation of, any investigation by any Governmental Entity, against
or affecting any Joint Venture, that may involve criminal liability or
result in or involve criminal proceedings, that may affect the status
of any Regulatory Approval maintained by such Joint Venture that is
necessary for such Joint Venture to conduct its business, or that may
affect the authority of such Joint Venture to participate in the
federal Medicare program, any state Medicaid program or any other third
party payor program;
(f) the institution of any judgment, decree, injunction, rule,
stipulation or order against or applicable to any Joint Venture or
against or applicable to any of its properties or businesses; or
(g) any other event or occurrence with respect to any Joint
Venture that has had, or would be reasonably likely to have, a Material
Adverse Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor represents and warrants to, and agrees with, the
Company as follows:
SECTION 4.01. ORGANIZATION. The Investor is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite power and authority to own or lease and
operate its properties and to conduct its business as it is now being conducted
and is proposed to be conducted.
35
SECTION 4.02. AUTHORIZATION OF AGREEMENTS. (a) The Investor has all
requisite power and authority as a limited liability company to execute, deliver
and perform its obligations under the Transaction Agreements and the Investor
Documents. The execution, delivery and performance of the Transaction Agreements
and the Investor Documents, and the consummation by the Investor of the
transactions contemplated thereby, have been duly authorized by all necessary
action on the part of the Investor.
(b) This Agreement and the Registration Rights Agreement have been duly
executed and delivered by the Investor, and each such agreement constitutes a
legal, valid and binding obligation of the Investor, enforceable against the
Investor in accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and to general
principles of equity.
SECTION 4.03. CONSENTS; NO CONFLICTS. (a) Except for the Required
Regulatory Approvals, no Regulatory Approval from, or registration, declaration
or filing with, any Governmental Entity is required to be made or obtained by
the Investor in connection with the execution, delivery and performance of the
Transaction Agreements and the consummation of the transactions contemplated
thereby.
(b) The execution and delivery of this Agreement and the Registration
Rights Agreement does not, and the execution and delivery of each of the
Investor Documents will not, and subject to the receipt of the Required
Regulatory Approvals, the performance of the obligations set forth herein and
therein and the consummation of the transactions contemplated hereby and thereby
will not, (i) violate any provision of the certificate of formation of the
Investor; (ii) conflict with, contravene or result in a breach or violation of
any of the terms or provisions of, or constitute a default (with or without
notice or the passage of time) under, or result in or give rise to a right of
termination, cancellation, acceleration or modification of any right or
obligation under, or require any consent, waiver or approval under, any note,
bond, debt instrument, indenture, mortgage, deed of trust, lease, loan
agreement, joint venture agreement, Regulatory Approval, contract or any other
agreement, instrument or obligation to which the Investor is a party or by which
the Investor or any of its property is bound, or (iii) violate any Law
applicable to the Investor.
SECTION 4.04. FINANCIAL ADVISORS AND BROKERS. No Person has acted
directly or indirectly as a broker, finder or financial advisor of the Investor
in connection with the Transaction Agreements or the transactions contemplated
thereby, and no Person is entitled to receive any broker's, finder's or similar
fee or commission in respect thereof based in any way on any agreement,
arrangement or understanding made by or on behalf of the Investor or any of its
directors, officers or employees.
SECTION 4.05. OWNERSHIP OF EQUITY SECURITIES; PURPOSE OF INVESTMENT.
Except as permitted pursuant to Section 11.09 hereof, the Investor is acquiring
the Series A Preferred Stock under this Agreement for its own account solely for
the purpose of investment and not with a view to, or for sale in connection
with, any distribution thereof in violation of the Securities Act. The Investor
acknowledges that the Senior Preferred Stock and the Conversion Shares have not
been registered under the Securities Act and may be sold or disposed of in the
absence of such registration only pursuant to an exemption from the registration
requirements of
36
the Securities Act. As of the date hereof, other than pursuant to this
Agreement, the Investor does not Beneficially Own, directly or indirectly, or
have any option or right to acquire, any securities of the Company.
ARTICLE V
GOVERNANCE
SECTION 5.01 BOARD SIZE. For so long as the Investor is entitled to
designate an Investor Nominee for election to the Board of Directors, the Board
of Directors shall consist of no more than 12, nor less than 7, directors.
SECTION 5.02 BOARD REPRESENTATION. (a) The Board of Directors shall
elect a total of three nominees designated in writing by the Investor prior to
the Initial Closing (such persons, or replacements designated by the Investor,
the "INVESTOR NOMINEES"), to the Board of Directors effective as of the Initial
Closing Date, to be allocated to Class I, Class II and Class III as specified by
the Investor. Commencing with the annual meeting of stockholders of the Company
the record date for which next follows the Initial Closing Date, and at each
annual meeting of stockholders of the Company thereafter, the Investor shall be
entitled to present to the Board of Directors or the nominating committee
thereof a number of nominees for election to the class of directors up for
election to the Board of Directors at such annual meeting equal to the number of
Investor Nominees in such class immediately prior to such election and the
Company shall use its best efforts to cause the election to the Board of
Directors of such Investor Nominees. If the Board of Directors shall cease to be
a classified board, the Investor shall be entitled to present to the Board of
Directors or the nominating committee thereof three nominees for election to the
Board of Directors at each annual meeting of stockholders of the Company. In the
event of the death, disability, resignation or removal of an Investor Nominee,
the Investor shall designate a replacement for such director, which replacement
the Company shall cause to be elected to the Board of Directors.
(b) The Company shall cause each Investor Nominee designated for
election to the Board of Directors pursuant to Section 5.02(a) hereof to be
included in the slate of nominees recommended by the Board of Directors to the
stockholders of the Company for election as directors at the relevant annual
meeting of the stockholders, and shall use its best efforts to cause the
election of each such Investor Nominee, including soliciting proxies in favor of
the election of such person.
(c) Notwithstanding the foregoing provisions of this Section 5.02, the
Investor shall not be entitled to designate Investor Nominees for election to
the Board of Directors in the event that the Investor and its Affiliates
Beneficially Own, in the aggregate, less than 50% of the Investor Original
Number of Conversion Shares. In the event that the Investor shall not be
entitled to designate Investor Nominees for election to the Board of Directors,
the Investor Nominees shall resign from the Board of Directors no later than the
thirtieth day after the day on which the Investor becomes aware that the
aggregate Beneficial Ownership of it and its Affiliates is reduced below the
threshold ownership level of Investor Original Number of Conversion Shares
specified in this Section 5.02(c). If an Investor Nominee does not resign on or
prior to such thirtieth day as required pursuant to the immediately preceding
sentence, a majority of the
37
Board of Directors (excluding any Investor Nominees) shall have the right to
remove such Investor Nominee from the Board of Directors.
(d) If the Board of Directors shall determine in good faith in the
exercise of its fiduciary duties, that nomination of any person designated by
the Investor for election to the Board of Directors would be contrary to the
best interests of the Company, then the Company shall promptly notify the
Investor of such determination (either in person, if such determination shall be
made at a Board of Directors meeting at which an Investor Nominee is present or
by telephone (promptly confirmed in writing), if such determination shall be
made at a Board of Directors meeting at which an Investor Nominee is not
present) and thereafter the Investor shall have a period of no less than five
Business Days to designate a new person for nomination for election to the Board
of Directors as an Investor Nominee. The Board of Directors has approved the
executives of the Investor set forth on Schedule 5.02(d) hereto as Investor
Nominees for all purposes hereof as of the date hereof.
SECTION 5.03. COMMITTEES; MEETINGS. (a) Effective as of the Initial
Closing Date, and for so long as an Investor Nominee serves as a member of the
Board of Directors, the Investor shall have the option to have one Investor
Nominee appointed as a member to any committee of the Board of Directors;
PROVIDED, HOWEVER, that in the event the rules of the primary national
securities exchange or national quotation system on which the Common Stock is
then listed or quoted prohibits the appointment of an Investor Nominee to one of
the committees of the Board of Directors, no Investor Nominee shall be appointed
to such committee. In the event the Investor elects to have an Investor Nominee
appointed to a committee of the Board of Directors, the Investor shall so notify
the Company in writing, and the Company shall appoint such nominee to such
committee within 10 days of the delivery of such notice by the Investor.
(b) From and after the Initial Closing Date, for so long as an Investor
Nominee serves as a member of the Board of Directors, each Investor Nominee
shall be invited to attend all regular and special meetings of the Board of
Directors and any committee of the Board of Directors of which such Investor
Nominee is a member. The Company shall notify each Investor Nominee of any such
meeting no later than the time at which it notifies any other member of the
Board of Directors of such meeting. So long as the Investor has the right to
have Investor Nominees elected to committees of the Board of Directors, the
Board of Directors shall have an audit committee and a compensation committee.
ARTICLE VI
STANDSTILL
SECTION 6.01. STANDSTILL AGREEMENT. (a) The Investor covenants and
agrees with the Company that, from the date hereof through the Initial Closing
Date and thereafter (subject to paragraphs (b) and (c) below) for a period of
two years following the Initial Closing Date (the "STANDSTILL PERIOD"), the
Investor and its Affiliates shall not, without the prior approval of the Board
of Directors:
(i) acquire, seek, propose or offer to acquire or agree to
acquire (other than (w) in accordance with the terms of this Agreement
and the Certificates of Designations; (x) as a result of a stock
split, stock dividend or other recapitalization by the Company or the
exercise of rights or warrants distributed to stockholders; (y) as a
result of transfers among members of the Investor Group of Series A
Preferred Stock acquired pursuant to Article II hereof or Voting
Securities acquired pursuant to the exercise or conversion of, or in
respect of dividends payable on, any Series A Preferred Stock acquired
pursuant to Article II hereof, PROVIDED that the transferor did not
itself acquire the transferred securities in violation of
this Section 6.01(a); or (z) in a transaction in which the Investor
and/or its Affiliates acquire Beneficial Ownership of more than 50% of
the Voting Power of the Voting Securities of a previously
non-Affiliated business entity that owns less than 5% of the aggregate
Voting Power of the outstanding Voting Securities of the Company if
such acquisition is not made in contemplation of any acquisition
prohibited under this subparagraph (a)), or commence or propose to
commence any tender offer or exchange offer seeking to acquire,
Beneficial Ownership of any additional Voting Securities of the
Company;
(ii) become a member of a Group with respect to the Voting
Securities of the Company, other than a Group (x) composed solely of
itself and its Affiliates, or (y) to the extent of any Series A
Preferred Stock acquired pursuant to Article II hereof or Voting
Securities acquired pursuant to the exercise or conversion of, or in
respect of dividends payable on, any Series A Preferred Stock acquired
pursuant to Article II hereof, composed of members of the Investor
Group;
(iii) solicit any proxies or stockholder consents, or become a
participant (other than by voting), or encourage any Person to become
a participant, in a proxy or consent solicitation with respect to any
of the Company's Voting Securities, in each case other than
solicitations to holders of shares of Preferred Stock with respect to
matters as to which the Preferred Stock is entitled to vote;
(iv) call any special meeting of holders of Common Stock; or
(v) make any public disclosure, or take any action which
could require the Company to make any public disclosure, with respect
to an offer, proposal or transaction that if made or consummated
without the prior approval of the Board of Directors, would not be
permitted under this Section 6.01.
(b) Notwithstanding anything to the contrary in this
Section 6.01, the provisions of Section 6.01(a) shall cease to be applicable
in the event that (i) the Company enters into a definitive agreement with
respect to a Control Transaction; (ii) a bona fide offer (other than an offer
made only to the Investor and its Affiliates) is made by any Person (other
than the Investor or an Affiliate of the Investor) to acquire more than 20%
of any class of the Company's Voting Securities; (iii) an Insolvency Event
occurs; (iv) the Company is in default on any of its Indebtedness the
outstanding principal amount of which is in excess of $10,000,000, which
default is not cured or waived for 75 days and as a result of which default
the maturity of such Indebtedness has been accelerated or the holders thereof
have the right to accelerate the maturity of such Indebtedness; or (v) the
Board of Directors (other than the Investor Nominees) so
39
determines. In the event the Company is soliciting proposals or offers with
respect to a Control Transaction from any Person (a "BIDDING PROCESS") (other
than the Investor or an Affiliate of the Investor), the Company shall release
the Investor and its Affiliates from the restrictions contained in
Section 6.01(a) to the extent necessary for the Investor and its Affiliates
to be permitted, on the same terms as bidders approved by the Company, to
make such a proposal or offer; PROVIDED, HOWEVER, that if the Investor
withdraws from the bidding process or the Company terminates the bidding
process, the Investor shall thereafter continue to be subject to the
restrictions contained in Section 6.01(a).
(c) Notwithstanding anything to the contrary in
Section 6.01(a) hereof, during the Standstill Period, the Investor and its
Affiliates may acquire, seek, propose or offer to acquire or agree to
acquire, or commence or propose to commence any tender offer seeking to
acquire Beneficial Ownership of Voting Securities of the Company (in addition
to any Series A Preferred Stock acquired pursuant to Article II hereof or
Voting Securities acquired pursuant to the exercise or conversion of, or in
respect of dividends payable on, any Series A Preferred Stock acquired
pursuant to Article II hereof) representing up to 10% of the Voting Power of
the then-outstanding Voting Securities of the Company or, if the Option is
not exercised on or before the Expiration Date, up to 15% of the Voting Power
of the then-outstanding Voting Securities of the Company; PROVIDED that no
such action shall be taken if, as a result thereof, the Voting Securities of
the Company Beneficially Owned by the Investor and its Affiliates, in the
aggregate, would represent in excess of 34.9% of the aggregate Voting Power
of the outstanding Voting Securities of the Company.
(d) The Company shall use its best efforts to prevent the
consummation of any of the transactions permitted by this Section 6.01 from
resulting in the ability of any Person to exercise any Rights issued under the
Rights Plan (or similar device adopted after the date hereof) or causing the
Rights to separate from the shares of Common Stock to which they are attached or
to be triggered or become exercisable.
(e) Section 6.01(a) hereof shall not apply to, nor in any
manner restrict or limit, any Investor Nominee in his or her capacity as a
director of the Company.
ARTICLE VII
PRE-CLOSING COVENANTS
SECTION 7.01. TAKING OF NECESSARY ACTION. (a) Each of the
parties hereto agrees to use its best efforts promptly to take or cause to be
taken all actions and promptly to do or cause to be done all things necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement in accordance with the
terms of the Agreement (including, without limitation, the purchase of the
Option Shares following the exercise or deemed exercise of the Option). Without
limiting the foregoing, the Investor and the Company will use their best efforts
to make all filings with respect to (including filings under the HSR Act), and
to obtain, all Required Regulatory Approvals and other Regulatory Approvals
necessary or, in the opinion of the Investor or the Company, advisable, in order
to permit the consummation of the transactions contemplated hereby and to obtain
the Board Approval and the Bank Approval.
40
(b) The Company shall use its best efforts to obtain the
Board Approval and the Bank Approval on or prior to January 15, 2000.
SECTION 7.02. CONDUCT OF BUSINESS. (a) From the date
hereof until the Initial Closing Date, except as set forth on Schedule 7.02
hereto or as provided in Section 7.02(b) hereof, the Company shall conduct its
business and shall cause its Subsidiaries to conduct their respective businesses
in, and only in, the ordinary course and shall use, and shall cause its
Subsidiaries to use, their best efforts to preserve intact their respective
present business organizations, operations, goodwill and relationships with
third parties (including, without limitation, clients and providers) and to keep
available the services of the present directors, officers and key employees.
Without limiting the generality of the foregoing, from the date hereof until the
Initial Closing Date, without the prior written consent of the Investor (except
as expressly permitted or required by this Agreement):
(i) the Company shall not, and shall cause each of its
Subsidiaries not to, sell any of the assets of the Company or its
Subsidiaries (or the securities of entities holding the same) to any
Person, other than the Company or a Wholly-Owned Subsidiary of the
Company, in one transaction or a Series of related transactions, in
which the fair value of the assets being sold, or the total
consideration (in the form of cash or property and including any
contingent consideration and any Indebtedness or other obligations
assumed) to be received by the Company and its Subsidiaries, exceeds
$2,000,000;
(ii) other than in the ordinary course of business consistent
with past practice, the Company shall not, and shall cause each of its
Subsidiaries not to, acquire any assets, in one transaction or Series
of related transactions, in which the total consideration (in the form
of cash or property and including any contingent consideration and any
Indebtedness or other obligations assumed) to be paid by the Company
and its Subsidiaries exceeds $2,000,000;
(iii) the Company shall not, and shall cause each of its
Subsidiaries or Significant Subsidiaries, as the case may be, not to
take any of the actions or enter into any of the agreements,
commitments or transactions described in clause (i), (ii), (iii), (v),
(vi), (ix), (x), (xi), (xii) or (xiii) of Section 3.09 hereof;
(iv) the Company shall not, and shall cause each of its
Subsidiaries not to, take any action that it knows or has reason to
believe would cause a representation or warranty of the Company set
forth herein to be untrue in any material respect if made at such
time, or a covenant of the Company set forth in Article VIII to fail
to be satisfied as of the Initial Closing Date; and
(v) the Company shall not, and shall cause each of its
Subsidiaries not to, commit or agree to do any of the foregoing.
(b) Notwithstanding anything to the contrary in
Section 7.02(a) hereof, the Company and its Subsidiaries may sell the assets
described in the Proposed Asset Sale Letter on terms not materially worse to
the Company than those set forth in the Proposed Asset Sale Letter.
Notwithstanding anything to the contrary in Section 7.02(a) hereof, nothing in
41
Section 7.02(a) hereof shall restrict the Company or any of its Subsidiaries
from paying dividends, making distributions, paying Indebtedness owed to the
Company or any other Subsidiaries, making loans or advances to the Company or
any other Subsidiaries, or selling, leasing or transferring any properties or
assets to the Company or any of its Subsidiaries, in each case to the extent
that any such restriction would be prohibited by Section 6.06(b) of the Credit
Agreement (as in effect on the date hereof) or Section 4.05 of the Indenture (as
in effect on the date hereof).
SECTION 7.03. NOTIFICATIONS. At all times prior to the
Initial Closing Date, and in the event the Option is exercised or deemed
exercised pursuant to Section 2.02 hereof, following such exercise and prior to
the Option Closing Date, the Investor shall promptly notify the Company and the
Company shall promptly notify the Investor in writing of any fact, change,
condition, circumstance or occurrence or nonoccurrence of any event which will
or is reasonably likely to result in the failure to satisfy the conditions to be
complied with or satisfied by it hereunder; PROVIDED, HOWEVER, that the delivery
of any notice pursuant to this Section 7.03 shall not limit or otherwise affect
the remedies available hereunder to any party receiving such notice.
SECTION 7.04. ALTERNATIVE TRANSACTIONS. (a) The Company
shall immediately cease and terminate any existing solicitation, initiation,
encouragement, activity, discussion or negotiation with any Persons conducted
heretofore by the Company, its Subsidiaries or any of their respective
Representatives with respect to any proposed, potential or contemplated
Alternative Transaction.
(b) From the date hereof until the earlier of (i) the
Initial Closing Date and (ii) the termination of this Agreement (the
"EXCLUSIVITY PERIOD"), the Company shall not, shall not permit any of its
Subsidiaries or Affiliates to, and shall not authorize or permit any of its or
their Representatives to, directly or indirectly, (A) solicit or initiate, or
encourage the submission of, any Proposal, (B) participate in any discussions or
negotiations regarding, or furnish to any Person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Proposal or Alternative Transaction, other than a transaction with the Investor
or its Affiliates, or (C) authorize, engage in, or enter into any agreement or
understanding with respect to, any Alternative Transaction; PROVIDED that the
Company may, in response to an unsolicited written Proposal from a third party,
engage in the activities specified in clause (B) and (C) of this
Section 7.04(b), if (x) in the opinion of the Company's outside legal
counsel, such action is required for the Board of Directors to comply with
its fiduciary duties under applicable Law, (y) the Company shall have
notified the Investor not later than 24 hours after having received the
relevant Proposal (which notice shall identify the Person making the Proposal
and set forth the material terms thereof) and (z) the Company shall have
refrained from taking any action specified in clause (C) of this Section
7.04(b) until the third day following the receipt by the Investor of the
notification referred to in clause (y) of this Section 7.04(b). The Company
will keep the Investor fully informed of the status and details of any such
Proposal or request and any related discussions or negotiations. The Company
will promptly notify the Investor of any Proposal (which notice shall
identify the Person making the Proposal and set forth the material terms
thereof) that the Company, any of its Subsidiaries or Affiliates or any of
its or their Representatives may receive during the Exclusivity Period.
42
SECTION 7.05. DEBENTURE INDENTURES. (a) Not later than 60
days subsequent to the Initial Closing, the Company and the Investor shall
jointly prepare an indenture having the same economic terms as the Series A
Preferred Stock (including, without limitation, an interest rate that is the
same as the dividend rate on the Series A Preferred Stock) and having other
terms substantially identical to the terms of the Series A Preferred Stock and
otherwise mutually acceptable in form and substance, with respect to the
Series A Debentures.
(b) Not later than 60 days subsequent to the original
issuance of any shares of Series B Preferred Stock, the Company and the Investor
shall jointly prepare an indenture having the same economic terms as the
Series B Preferred Stock (including, without limitation, an interest rate
that is the same as the dividend rate on the Series B Preferred Stock) and
having other terms substantially identical to the terms of the Series B
Preferred Stock and otherwise mutually acceptable in form and substance, with
respect to the Series B Debentures.
ARTICLE VIII
ADDITIONAL COVENANTS
SECTION 8.01. FINANCIAL AND OTHER INFORMATION. (a) So long
as members of the Investor Group Beneficially Own, in the aggregate, at least
10% of the Original Number of Conversion Shares, the Company shall (and shall
cause each of its Subsidiaries to) afford to members of the Investor Group that
then Beneficially Own Conversion Shares and their Representatives reasonable
access, upon reasonable notice and in such manner as will not unreasonably
interfere with the conduct of the Company's (or such Subsidiary's) business, to
their respective properties, books, contracts, commitments and records
(including information regarding any pending or threatened Proceeding to which
the Company or any of its Subsidiaries is, or reasonably expects to be, a party)
and to discuss the business, affairs, finances, regulatory status and other
matters related to the purchase and Beneficial Ownership of the Senior Preferred
Stock and Conversion Shares with Representatives of the Company; PROVIDED,
HOWEVER, that neither the Company nor any Subsidiary shall be required to
disclose any such information pursuant to this Section 8.01 to the extent that,
in the opinion of outside legal counsel to the Company, such disclosure would
result in the Company's inability to assert the attorney-client privilege with
respect to such information; and PROVIDED, FURTHER, that any such inspection
shall be subject to all reasonable health, safety and patient confidentiality
procedures regularly enforced by the Company and its Subsidiaries.
(b) Upon the written request of the Company, each member of
the Investor Group shall inform the Company of the number of Conversion Shares
and Original Number of Conversion Shares then Beneficially Owned by such member
of the Investor Group. Such information shall be delivered to the Company within
five Business Days of the delivery of such request to such member of the
Investor Group. To the extent such information is not available to the public,
the Company shall keep such information confidential.
SECTION 8.02. LIMITATION ON DIVIDEND PAYMENTS AND
REPURCHASES. From and after the Initial Closing, so long as members of the
Investor Group Beneficially Own, in the aggregate, at least 50% of the Original
Number of Conversion Shares, the Company shall not, without the prior written
approval of the holders of at least 60% of the Conversion Shares then
43
Beneficially Owned by members of the Investor Group, (i) declare or pay any
dividend on, or make any other distribution with respect to, any of its Equity
Securities (other than the Preferred Stock), or (ii) purchase, redeem or
otherwise acquire, and shall cause its Subsidiaries not to purchase, redeem or
otherwise acquire, any of the Equity Securities (other than the Preferred Stock)
or debt securities of the Company (including, without limitation, the Senior
Subordinated Notes, but not including any debt securities issued in exchange for
the Senior Preferred Stock), except with respect to (x) the Senior Subordinated
Notes or Indebtedness outstanding pursuant to the Credit Agreement, as may be
required pursuant to the terms of the Indenture or the Credit Agreement, and
(y) purchases of Equity Securities of the Company or any of its Subsidiaries
from executives and other management-level employees of the Company or any of
its Subsidiaries in connection with customary employment and severance
arrangements. Nothing set forth in this Section 8.02 shall prohibit the
Company from making principal payments on any Indebtedness outstanding on the
date of this Agreement or permitted to be incurred pursuant to this Agreement.
SECTION 8.03. LIMITATION ON INDEBTEDNESS. From and after
the Initial Closing, so long as members of the Investor Group Beneficially Own,
in the aggregate, at least 50% of the Original Number of Conversion Shares, the
Company shall not, without the prior written approval of the holders of at least
60% of the Conversion Shares then Beneficially Owned by members of the Investor
Group, incur or permit its Subsidiaries to incur Indebtedness in excess of
$100,000,000, in the aggregate, in any twelve-month period. Notwithstanding the
foregoing, an incurrence of Indebtedness pursuant to a bank revolving credit
facility (including the revolving credit facility under the Credit Agreement) or
short-term credit facility which Indebtedness is repaid in whole or in part
during the same twelve-month period in which such Indebtedness was incurred,
shall not constitute an incurrence of Indebtedness to the extent of such
repayment for purposes of the preceding sentence from and after such repayment.
SECTION 8.04. ACQUISITIONS AND DISPOSITIONS. Except with
respect to transactions disclosed in the Proposed Asset Sale Letter concluded on
terms not materially worse to the Company than those terms set forth in the
Proposed Asset Sale Letter, from and after the Initial Closing, so long as
members of the Investor Group Beneficially Own, in the aggregate, at least 50%
of the Original Number of Conversion Shares, the Company shall not, without the
prior written approval of the holders of at least 60% of the Conversion Shares
then Beneficially Owned by members of the Investor Group, approve, authorize,
engage in, or enter into any agreement or understanding with respect to,
transactions to (i) acquire assets (other than the acquisition of "Violet" as
described in Schedule 7.02 hereof) having a fair value, or for which
consideration is paid (in the form of cash or property and including any
contingent consideration and any Indebtedness or other obligations assumed), in
excess of $100,000,000, in the aggregate, in any twelve-month period or
(ii) dispose of assets having a fair value, or for which consideration is
received (in the form of cash or property and including any contingent
consideration and any Indebtedness or other obligations assumed), in excess
of $100,000,000 in the aggregate, in any twelve-month period.
SECTION 8.05. EQUITY ISSUANCES. (a) From and after the
Initial Closing, so long as members of the Investor Group Beneficially Own, in
the aggregate, at least 50% of the Original Number of Conversion Shares, the
Company and each of its Subsidiaries shall not, without the prior written
approval of the holders of at least 60% of the Conversion Shares then
44
Beneficially Owned by members of the Investor Group, issue or sell any Equity
Securities of the Company or any Significant Subsidiary or any Derivative
Securities in a transaction or Series of related transactions (such transaction
or Series of related transactions, a "10% TRANSACTION") as a direct or indirect
result of which any Person (other than any institutionally managed, publicly
held mutual fund registered with the Commission) or Group would have, or have
the right to acquire, Beneficial Ownership of Equity Securities representing 10%
or more of the aggregate Voting Power of the then-outstanding Voting Securities
of the Company or any such Significant Subsidiary; PROVIDED, HOWEVER, that the
Company may issue its Equity Securities in a 10% Transaction without any such
approval if (i) the consideration to be received by the Company in such
transaction is solely in the form of cash, (ii) the transaction is completed
pursuant to a Purchase Agreement, and (iii) the Company has complied with the
procedures set forth in Section 8.05(b) hereof with respect to such transaction;
and PROVIDED FURTHER, that, notwithstanding the foregoing none of the following
shall constitute a 10% Transaction: (i) any transaction expressly permitted
pursuant to Section 7.02 hereof, (ii) any transaction set forth in the Proposed
Asset Sale Letter concluded on terms not materially worse to the Company than
those terms set forth in the Proposed Asset Sale Letter, (iii) any exercise of
the Rainwater-Magellan Warrant or Rainwater Pre-emptive Rights and (iv) the
issuance of the Series B Preferred Stock or the Option Shares pursuant to the
terms hereof.
(b) (i) Prior to any offer or sale by the Company of any of
its Equity Securities (the "COVERED SECURITIES") in a 10% Transaction,
the Company shall give written notice (a "PROPOSED SALE NOTICE") to
the Investor of the Company's desire to sell the Covered Securities,
which notice shall identify (A) the number of Covered Securities,
(B) the terms of the Covered Securities and (C) any other material
terms and conditions of the proposed offer or sale (other than a
proposed sale price). The date on which such Proposed Sale Notice is
given is referred to herein as the "NOTICE DATE." On and prior to
the Solicitation Date with respect to any Covered Securities, and
following the Solicitation Date if the Company shall have delivered an
Acceptance Notice with respect to such Covered Securities, the Company
shall not, shall not permit any of its Subsidiaries or Affiliates to,
and shall not authorize or permit any of its or their Representatives
to, directly or indirectly, solicit or encourage the submission of any
proposal from any Person (other than the Investor and its Affiliates),
participate in any discussion or negotiations with any Person (other
than the Investor and its Affiliates), or authorize, engage in or
enter any agreement or understanding with any Person (other than the
Investor and its Affiliates), with respect to the issuance or sale of
such Covered Securities.
(ii) The Investor shall have forty days following the Notice
Date (the "RESPONSE PERIOD") to notify the Company in writing (such
notification, an "OFFER TO PURCHASE") of its offer, or an offer by any
of its Affiliates, to purchase in cash all (but not less than all) of
the Covered Securities referred to in the relevant Proposed Sale
Notice. During the Response Period, if requested by the Investor or
any of its Affiliates, the Company shall negotiate in good faith with
the Investor or such Affiliate with respect to the terms of a proposed
purchase of Covered Securities by the Investor or such Affiliate. Any
Offer to Purchase shall set forth a proposed cash purchase price for
such Covered Securities (the "INVESTOR PRICE") and the proposed
closing date for the purchase and may include other material terms and
conditions of the proposed purchase. The Investor shall not be
45
obligated to deliver an Offer to Purchase, and if an Offer to Purchase
is not given prior to the end of the Response Period, the Investor
shall be deemed to have declined to purchase such Covered Securities.
(iii) The Company shall have ten days following the delivery
of an Offer to Purchase to accept the offer made by the Investor or
its Affiliates to purchase all (but not less than all) of the Covered
Securities on the terms and subject to the conditions set forth in the
Offer to Purchase by giving the Investor written notice to that effect
(an "ACCEPTANCE NOTICE"). If, in accordance with the terms of the
preceding sentence, the Company accepts the offer made by the Investor
or its Affiliates to purchase such Covered Securities on the terms and
subject to the conditions set forth in the Offer to Purchase, the
closing for such transaction shall take place at a time and place
reasonably acceptable to the Investor and the Company. If the Company
does not give an Acceptance Notice in accordance with the terms of the
first sentence of this paragraph, the Company shall be deemed to have
rejected the offer set forth in the relevant Offer to Purchase.
(iv) If the Company has complied with the foregoing
provisions of this Section 8.05(b) and shall not have given an
Acceptance Notice with respect to any Covered Securities following the
Solicitation Date with respect to such Covered Securities, the Company
may enter into a Purchase Agreement with any other Person with respect
to all (but not less than all) of such Covered Securities within forty
days following such Solicitation Date (or within sixty days following
such Solicitation Date, if such Purchase Agreement constitutes a
customary underwriting agreement (an "UNDERWRITING AGREEMENT") that
contemplates a bona fide offering of the Covered Securities to the
public that is registered under the Securities Act) and sell all (but
not less than all) of the Covered Securities pursuant to such Purchase
Agreement within seventy days following such Solicitation Date (or
within one hundred days following such Solicitation Date if such sale
is made pursuant to an Underwriting Agreement and constitutes a bona
fide offering of the Covered Securities to the public that is
registered under the Securities Act); PROVIDED that (i) the purchase
price for such Covered Securities in such sale is at least 105% of the
related Investor Price, if any, and (ii) the terms and conditions of
such sale are otherwise not materially worse for the Company than
those set forth in the related Offer to Purchase. If the Company has
not executed a Purchase Agreement with respect to such Covered
Securities within forty days or sixty days, as the case may be,
following the relevant Solicitation Date, or has not completed a sale
of all of such Covered Securities within seventy days or one hundred
days, as the case may be, following the relevant Solicitation Date,
the Company shall no longer be permitted to sell such Covered
Securities without again fully complying with all the provisions of
this Section 8.05, and all the restrictions contained in this
Section 8.05 shall again be in effect with respect to such Covered
Securities.
SECTION 8.06. PUBLICITY. Except as required by Law or by
obligations pursuant to any listing agreement with or requirement of any
national securities exchange or national quotation system on which the Common
Stock is listed, admitted to trading or quoted, neither the Company (nor any of
its Affiliates) nor the Investor (nor any of its Affiliates) shall, without the
prior written consent of each other party hereto, which consent shall not be
46
unreasonably withheld or delayed, make any public announcement or issue any
press release with respect to the transactions contemplated by this Agreement.
Prior to making any public disclosure required by applicable Law or pursuant to
any listing agreement with or requirement of any relevant national exchange or
national quotation system, the disclosing party shall consult with the other
parties hereto, to the extent feasible, as to the content and timing of such
public announcement or press release.
SECTION 8.07. STATUS OF DIVIDENDS. The Company agrees to
treat the Series A Preferred Stock and Series B Preferred Stock as equity for
all Tax purposes unless the Company determines that there is no reasonable basis
for such position. The Company shall take no action (other than as required by
Law) that would jeopardize the availability of the dividends received deduction
under Section 243(a)(1) of the Code for the distributions on the Series A
Preferred Stock and Series B Preferred Stock that are paid out of current or
accumulated earnings and profits, if any.
SECTION 8.08. DIRECTOR AND OFFICER INDEMNIFICATION. (a) So
long as any Investor Nominee serves as a member of the Board of Directors or as
an officer of the Company, the Company shall provide to each such individual
indemnification and directors' and officers' insurance having terms and
provisions no less favorable to such individuals than the indemnification and
directors' and officers' insurance provided to other directors and officers of
the Company (including, without limitation, coverage for matters based in whole
or in part on, or arising in whole or in part out of, any matter existing or
occurring while such Investor Nominee was a director, even though such Investor
Nominee may no longer be a director at the time any claim for indemnification or
coverage under insurance is made).
(b) So long as any Investor Nominee serves as a member of
the Board of Directors or as an officer of the Company, the Company shall not
amend the Certificate of Incorporation or Bylaws so as to adversely affect the
rights of any such person with respect to indemnification by the Company for any
Losses incurred by such person in such person's capacity as an officer or
director of the Company.
SECTION 8.09. LISTING; RESERVATION. (a) So long as any
member of the Investor Group Beneficially Owns Conversion Shares, Junior Shares
or Dividend Shares, the Company shall use its best efforts to ensure that the
Common Stock continues to be listed for trading on the NYSE. The Company will
use its best efforts so that upon issuance all Conversion Shares and Dividend
Shares will be listed for trading on the NYSE.
(b) From and after the Initial Closing, the Company shall at
all times reserve and keep available, out of its authorized and unissued Common
Stock, solely for the purpose of issuing Common Stock upon the conversion of the
Senior Preferred Stock and Junior Shares, such number of shares of Common Stock
free of preemptive rights as shall be sufficient to issue Common Stock upon the
conversion of all outstanding shares of Senior Preferred Stock and Junior
Shares.
SECTION 8.10. LEGEND. (a) The Investor agrees to the
placement on (i) certificates representing Senior Preferred Stock issued to the
Investor pursuant to the terms hereof, (ii) certificates representing Conversion
Shares, Junior Shares or Dividend Shares, and
47
(iii) any certificate issued at any time in exchange or substitution for any
certificate bearing such legend, a legend (the "PRIVATE PLACEMENT LEGEND")
substantially as set forth below:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND MAY
NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS.
(b) The Private Placement Legend shall be removed from a
certificate representing Senior Preferred Stock, Conversion Shares, Junior
Shares or Dividend Shares if the securities represented thereby are sold
pursuant to an effective registration statement under the Securities Act or
there is delivered to the Company such satisfactory evidence, which may include
an opinion of independent counsel, as reasonably may be requested by the
Company, to confirm that neither such legend nor the restrictions on transfer
set forth therein are required to ensure that transfers of such securities will
not violate the registration and prospectus delivery requirements of the
Securities Act.
SECTION 8.11. LIMITATION ON RESTRICTIONS ON PAYMENT OF
DIVIDENDS. From and after the Initial Closing, without the prior written
approval of the holders of at least 60% of the Conversion Shares then
Beneficially Owned by members of the Investor Group, except (i) as provided in
this Agreement, the Credit Agreement (as in effect on the date hereof) or the
Indenture (as in effect on the date hereof), (ii) as permitted under
Section 6.06(b)(B), 6.06(b)(C) (PROVIDED that in the case of 6.06(b)(C) such
encumbrance or restriction applies only to such acquired "Subsidiary" or
"Guarantor," as such terms are used in such Section), 6.06(b)(E), 6.06(b)(F)
or 6.06(b)(G) of the Credit Agreement (as in effect on the date hereof), or
Section 4.05(1)-(12) of the Indenture (as in effect on the date hereof), or
(iii) as permitted under comparable provisions of any Credit Agreement or any
Indenture to those specified in clause (ii) above so long as such comparable
provisions do not permit any restrictions in addition to those set forth
under the provisions specified in clause (ii) above, the Company shall not,
and shall not permit any of its Subsidiaries to, directly or indirectly,
create, cause or suffer to exist or become effective any contractual or other
restrictions or limitations on the ability of the Company or any of its
Subsidiaries to pay any dividends or make any other distributions on, or to
purchase, redeem or otherwise acquire, any of its Equity Securities.
SECTION 8.12. CHIEF EXECUTIVE OFFICER. From and after the
Initial Closing, for so long as members of the Investor Group Beneficially Own,
in the aggregate, at least 50% of the Original Number of Conversion Shares, the
Company shall not, without the prior written approval of the holders of at least
60% of the Conversion Shares then Beneficially Owned by members of the Investor
Group, hire, terminate or materially limit the responsibilities of the chief
executive officer of the Company.
48
SECTION 8.13. SHAREHOLDER APPROVALS. (a) Until the
Series A Shareholder Approval is duly obtained by the Company, the Company
shall take all action necessary to present the Series A Shareholder Approval
Proposal for a vote at each meeting of stockholders of the Company held after
the execution of this Agreement, and if shares of Series B Preferred Stock
are outstanding, until the Series B Shareholder Approval is duly obtained by
the Company, the Company shall take all action necessary to present the
Series B Shareholder Approval Proposal for a vote at each meeting of
stockholders of the Company held after the execution of this Agreement, in
each case in accordance with applicable Law, the Certificate of Incorporation
and Bylaws. Each such meeting of stockholders at which either the Series A
Shareholder Approval or Series B Shareholder Approval is considered is
referred to herein as a "SHAREHOLDER MEETING." The Company shall use its best
efforts to obtain the required approval of its stockholders of the
Shareholder Approval Proposal or Proposals under consideration at each
Shareholder Meeting in order to give effect thereto under the Certificate of
Incorporation, the Bylaws, the DGCL and the NYSE Rules. The Company shall
file with the Commission a Proxy Statement with respect to the first
Shareholder Meeting held after the execution of this Agreement no later than
January 15, 2000, and the Company shall use its best efforts to hold such
Shareholder Meeting no later than April 5, 2000.
(b) Each Proxy Statement shall contain the recommendation
of the Board of Directors that the stockholders approve the Shareholder Approval
Proposal or Proposals, as applicable. The Company shall notify the Investor
promptly of the receipt by it of any comments from the Commission or its staff
and of any request by the Commission for amendments or supplements to such Proxy
Statement or for additional information, and will supply the Investor with
copies of all correspondence between the Company and its representatives, on the
one hand, and the Commission or the members of its staff or of any other
Governmental Entities, on the other hand, with respect to such Proxy Statement.
The Company shall give the Investor and its counsel a reasonable opportunity to
review and comment on those portions of such Proxy Statement describing or
referring to a Shareholder Approval Proposal or any member of the Investor Group
(the "INVESTOR INFORMATION") prior to the filing of the Proxy Statement with the
Commission and shall give the Investor and its counsel a reasonable opportunity
to review and comment on all amendments and supplements to the Investor
Information and all responses to requests for additional information and replies
to comments prior to their being filed with, or sent to, the Commission with
respect to the Investor Information. The Company shall give reasonable
consideration to any comments the Investor or its counsel may provide with
respect to the Investor Information or any amendment or supplement thereto.
(c) Notwithstanding anything to the contrary contained in
this Section 8.13, the Company shall not be required to take any of the actions
described in Section 8.13 (a) or (b) hereof with respect to a Shareholder
Approval Proposal, if in the opinion of outside legal counsel to the Company,
the relevant Shareholder Approval is not required under the NYSE Rules to permit
the actions described in such Shareholder Approval Proposal.
(d) Each Proxy Statement, as of the date it is mailed to
stockholders of the Company and as of the date of the relevant Shareholder
Meeting, will not include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; PROVIDED, HOWEVER, that this Section 8.13(d) shall not apply to
any
49
information provided to the Company in writing by any member of the Investor
Group with respect to such member expressly for inclusion in the Proxy
Statement.
SECTION 8.14. ORGANIC CHANGE. (a) Upon the consummation of
an Organic Change (other than a transaction in which the Company is not the
surviving entity), then lawful provision shall be made as part of the terms of
such transaction whereby the terms of the Option shall be modified, without
payment of any additional consideration by the Investor, so as to provide that
upon the exercise of the Option following the consummation of such Organic
Change, the Investor shall have the right to acquire and receive (in lieu of or
in addition to the shares acquirable and receivable prior to the Organic
Change), without payment of additional consideration therefor (except as would
otherwise have been required by the terms of the Option as in effect prior to
such Organic Change), such securities, cash and other property as the Investor
would have received if it had exercised the Option immediately prior to such
Organic Change. Lawful provision also shall be made as part of the terms of the
Organic Change so that all other terms of the Option shall remain in full force
and effect following such Organic Change. The provisions of this subsection (a)
shall similarly apply to successive Organic Changes of the character described
in this subsection (a).
(b) The Company shall not enter into an Organic Change that
is a transaction in which the Company is not the surviving entity unless lawful
provision shall be made as part of the terms of such transaction whereby the
surviving entity shall issue an option (the "NEW OPTION") to the Investor,
without payment of any additional consideration by the Investor, with terms that
provide that upon the exercise of such option, the Investor shall acquire and
receive (in lieu of or in addition to the shares acquirable and receivable prior
to the Organic Change), without payment of additional consideration therefor
(except as would otherwise have been required by the terms of the Option as in
effect prior to such Organic Change), such securities, cash and other property
as the Investor would have received if it had exercised the Option immediately
prior to such Organic Change. All other terms of the New Option shall be
substantially equivalent to the terms of the Option. The provisions of this
subsection (b) shall similarly apply to successive Organic Changes of the
character described in of this subsection (b).
SECTION 8.15. NO ADJUSTMENTS; MAINTENANCE OF SHELF.
(a) Except in connection with an Organic Change, until the
Expiration Date, the Company shall not take any action with respect to the
Series A Preferred Stock which, if such action were taken with respect to the
Common Stock, would require an adjustment in the Conversion Price (as such term
is defined in the Series A Certificate of Designations) pursuant to Article IX
of the Series A Certificate of Designations.
(b) Notwithstanding anything to the contrary in the
Registration Rights Agreement, in the event the Company delivers a Mandatory
Exercise Notice, the Company shall not exercise its right to declare a Shelf
Suspension (as such term is defined in the Registration Rights Agreement)
pursuant to Section 2.1(c) of the Registration Rights Agreement during the
period beginning on the Option Closing Date and ending 90 days after the Option
Closing Date.
50
ARTICLE IX
CONDITIONS
SECTION 9.01. CONDITIONS TO INVESTOR'S OBLIGATIONS WITH
RESPECT TO THE INITIAL SHARE PURCHASE. The obligation of the Investor to
purchase and pay for the Series A Preferred Stock pursuant to Section 2.01
hereof at the Initial Closing is subject to satisfaction or waiver of each of
the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. The
representations and warranties of the Company set forth in Article III
hereof qualified as to materiality shall have been true and correct in
all respects, and those not so qualified shall have been true and
correct in all material respects, on and as of the date hereof and as
of the Initial Closing as if made on the Initial Closing Date (except
where such representation and warranty speaks by its terms as of a
different date, in which case it shall be true and correct as of such
date, or except where such representation and warranty is not true
or correct solely as a result of actions expressly permitted by
Section 7.02 hereof). The Company shall have performed in all material
respects all obligations and complied with all agreements,
undertakings, covenants and conditions required hereunder to be
performed by it at or prior to the Initial Closing. The Company shall
have delivered to the Investor at the Initial Closing a certificate in
form and substance reasonably satisfactory to the Investor dated the
Initial Closing Date and signed by the chief executive officer and the
chief financial officer of the Company to the effect that the
conditions set forth in this Section 9.01(a) have been satisfied.
(b) OPINIONS OF COUNSEL. The Investor shall have received at
the Initial Closing (i) from King & Spalding, special counsel to the
Company, a written opinion dated the Initial Closing Date,
substantially as set forth in Exhibit D hereto and (ii) from special
regulatory counsel to the Company, which counsel is reasonably
acceptable to the Investor, a written opinion dated the Initial
Closing Date, in form and substance reasonably satisfactory to the
Investor.
(c) FAIRNESS OPINION. Morgan Stanley Dean Witter shall have
delivered a written opinion to the Board of Directors to the effect
that the consideration paid to the Company for the shares of Series A
Preferred Stock sold pursuant to Section 2.01, is fair, from a
financial point of view, to the Company, and a true and correct copy
of such opinion shall have been delivered to the Investor.
(d) ESTABLISHMENT OF PREFERRED STOCK. (i) The Company shall
have amended the Certificate of Incorporation by filing with the
Secretary of State of the State of Delaware the Certificates of
Designations in the form of Exhibits A, B and C hereto containing the
resolutions of the Board of Directors of the Company creating the
Preferred Stock and setting forth the terms and conditions of the
Preferred Stock. A copy of the revised Certificate of Incorporation
(including the Certificates of Designations), certified by the State
of Delaware, shall have been delivered to the Investor. (ii) The
Company shall have executed and delivered to the Investor the shares
of Series A Preferred Stock to be purchased by the Investor pursuant
to Section 2.01 hereof.
51
(e) COMPLIANCE WITH LAWS; NO ADVERSE ACTION OR DECISION.
Since the date hereof, (i) no Law shall have been promulgated, enacted
or entered that restrains, enjoins, prevents, materially delays,
prohibits or otherwise makes illegal the performance of any of the
Transaction Agreements or Company Documents; (ii) no preliminary or
permanent injunction or other order by any Governmental Entity that
restrains, enjoins, prevents, delays, prohibits or otherwise makes
illegal the performance of any of the Transaction Agreements or
Company Documents shall have been issued and remain in effect; and
(iii) no Governmental Entity shall have instituted any Proceeding that
seeks to restrain, enjoin, prevent, delay, prohibit or otherwise make
illegal the performance of any of the Transaction Agreements or
Company Documents.
(f) CONSENTS. All Regulatory Approvals (including, without
limitation, the Required Regulatory Approvals) from any Governmental
Entity and all consents, waivers or approvals from any other Person
(including, without limitation, under the Credit Agreement) required
for or in connection with the execution and delivery of the
Transaction Agreements and the Company Documents and the consummation
of the transactions contemplated thereby shall have been obtained or
made on terms reasonably satisfactory to the Investor, and all waiting
periods specified under applicable Law (including, without limitation,
the waiting period under the HSR Act), the expiration of which is
necessary for such consummation, shall have expired or been
terminated.
(g) PROCEEDINGS. All corporate and other proceedings to be
taken by the Company in connection with the Transaction Agreements and
the Company Documents with respect to the transactions contemplated
thereby to be completed at the Initial Closing and documents incident
thereto shall have been completed in form and substance reasonably
satisfactory to the Investor, and the Investor shall have received all
such counterpart originals or certified or other copies of the
Transaction Agreements and the Company Documents and such other
documents as it may reasonably request.
(h) BOARD REPRESENTATION. (i) As contemplated by
Section 5.02 hereof, three Investor Nominees designated by the Investor
shall have been elected to the Board of Directors effective as of the
Initial Closing Date. (ii) Directors' and officers' liability
insurance shall be available to the Investor Nominees on terms
satisfactory to the Investor and in an amount of coverage at least
equal to $50,000,000.
(i) NO MATERIAL ADVERSE EFFECT; NO INSOLVENCY EVENT; NO
ALTERNATIVE TRANSACTION OR CONTROL TRANSACTION. No event shall have
occurred which has had, or is reasonably likely to have, a Material
Adverse Effect; no Insolvency Event shall have occurred; and no
Control Transaction or Alternative Transaction shall have been
consummated or agreement, understanding, or arrangement with respect
thereto entered into.
(j) AGREEMENT. The Registration Rights Agreement shall be in
full force and effect.
SECTION 9.02. CONDITIONS OF THE COMPANY'S OBLIGATIONS WITH
RESPECT TO THE INITIAL SHARE PURCHASE. The obligation of the Company to issue
and sell the Series A Preferred
52
Stock pursuant to Section 2.01 hereof at the Initial Closing is subject to
satisfaction or waiver of each of the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. The
representations and warranties of the Investor set forth in Article IV
hereof qualified as to materiality shall have been true and correct in
all respects, and those not so qualified shall have been true and
correct in all material respects, on and as of the date hereof and as
of the Initial Closing as if made on the Initial Closing Date (except
where such representation and warranty speaks by its terms as of a
different date, in which case it shall be true and correct as of such
date). The Investor shall have performed in all material respects all
obligations and complied with all agreements, undertakings, covenants
and conditions required by it to be performed at or prior to the
Initial Closing, and the Investor shall have delivered to the Company
at the Initial Closing a certificate in form and substance reasonably
satisfactory to the Company dated the Initial Closing Date and signed
on behalf of a member of the Investor to the effect that the
conditions set forth in this Section 9.02(a) have been satisfied.
(b) OPINION OF COUNSEL. The Company shall have received at
the Initial Closing from Cleary, Gottlieb, Steen & Hamilton, counsel
to the Investor, a written opinion dated the Initial Closing Date, to
the effect set forth in Exhibit F hereto.
(c) COMPLIANCE WITH LAWS; NO ADVERSE ACTION OR DECISION.
Since the date hereof, (i) no Law shall have been promulgated, enacted
or entered that restrains, enjoins, prevents, materially delays,
prohibits or otherwise makes illegal the performance of any of the
Transaction Agreements or the Company Documents with respect to the
transactions contemplated thereby to be completed at the Initial
Closing; (ii) no preliminary or permanent injunction or other order by
any Governmental Entity that restrains, enjoins, prevents, delays,
prohibits or otherwise makes illegal the performance of any of the
Transaction Agreements or the Company Documents with respect to the
transactions contemplated thereby to be completed at the Initial
Closing shall have been issued and remain in effect; and (iii) no
Governmental Entity shall have instituted any action, claim, suit,
investigation or other proceeding that seeks to restrain, enjoin,
prevent, delay, prohibit or otherwise make illegal the performance of
any of the Transaction Agreements or the Company Documents with
respect to the transactions contemplated thereby to be completed at
the Initial Closing.
(d) CONSENTS. All Regulatory Approvals (including, without
limitation, the Required Regulatory Approvals) from any Governmental
Entity and all consents, waivers or approvals from any other Person
(including, without limitation, under the Credit Agreement) required
for or in connection with the execution and delivery of the
Transaction Agreements and the Company Documents and the consummation
of the transactions contemplated thereby shall have been obtained or
made on terms reasonably satisfactory to the Company, and all waiting
periods specified under applicable Law (including, without limitation,
the waiting period under the HSR Act), the expiration of which is
necessary for such consummation, shall have expired or been
terminated.
53
SECTION 9.03. CONDITIONS OF THE INVESTOR'S OBLIGATION WITH
RESPECT TO THE OPTION PURCHASE. The obligation of the Investor to purchase and
pay for the Option Shares pursuant to Section 2.02 hereof at the Option Closing
is subject to satisfaction or waiver of each of the following conditions
precedent:
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. The Company
shall have delivered the Company Representation and Warranty Letter to
the Investor. The representations and warranties of the Company set
forth in the Company Representation and Warranty Letter qualified as
to materiality shall be true and correct in all respects, and those
not so qualified shall be true and correct in all material respects,
on and as of the Option Closing Date (except where such representation
and warranty speaks by its terms as of a different date, in which case
it shall be true and correct as of such date). The Company shall have
performed in all material respects all obligations and complied with
all agreements, undertakings, covenants and conditions required
hereunder to be performed by it at or prior to the Option Closing. The
Company shall have delivered to the Investor at the Option Closing a
certificate in form and substance reasonably satisfactory to the
Investor dated the Option Closing Date and signed by the chief
executive officer and the chief financial officer of the Company to
the effect that the conditions set forth in this Section 9.03(a) have
been satisfied.
(b) OPINION OF COUNSEL. The Investor shall have received at
the Option Closing from independent, outside legal counsel to the
Company, a written opinion dated the Option Closing Date, to the
effect set forth in Exhibit E hereto.
(c) COMPLIANCE WITH LAWS; NO ADVERSE ACTION OR DECISION.
Since the date hereof, (i) no Law shall have been promulgated, enacted
or entered that restrains, enjoins, prevents, materially delays,
prohibits or otherwise makes illegal the performance of any of the
Transaction Agreements or Company Documents; (ii) no preliminary or
permanent injunction or other order by any Governmental Entity that
restrains, enjoins, prevents, delays, prohibits or otherwise makes
illegal the performance of any of the Transaction Agreements or
Company Documents shall have been issued and remain in effect; and
(iii) no Governmental Entity shall have instituted any Proceeding that
seeks to restrain, enjoin, prevent, delay, prohibit or otherwise make
illegal the performance of any of the Transaction Agreements or
Company Documents.
(d) CONSENTS. All Regulatory Approvals (including, without
limitation, the Required Regulatory Approvals) from any Governmental
Entity and all consents, waivers or approvals from any other Person
(including, without limitation, under the Credit Agreement) required
for or in connection with the Option Purchase shall have been obtained
or made on terms reasonably satisfactory to the Investor, and all
waiting periods specified under applicable Law (including, without
limitation, the waiting period under the HSR Act), the expiration of
which is necessary for such consummation, shall have expired or been
terminated.
(e) PROCEEDINGS. All corporate and other proceedings to be
taken by the Company in connection with the Transaction Agreements and
the Company Documents with respect to the transactions contemplated
thereby to be completed at the Option
54
Closing including, without limitation, the Board Approval, and
documents incident thereto shall have been completed in form and
substance reasonably satisfactory to the Investor, and the Investor
shall have received all such counterpart originals or certified or
other copies of the Transaction Agreements and the Company Documents
and such other documents as it may reasonably request.
(f) NO MATERIAL ADVERSE EFFECT; NO INSOLVENCY EVENT; NO
ALTERNATIVE TRANSACTION OR CONTROL TRANSACTION. No event shall have
occurred which has had, or is reasonably likely to have, a Material
Adverse Effect; no Insolvency Event shall have occurred; and no
Control Transaction or Alternative Transaction shall have been
consummated or agreement, understanding, or arrangement with respect
thereto entered into.
(g) AGREEMENT. The Registration Rights Agreement shall be in
full force and effect.
SECTION 9.04. CONDITIONS OF THE COMPANY'S OBLIGATION WITH
RESPECT TO THE OPTION PURCHASE. The obligation of the Company to issue and sell
the Option Shares pursuant to Section 2.02 hereof at the Option Closing is
subject to satisfaction or waiver of each of the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. The Investor
shall have delivered the Investor Representation and Warranty Letter
to the Company. The representations and warranties of the Investor set
forth in the Investor Representation and Warranty Letter qualified as
to materiality shall be true and correct in all respects, and those
not so qualified shall be true and correct in all material respects,
on and as of the Option Closing Date (except where such representation
and warranty speaks by its terms as of a different date, in which case
it shall be true and correct as of such date). The Investor shall have
performed in all material respects all obligations and complied with
all agreements, undertakings, covenants and conditions required
hereunder to be performed by it at or prior to the Option Closing. The
Investor shall have delivered to the Company at the Option Closing a
certificate in form and substance reasonably satisfactory to the
Company dated the Option Closing Date and signed on behalf of a member
of the Investor to the effect that the conditions set forth in this
Section 9.04(a) have been satisfied.
(b) COMPLIANCE WITH LAWS; NO ADVERSE ACTION OR DECISION.
Since the date hereof, (i) no Law shall have been promulgated, enacted
or entered that restrains, enjoins, prevents, materially delays,
prohibits or otherwise makes illegal the performance of any of the
Transaction Agreements or the Company Documents with respect to the
transactions contemplated thereby to be completed at the Option
Closing; (ii) no preliminary or permanent injunction or other order by
any Governmental Entity that restrains, enjoins, prevents, delays,
prohibits or otherwise makes illegal the performance of any of the
Transaction Agreements or the Company Documents with respect to the
transactions contemplated thereby to be completed at the Option
Closing shall have been issued and remain in effect; and (iii) no
Governmental Entity shall have instituted any action, claim, suit,
investigation or other proceeding that seeks to restrain, enjoin,
55
prevent, delay, prohibit or otherwise make illegal the performance of
any of the Transaction Agreements or the Company Documents with
respect to the transactions contemplated thereby to be completed at
the Option Closing.
(c) CONSENTS. All Regulatory Approvals (including, without
limitation, the Required Regulatory Approvals) from any Governmental
Entity and all consents, waivers or approvals from any other Person
(including, without limitation, under the Credit Agreement) required
for or in connection with the Option Purchase shall have been obtained
or made on terms reasonably satisfactory to the Company, and all
waiting periods specified under applicable Law (including, without
limitation, the waiting period under the HSR Act), the expiration of
which is necessary for such consummation, shall have expired or been
terminated.
(d) NO RESTRICTION EVENT. The Company shall not be
prohibited from selling any Option Shares to the Investor pursuant to
(A) the provisions set forth in Section 4.03(a) of the Indenture (as
in effect on the date hereof) or (B) under comparable provisions of
any Indenture so long as such comparable provisions are not materially
more restrictive than those referred to in clause (A).
ARTICLE X
TERMINATION
SECTION 10.01. TERMINATION OF AGREEMENT. Subject to
Section 10.02 hereof, this Agreement may be terminated by notice in writing at
any time prior to the Initial Closing by:
(a) the Investor or the Company, if the Initial Closing
shall not have occurred on or before January 15, 2000; PROVIDED, HOWEVER, that
the right to terminate this Agreement under this Section 10.01(a) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Initial
Closing to occur on or before such date;
(b) the Investor or the Company, if any Governmental Entity
of competent jurisdiction shall have issued any judgment, injunction, order,
ruling or decree or taken any other action restraining, enjoining or otherwise
prohibiting the consummation of the transactions contemplated by the Transaction
Agreements and such judgment, injunction, order, ruling, decree or other action
becomes final and nonappealable; PROVIDED that the party seeking to terminate
this Agreement pursuant to this clause (b) shall have used its best efforts to
have such judgment, injunction, order, ruling or decree lifted, vacated or
denied;
(c) the Investor, if the Company shall have taken any action
described in clause (B) or (C) of Section 7.04(b) hereof; or
(d) the Investor or the Company, if the Investor and the
Company so mutually agree in writing.
SECTION 10.02. EFFECT OF TERMINATION. (a) If this Agreement
is terminated in accordance with Section 10.01 hereof and the transactions
contemplated hereby are not
56
consummated, this Agreement shall become null and void and of no further force
and effect except that (i) the terms and provisions of this Section 10.02,
Section 8.06 and Article XI hereof shall remain in full force and effect and
(ii) any termination of this Agreement shall not relieve any party hereto from
any liability for any breach of its obligations hereunder.
(b) If (i) this Agreement is terminated in accordance with
Section 10.01(a) hereof and as of the date set forth in Section 10.01(a) hereof
the conditions set forth in Section 9.01(a) hereof shall not have been
satisfied, (ii) a Proposal is made to the Company or any of its Representatives
with respect to an Alternative Transaction (whether or not the same Alternative
Transaction as is ultimately consummated or as to which a written agreement,
letter of intent, agreement in principle, memorandum of understanding or similar
writing is ultimately entered into) prior to the Cut-Off Date (as defined below)
or a Proposal with respect to an Alternative Transaction is publicly announced
by the Person contemplating such transaction or a Representative of such Person
prior to the Cut-Off Date, and (iii) an agreement with respect to a Control
Transaction or Alternative Transaction is entered into or a Control Transaction
or Alternative Transaction is consummated within eighteen months after the
Cut-Off Date, the Company shall pay the Investor (or its assignees) the
Alternative Transaction Fee on the earlier of (A) the date on which such
agreement with respect to an Alternative Transaction is entered into and (B) the
date on which an Alternative Transaction is consummated. The term "CUT-OFF DATE"
shall mean the date of termination of this Agreement.
(c) If this Agreement is terminated in accordance with
Section 10.01(c) hereof, the Company shall pay the Investor (or its assignees)
the Alternative Transaction Fee on the second Business Day following such
termination.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. FEES AND EXPENSES. (a) Except as provided
below or in the Registration Rights Agreement, each party shall be responsible
for the payment of all expenses incurred by it in connection with the
Transaction Agreements and the transactions contemplated thereby, including,
without limitation, all fees and expenses of its legal counsel and all
third-party consultants engaged by it to assist in such transactions.
Notwithstanding the foregoing, in the event this Agreement is terminated, the
Company shall reimburse the Investor for all expenses incurred by the Investor
in connection with the Transaction Agreements and the transactions contemplated
thereby, including, without limitation, all fees and expenses of the Investor's
legal counsel and all third-party consultants engaged by the Investor to assist
in such transactions; PROVIDED, that no amount in excess of $1,500,000 shall be
payable pursuant to this sentence; and PROVIDED, FURTHER, that no amount
whatsoever shall be payable pursuant to this sentence if the Alternative
Transaction Fee is paid by the Company pursuant to Section 10.02(b) hereof. In
the event the Initial Share Purchase is consummated, upon the Initial Closing,
the Company shall pay the Investor the Placement Fee. In the event that an
Option Purchase is consummated by the Investor or any of its Affiliates, upon
the Option Closing related thereto the Company shall pay the Investor the Option
Funding Fee. In the event that the Series A Shareholder Approval is not duly
obtained at the first meeting of the stockholders of the Company held after the
execution of this Agreement, the Company shall pay the Investor the
57
Option Carry Fee. In the event the Investor or any of its Affiliates commences a
tender offer for the Common Stock that is approved by the Board of Directors
prior to the commencement thereof, the Company shall reimburse the Investor or
such Affiliate an amount equal to 50% of all expenses incurred by the Investor
and its Affiliates in connection with such tender offer, including, without
limitation, all fees and expenses of their legal counsel and all third-party
consultants engaged by them to assist in the tender offer. Such reimbursements
shall be due to the Investor at the Initial Closing, or promptly following any
earlier termination of this Agreement for any reason, as the case may be, or in
the case of fees and expenses incurred thereafter, promptly upon demand
therefor.
(b) All amounts payable under this Agreement shall be paid
in immediately available funds to an account or accounts designated by the
recipient of such amounts.
SECTION 11.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Notwithstanding any investigation conducted or notice or knowledge obtained by
or on behalf of any party hereto, each representation or warranty in this
Agreement or in the Schedules hereto or certificates delivered pursuant to this
Agreement shall survive the Initial Closing for a period of two years; PROVIDED,
HOWEVER, that each representation and warranty made in Sections 3.13 and 3.23
hereof or in any Schedule or certificate related thereto, shall survive the
Initial Closing until the sixtieth day following the expiration of the
applicable statute of limitations with respect to any action that may be brought
relating to the matters described in such representation and warranty; and
PROVIDED FURTHER, HOWEVER, that each representation and warranty made in
Sections 3.03, 3.09, 3.11 and 3.12 hereof or in any Schedule or certificate
related thereto, shall survive the Initial Closing for a period of four years
and PROVIDED FURTHER, HOWEVER, that each representation and warranty made in the
Company Representation and Warranty Letter, the Investor Representation and
Warranty Letter, pursuant to Section 11.13 hereof, or in any certificate related
thereto, shall survive the Option Closing for a period of two years. Any claim
for indemnification under this Article XI arising out of the inaccuracy or
breach of any representation or warranty must be made prior to the termination
of the applicable survival period. For all purposes hereunder, when executed and
delivered, the Company Representation and Warranty Letter and the Investor
Representation and Warranty Letter shall be deemed to be a part of this
Agreement.
SECTION 11.03. SPECIFIC PERFORMANCE. The parties hereto
specifically acknowledge that monetary damages are not an adequate remedy for
violations of this Agreement, and that any party hereto may, in its sole
discretion, apply to a court of competent jurisdiction for specific performance
or injunctive or such other relief as such court may deem just and proper in
order to enforce this Agreement or prevent any violation hereof and, to the
extent permitted by applicable law and to the extent the party seeking such
relief would be entitled on the merits to obtain such relief, each party waives
any objection to the imposition of such relief.
SECTION 11.04. INDEMNIFICATION. (a) The Company agrees to
indemnify and hold harmless the Investor, each Designated Purchaser, each member
thereof, each limited or general partner of each such member, each limited or
general partner of each such limited or general partner, each of their
Affiliates and each of their Representatives (collectively, the "INDEMNIFIED
PARTIES") from and against any and all losses, penalties, judgments, suits,
costs,
58
claims, liabilities, damages and expenses (including, without limitation,
reasonable attorneys' fees and disbursements but excluding Taxes imposed as a
result of being a direct or indirect owner of the Senior Preferred Stock or
realizing income or gain with respect thereto) (collectively, "LOSSES"),
incurred by, imposed upon or asserted against any of the Indemnified Parties as
a result of, relating to or arising out of, (i) the breach of any
representation, warranty, agreement or covenant made by the Company in any
Transaction Agreement or in any certificate delivered by the Company pursuant to
any Transaction Agreement (each of which shall be deemed to have been made for
the benefit of all members of the Investor Group) and (ii) the purchase and/or
direct or indirect ownership of the Senior Preferred Stock, Junior Shares,
Dividend Shares or Conversion Shares (including, without limitation, any
litigation to which an Indemnified Party is made party as a result thereof),
PROVIDED, HOWEVER, that nothing in this clause (ii) shall require the Company to
indemnify any Indemnified Party with respect to any Loss resulting solely from a
decline in the market value of the Senior Preferred Stock, Junior Shares,
Dividend Shares or Conversion Shares.
(b) The Investor agrees to indemnify and hold harmless the
Company and each of its Representatives (collectively, the "INDEMNIFIED COMPANY
PARTIES") from and against any and all Losses incurred by any of the Indemnified
Company Parties as a result of, or arising out of, the breach of any
representation, warranty, agreement or covenant made by the Investor in the
Transaction Agreements or in any certificate delivered by the Investor pursuant
to the Transaction Agreements.
(c) The following provisions shall apply to claims for
Losses from claims by a third party ("CLAIM"). The indemnifying party shall have
the absolute right, in its sole discretion and expense, to elect to defend,
contest or otherwise protect against any such Claim with legal counsel of its
own selection. The Indemnified Parties or the Indemnified Company Parties, as
the case may be, shall have the right, but not the obligation, to participate,
at their own expense, in the defense thereof through counsel of their own choice
and shall have the right, but not the obligation, to assert any and all
crossclaims or counterclaims they may have. The Indemnified Parties or the
Indemnified Company Parties, as the case may be, shall, and shall cause their
Affiliates to, at all times cooperate in all reasonable ways with, make their
relevant files and records available for inspection and copying by, and make
their employees available or otherwise render reasonable assistance to, the
indemnifying party (i) in its defense of any action for which indemnity is
sought hereunder and (ii) its prosecution under the last sentence of this
Section 11.04(c) of any related claim, cross-complaint, counterclaim or right of
subrogation. In the event the indemnifying party fails timely to defend, contest
or otherwise protect against any such suit, action, investigation, claim or
proceeding, the Indemnified Parties or the Indemnified Company Parties, as the
case may be, shall have the right, but not the obligation, to defend, contest,
assert cross-claims or counterclaims or otherwise protect against the same. No
claim or action subject hereto may be settled unless the Indemnified Parties or
the Indemnified Company Parties, as the case may be, and the indemnifying party
consent thereto, such consent not to be unreasonably withheld. The indemnifying
party shall be subrogated to the claims or rights of the Indemnified Parties or
the Indemnified Company Parties, as the case may be, as against any other
persons with respect to any Loss paid by the indemnifying party under this
Section 11.04(c).
59
(d) All payments under this Section 11.04 shall be due
promptly following the occurrence of the related Loss; PROVIDED, HOWEVER, that
if a final, non-appealable judicial determination is made that an Indemnified
Party or Indemnified Company Party is not entitled to any such payment it will
promptly repay the appropriate amounts to the appropriate indemnifying party.
SECTION 11.05. NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given, if
delivered personally, by telecopier or sent by first class mail, postage
prepaid, as follows:
(i) If to the Company, to:
Magellan Health Services, Inc.
6950 Columbia Gateway Drive
Fourth Floor
Columbia, Maryland 21046
Attention: General Counsel
With a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
Attention: Philip A. Theodore, Esq.
(ii) If to the Investor, to:
TPG MAGELLAN LLC
201 Main Street
Suite 2420
Fort Worth, Texas 76102
Attention: Jonathan J. Coslet
Senior Vice President
With a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Michael A. Gerstenzang, Esq.
If to any other holder of shares of Preferred Stock, Debentures, or Conversion
Shares, addressed to such holder at the address of such holder in the record
books of the Company; or to such other address or addresses as shall be
designated in writing. All notices shall be effective when received.
60
SECTION 11.06. ENTIRE AGREEMENT; AMENDMENT. This Agreement
and the documents described herein or attached or delivered pursuant hereto
(including, without limitation, the Registration Rights Agreement and the
Certificates of Designations) set forth the entire agreement between the parties
hereto with respect to the transactions contemplated by this Agreement and
supersedes the letter agreement dated July 2, 1999, between the Company and the
Investor which is terminated in its entirety hereby. Any provision of this
Agreement may only be amended, modified or supplemented in whole or in part at
any time by an agreement in writing among the parties hereto executed in the
same manner as this Agreement. No failure on the part of any party to exercise,
and no delay in exercising, any right shall operate as waiver thereof, nor shall
any single or partial exercise by either party of any right preclude any other
or future exercise thereof or the exercise of any other right. No investigation
by the Investor of the Company prior to or after the date hereof shall stop or
prevent the Investor from exercising any right hereunder or be deemed to be a
waiver of any such right.
SECTION 11.07. COUNTERPARTS. This Agreement may be
executed in two or more counterparts, each of which shall be deemed to
constitute an original, but all of which together shall constitute one and the
same document.
SECTION 11.08. GOVERNING LAW. This Agreement shall be
governed by, and interpreted in accordance with, the laws of the State of New
York applicable to contracts made and to be performed in that State without
reference to its conflict of laws rules. The parties hereto agree that the
appropriate and exclusive forum for any disputes arising out of this Agreement
solely between the Company and the Investor shall be the United States District
Court for the Southern District of New York, and, if such court will not hear
any such suit, the courts of the state of the Company's incorporation, and the
parties hereto irrevocably consent to the exclusive jurisdiction of such courts,
and agree to comply with all requirements necessary to give such courts
jurisdiction. The parties hereto further agree that the parties will not bring
suit with respect to any disputes arising out of this Agreement except as
expressly set forth below for the execution or enforcement of judgment, in any
jurisdiction other than the above specified courts. Each of the parties hereto
irrevocably consents to the service of process in any action or proceeding
hereunder by the mailing of copies thereof by registered or certified airmail,
postage prepaid, to the address specified in Section 11.05 hereof. The foregoing
shall not limit the rights of any party hereto to serve process in any other
manner permitted by the law or to obtain execution of judgment in any other
jurisdiction. The parties further agree, to the extent permitted by law, that
final and unappealable judgment against any of them in any action or proceeding
contemplated above shall be conclusive and may be enforced in any other
jurisdiction within or outside the United States by suit on the judgment, a
certified or exemplified copy of which shall be conclusive evidence of the fact
and the amount of indebtedness. The parties agree to waive any and all rights
that they may have to a jury trial with respect to disputes arising out of this
Agreement.
SECTION 11.09. SUCCESSORS AND ASSIGNS. (a) Except as
otherwise expressly provided herein, the provisions hereof shall inure to the
benefit of, and be binding upon, the Company's successors and assigns. Except as
provided in Section 11.09(b) hereof, neither this Agreement nor any rights
hereunder shall be assignable by any party hereto without the prior written
consent of the other party hereto; PROVIDED, HOWEVER, that the Investor may
assign all or part of its interest in this Agreement and its rights hereunder to
any of its Affiliates and,
61
thereafter, the term "Investor," as applied to the assigning Investor, shall
include any such Affiliate to the extent of such assignment and shall mean the
assigning Investor and such Affiliates taken collectively.
(b) Notwithstanding the foregoing, prior to the Option
Closing the Investor may assign its rights with respect to the purchase of up to
49% of the Series A Preferred Stock to be purchased by the Investor hereunder to
any Person or Persons not Affiliated with the Investor (each such Person, a
"DESIGNATED PURCHASER"). The Investor shall not assign pursuant to this
Section 11.09(b) any of its rights under this Agreement other than the right
to purchase or receive Series A Preferred Stock. Except as expressly provided
in this Agreement, no Designated Purchaser shall have any rights under this
Agreement or any rights of the Investor (other than rights that by their
terms are available to all holders of Series A Preferred Stock and Conversion
Shares generally) under the Certificates of Designations. As a condition to
any assignment pursuant to this Section 11.09(b), each Designated Purchaser
shall deliver to the Company a letter, dated as of the Initial Closing Date
or, if later, the date of such assignment, in form and substance reasonably
satisfactory to the Company, pursuant to which such Designated Purchaser
shall (i) make the representation set forth in Section 4.05 hereof, (ii)
agree to comply with the provisions set forth in Sections 8.01(b) and 8.06
hereof as if it were the Investor thereunder and (iii) if as a result of an
assignment contemplated by this Section 11.09(b) such Designated Purchaser
would as of the Initial Closing, or, if later, the date of such assignment,
Beneficially Own Voting Securities of the Company representing more than 5%
of the Voting Power of the Voting Securities of the Company, agree to comply
with the provisions of Article VI hereof as if it were the Investor
thereunder. Any assignment to such Designated Purchaser that does not comply
with the preceding provisions of this Section 11.09(b) shall be null and
void, and (i) if such assignment is made at or prior to the Initial Closing,
the Investor shall purchase all Series A Preferred Stock that would have been
purchased by such Designated Purchaser at the Initial Closing and (ii) if
such assignment is made subsequent to the Initial Closing and at or prior to
the Option Closing and the Option is exercised or deemed exercised, the
Investor shall purchase all Option Shares that would have been purchased by
such Designated Purchaser.
(c) Notwithstanding anything in this Agreement to the
contrary, in the event that any Person other than the Investor or any Affiliate
of the Investor shall have the right to exercise any portion of the Option,
(i) such Person may exercise such portion as if it were the Investor
hereunder and (ii) the Option may be exercised in part to the extent
necessary to permit each holder of the right to exercise a portion of the
Option to independently exercise such portion (in whole and not in part);
PROVIDED, HOWEVER, that except as permitted pursuant to Section 2.02(d), no
portion of the Option shall be exercised for (A) less than 5,000 Option
Shares by the Investor, any Designated Purchaser or any of their respective
Affiliates or (B) less than 1,500 Option Shares by any other Person.
SECTION 11.10. NO THIRD-PARTY BENEFICIARIES. This Agreement
is for the sole benefit of the parties hereto and their respective successors
and permitted assigns and nothing herein, express or implied, is intended or
shall confer upon any other Person any legal or equitable right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement, except
that the provisions of Section 8.08 shall inure to the benefit of and be
62
enforceable by the Investor Nominees and the provisions of Section 11.04 shall
inure to the benefit of and be enforceable by each Indemnified Party.
SECTION 11.11. ALLOCATION. The Investor shall reasonably
determine, and the Company shall accept, the allocation of the Initial Share
Purchase Price among the Series A Preferred Stock and Option issued to the
Investor pursuant to Section 2.01 and Section 2.02 hereof, respectively.
SECTION 11.12. PRE-EMPTIVE RIGHTS. (a)In the event the
transactions contemplated hereby give rise to any pre-emptive rights on behalf
of any Person to purchase shares of Series A Preferred Stock and such rights are
validly exercised by such Person prior to the Initial Closing, to the extent
necessary under the Certificate of Incorporation, the Bylaws, the NYSE Rules or
applicable Law to permit the Initial Closing to occur without first obtaining
the approval of the stockholders of the Company, the number of shares of
Series A Preferred Stock to be purchased by the Investor pursuant to
Section 2.01 hereof and the Initial Purchase Price each shall be reduced
appropriately and a proportional increase shall be made in the number of
Option Shares that may be purchased by the Investor pursuant to Section 2.02
hereof and the Option Purchase Price.
(b) In the event the transactions contemplated hereby give
rise to any pre-emptive rights on behalf of any Person to purchase shares of
Series A Preferred Stock and such rights are validly exercised by such Person
subsequent to the Initial Closing but prior to the Series A Shareholder Approval
Date, as soon as practicable following the receipt by the Company of the consent
of the Required Lenders (as defined in the Credit Agreement), the Investor shall
return to the Company such number of shares of Series A Preferred Stock
purchased by the Investor pursuant to Section 2.01 that is necessary to permit
the Company to satisfy such pre-emptive rights, the Company shall return to the
Investor a corresponding portion of the Initial Share Purchase Price and a
proportional increase shall be made in the number of Option Shares that may be
purchased by the Investor pursuant to Section 2.02 hereof and the Option
Purchase Price.
SECTION 11.13. NOL LETTER. On the date of the original
issuance of the Option Shares, the Company shall deliver a letter to the
Investor restating the matters set forth in Section 3.13(d) hereof updated as
necessary to reflect the then-current circumstances. Such letter shall
constitute a representation and warranty of the Company hereunder.
SECTION 11.14. CERTAIN AMENDMENTS TO THE SERIES B
CERTIFICATE OF DESIGNATIONS AND JUNIOR CERTIFICATE OF DESIGNATIONS. For so long
as members of the Investor Group Beneficially Own, in the aggregate, at least
50% of the Original Number of Conversion Shares, the Company shall not, without
the prior written approval of the holders of at least 60% of the Conversion
Shares then Beneficially Owned by members of the Investor Group, (i) amend,
alter or repeal any provision of the Certificate of Incorporation or the Bylaws,
if the amendment, alteration or repeal alters or changes the powers, preferences
or special rights of the Series B Preferred Stock or the Junior Preferred Stock
so as to affect them adversely; or (ii) authorize or take any other action if
such action alters or changes any of the rights of the Series B Preferred Stock
or the Junior Preferred Stock in any respect or otherwise would be inconsistent
with the provisions of this Agreement and the holders of any class or Series of
the capital stock of the Corporation is entitled to vote thereon.
Notwithstanding anything in the foregoing to the
63
contrary, (i) the restrictions set forth in the previous sentence shall apply
only during the period commencing on the Initial Closing Date and ending on the
date of the original issuance of the Series B Preferred Stock and (ii) if no
shares of Series B Preferred Stock are issued and outstanding on the Series A
Shareholder Approval Date, the Company shall be permitted to amend the
Certificate of Incorporation to eliminate the Series B Preferred Stock and the
Junior Preferred Stock.
64
IN WITNESS WHEREOF, this Agreement has been executed on behalf
of the parties hereto by their respective duly authorized officers, all as of
the date first above written.
TPG MAGELLAN LLC
By: /s/ Jonathan J. Coslet
----------------------------------
Name: Jonathan J. Coslet
Title: Senior Vice President
MAGELLAN HEALTH SERVICES, INC.
By: /s/ Clifford W. Donnelly
----------------------------------
Name: Clifford W. Donnelly
Title: Executive Vice President
and Chief Financial
Officer
65
EXHIBIT A
Form of Series A Certificate of Designations
CERTIFICATE OF DESIGNATIONS
OF
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
MAGELLAN HEALTH SERVICES, INC.
(PURSUANT TO SECTION 151 OF THE
DELAWARE GENERAL CORPORATION LAW)
--------------
Magellan Health Services, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"CORPORATION"), hereby certifies that the following resolutions were adopted by
the Board of Directors of the Corporation (the "BOARD OF DIRECTORS") pursuant to
authority of the Board of Directors as required by Section 151 of the General
Corporation Law of the State of Delaware:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors in accordance with the provisions of the Restated
Certificate of Incorporation of the Corporation, as amended (the "CERTIFICATE OF
INCORPORATION"), the Board of Directors hereby creates a series of the
Corporation's previously authorized preferred stock, without par value (the
"PREFERRED STOCK"), and hereby states the designation and number thereof, and
fixes the voting powers, preferences and relative, participating, optional and
other special rights, and the qualifications, limitations and restrictions
thereof, as follows:
Series A Cumulative Convertible Preferred Stock:
I. DESIGNATION AND AMOUNT
The designation of this series of shares shall be "Series A
Cumulative Convertible Preferred Stock" (the "SERIES A PREFERRED STOCK"); the
stated value per share shall be $1,000 (the "STATED VALUE"); and the number of
shares constituting such series shall be [_________]. Shares of Series A
Preferred Stock may be issued by the Company from time to time by a resolution
or resolutions of the Board of Directors. The number of shares of the Series A
Preferred Stock may be decreased from time to time by a resolution or
resolutions of the Board of Directors; PROVIDED, HOWEVER, that such number shall
not be decreased below the sum of the aggregate number of shares of the Series A
Preferred Stock then outstanding and the number of shares of the Series A
Preferred Stock that the Corporation may be obligated to issue pursuant to the
Investment Agreement.
A-1
II. RANK
A. With respect to dividend rights, the Series A Preferred
Stock shall rank (i) junior to each other class or series of Preferred Stock
which by its terms ranks senior to the Series A Preferred Stock as to payment of
dividends, (ii) on a parity with each other class or series of Preferred Stock
which by its terms ranks on a parity with the Series A Preferred Stock as to
payment of dividends, including, if issued, the Series B Cumulative Convertible
Preferred Stock, without par value (the "SERIES B PREFERRED STOCK"), of the
Corporation, and (iii) prior to the Corporation's Series C Junior Participating
Preferred Stock, par value $0.01 per share (the "JUNIOR PREFERRED STOCK"), and
Common Stock, par value $0.25 per share (the "COMMON STOCK"), and, except as
specified above, all other classes and series of capital stock of the
Corporation hereafter issued by the Corporation. With respect to dividends, all
equity securities of the Corporation to which the Series A Preferred Stock ranks
senior, including the Common Stock, are collectively referred to herein as the
"JUNIOR DIVIDEND SECURITIES"; all equity securities of the Corporation with
which the Series A Preferred Stock ranks on a parity, including the Series B
Preferred Stock, are collectively referred to herein as the "PARITY DIVIDEND
SECURITIES"; and all equity securities of the Corporation (other than
convertible debt securities) to which the Series A Preferred Stock ranks junior,
with respect to dividends, are collectively referred to herein as the "SENIOR
DIVIDEND SECURITIES."
B. With respect to the distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the Series A Preferred Stock shall rank (i) junior to each other
class or series of Preferred Stock which by its terms ranks senior to the
Series A Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up, (ii) on a parity with each other class or series of
Preferred Stock which by its terms ranks on a parity with the Series A Preferred
Stock as to distribution of assets upon liquidation, dissolution or winding up
of the Corporation, including the Series B Preferred Stock, and (iii) prior to
the Junior Preferred Stock and the Common Stock, and, except as specified above,
all other classes and series of capital stock of the Corporation hereinafter
issued by the Corporation. With respect to the distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, all equity securities of the Corporation to which the Series A
Preferred Stock ranks senior, including the Common Stock, are collectively
referred to herein as "JUNIOR LIQUIDATION SECURITIES" (and together with the
Junior Dividend Securities are referred to herein as the "JUNIOR SECURITIES");
all equity securities of the Corporation (other than convertible debt
securities) to which the Series A Preferred Stock ranks on parity, including
the Series B Preferred Stock, are collectively referred to herein as "PARITY
LIQUIDATION SECURITIES" (and together with the Parity Dividend Securities are
referred to herein as the "PARITY SECURITIES"); and all equity securities of
the Corporation to which the Series A Preferred Stock ranks junior are
collectively referred to herein as "SENIOR LIQUIDATION SECURITIES" (and
together with the Senior Dividend Securities are referred to herein as the
"SENIOR SECURITIES").
III. DIVIDENDS
A. DIVIDENDS. Shares of Series A Preferred Stock shall
accumulate dividends at a rate of 6.50% PER ANNUM, payment of which shall be
made in cash except as otherwise provided in this Article III. Dividends shall
be paid in four equal quarterly installments on the last day of
A-2
March, June, September and December of each year, or if any such date is not a
Business Day, on the Business Day next preceding such day (each such date,
regardless of whether any dividends have been paid or declared and set aside for
payment on such date, a "DIVIDEND PAYMENT DATE"), to holders of record (the
"REGISTERED HOLDERS") as they appear on the stock record books of the
Corporation on the fifteenth day prior to the relevant Dividend Payment Date;
PROVIDED, HOWEVER, that the Corporation may elect not to make any dividend
payment due hereunder on any Dividend Payment Date (other than as required in
connection with any redemption of shares of Series A Preferred Stock or any
liquidation, dissolution or winding up of the Corporation), and any such amount
then due in respect of dividends shall constitute an Arrearage (as defined
below). Dividends shall be paid only when, as and if declared by the Board of
Directors out of funds at the time legally available for the payment of
dividends. Dividends shall begin to accumulate on outstanding shares of Series A
Preferred Stock from the date of issuance and shall be deemed to accumulate from
day to day whether or not earned or declared until paid. Dividends shall
accumulate on the basis of a 360-day year consisting of twelve 30-day months
(four 90-day quarters) and the actual number of days elapsed in the period for
which payable.
B. ACCUMULATION. Dividends on the Series A Preferred Stock
shall be cumulative, and from and after any Dividend Payment Date on which any
dividend that has accumulated or been deemed to have accumulated through such
date has not been paid in full or any payment date set for a redemption on which
such redemption payment has not been paid in full, additional dividends shall
accumulate in respect of the amount of such unpaid dividends or unpaid
redemption payment (such amount, the "ARREARAGE") at the annual rate then in
effect as provided in Section A of this Article III (or such lesser rate as may
be the maximum rate that is then permitted by applicable law). Such additional
dividends in respect of any Arrearage shall be deemed to accumulate from day to
day whether or not earned or declared until the Arrearage is paid, shall be
calculated as of such successive Dividend Payment Date and shall constitute an
additional Arrearage from and after any Dividend Payment Date to the extent not
paid on such Dividend Payment Date. References in any Article herein to
dividends that have accumulated or that have been deemed to have accumulated
with respect to the Series A Preferred Stock shall include the amount, if any,
of any Arrearage together with any dividends accumulated or deemed to have
accumulated on such Arrearage pursuant to the immediately preceding two
sentences. Additional dividends in respect of any Arrearage may be declared and
paid at any time, in whole or in part, without reference to any regular Dividend
Payment Date, to Registered Holders as they appear on the stock record books of
the Corporation on such record date as may be fixed by the Board of Directors
(which record date shall be no less than 10 days prior to the corresponding
payment date).
C. PAYMENT IN COMMON STOCK. Notwithstanding the provisions of
Section A of this Article III, (i) any dividend payment (such payment, a
"NON-ARREARAGE PAYMENT") made in full on the first Dividend Payment Date on
which such payment is due (without taking into account the proviso to the second
sentence of Section A of this Article III in determining the first Dividend
Payment Date on which such payment is due) and (ii) any payment (such payment,
an "ARREARAGE PAYMENT") made at any time prior to the second anniversary of the
original issuance of the Series A Preferred Stock in respect of any dividend
Arrearage, may be made in the form of shares of Common Stock; PROVIDED that:
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(i) the Common Stock is then validly listed for trading on the
NYSE or other national securities exchange or quoted on a nationally
recognized quotation system;
(ii) such shares of Common Stock have been duly authorized and
when issued in connection with such payment, will be validly issued,
fully paid and non-assessable;
(iii) the issuance of such shares of Common Stock in
satisfaction of such payment does not: (a) violate any provision of the
Certificate of Incorporation or the Bylaws; (b) give rise to any
preemptive rights, rights of first refusal or other similar rights on
behalf of any Person under any applicable Law or any provision of the
Certificate of Incorporation or the Bylaws or any agreement or
instrument applicable to the Corporation or any of its Subsidiaries;
(c) conflict with, contravene or result in a breach or violation of any
of the terms or provisions of, or constitute a default (with or without
notice or the passage of time) under, or result in or give rise to a
right of termination, cancellation, acceleration or modification of any
right or obligation under, or give rise to a right to put or to compel
a tender offer for outstanding securities of the Corporation or any of
its Subsidiaries under, or require any consent, waiver or approval
under, any note, bond, debt instrument, indenture, mortgage, deed of
trust, lease, loan agreement, joint venture agreement, Regulatory
Approval, contract or any other agreement, instrument or obligation to
which the Corporation or any of its Subsidiaries is a party or by which
the Corporation or any of its Subsidiaries or any property of the
Corporation or any of its Subsidiaries is bound (assuming for the
purpose of this clause (c) that all conditions precedent to the
conversion of Series A Preferred Stock have been satisfied and that all
outstanding shares of the Series A Preferred Stock have been converted
into Common Stock); (d) result in the creation or imposition of any
Lien upon any assets or properties of the Corporation or any of its
Subsidiaries; or (e) violate any Law applicable to the Corporation or
any of its Subsidiaries;
(iv) (a) no default or event of default, or event that with
notice or the passage of time would constitute a default or event of
default, has occurred and is continuing (or will occur as a result of
the issuance of shares of Common Stock in satisfaction of such
payment), under any contract, agreement, indenture, mortgage, note,
lease or other instrument evidencing Indebtedness of the Corporation or
any of its Subsidiaries (other than inter-company Indebtedness between
the Corporation and any of its Subsidiaries or between Subsidiaries of
the Corporation) the outstanding principal amount of which is in excess
of $10,000,000 and as a result of such default, event of default or
event the holders thereof have accelerated or have the right to
accelerate (or would have the right to accelerate with notice or the
passage of time) the maturity thereof, and (b) the Corporation has not
been notified that a breach of the Investment Agreement or the terms of
the Series A Preferred Stock or Series B Preferred Stock has occurred
and is continuing;
(v) (a) with respect to any Non-Arrearage Payment, the
Trailing Average Value (as defined below) is equal to or greater than
the product of (A) 0.40, multiplied by (B) the Conversion Price, and
(b) with respect to any Arrearage Payment, the Trailing Average Value
(as defined below) is equal to or greater than the product of (A) 0.60,
multiplied by (B) the Conversion Price;
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(vi) (a) with respect to any Non-Arrearage Payment, the
average daily trading volume in the Common Stock during the period used
to calculate the Trailing Average Value is at least 50% of the average
daily trading volume in the Common Stock for the 180-day period ending
on the date of the Investment Agreement, and (b) with respect to any
Arrearage Payment, the average daily trading volume in the Common Stock
during the period used to calculate the Trailing Average Value is at
least 67% of the average daily trading volume in the Common Stock for
the 180-day period ending on the date of the Investment Agreement;
(vii) the issuance of such shares of Common Stock in
satisfaction of such payment does not require the approval or
affirmative vote of the holders of any class or series of the
Corporation's Equity Securities; and
(viii) as of the relevant Dividend Payment Date, the Shelf
Registration Statement (as such term is defined in the Registration
Rights Agreement) is effective under the Securities Act and is
available for use in connection with the offer and sale of such shares
of Common Stock by those holders of Series A Preferred Stock that have
such right under the Registration Rights Agreement (it being understood
that if a Shelf Suspension (as such term is defined in the Registration
Rights Agreement) is in effect, the Shelf Registration Statement shall
not be deemed effective or available for use); PROVIDED, HOWEVER, that
in the case of any Non-Arrearage Payment (and only in the case of a
Non-Arrearage Payment), this clause (viii) shall not prohibit the
issuance of shares of Common Stock in satisfaction of such payment if
the Shelf Registration Statement is not effective or not available for
use in accordance with Section 2.1(c) of the Registration Rights
Agreement.
For the purpose of this Section C, the value of a share of Common Stock used to
pay dividends on the Series A Preferred Stock shall equal (the "TRAILING AVERAGE
VALUE") the average of the Closing Prices per share of Common Stock for the
twenty consecutive Trading Days ending on the second Trading Day prior to the
relevant Dividend Payment Date; PROVIDED, HOWEVER, that in the event that an
adjustment to the Conversion Price takes effect pursuant to Section B of
Article IX hereof during the period used to compute such average, the Closing
Prices used to compute such average for all Trading Days ended prior to the
time such adjustment takes effect shall be similarly adjusted. Except as
otherwise expressly provided in this Section C, Common Stock may not be used
to make any payment in respect of any Arrearage.
D. METHOD OF PAYMENT. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of such dividends at the
time accumulated and payable on all outstanding shares of Series A Preferred
Stock shall be allocated pro rata on a share-by-share basis among all such
shares then outstanding. Notwithstanding the provisions of Section C of this
Article III, any such partial payment shall be made in cash. Dividends that are
declared and paid in an amount less than the full amount of dividends
accumulated on the Series A Preferred Stock (and on any Arrearage) shall be
applied first to the earliest dividend which has not theretofore been paid. All
cash payments of dividends on the shares of Series A Preferred Stock shall be
made in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
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IV. LIQUIDATION PREFERENCE
In the event of a liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of
then-outstanding shares of Series A Preferred Stock shall be entitled to receive
out of the assets of the Corporation, whether such assets are capital or surplus
of any nature, an amount per share equal to the greater of (A) the sum of (i)
the Stated Value thereof and (ii) the dividends, if any, accumulated or deemed
to have accumulated thereon to the date of final distribution to such holders,
whether or not such dividends are declared, and (B) the amount that would be
payable to such holders if the holders had converted all outstanding shares of
Series A Preferred Stock into shares of Common Stock immediately prior to such
liquidation, dissolution or winding up, and shall, after the holders of Common
Stock have received an amount per share of Common Stock equal to the amount paid
per share of Series A Preferred Stock, be entitled to participate on a pro rata
basis with the holders of Common Stock. After any such payment in full, the
holders of Series A Preferred Stock shall not, as such, be entitled to any
further participation in any distribution of assets of the Corporation. All the
assets of the Corporation available for distribution to stockholders after the
liquidation preferences of any Senior Liquidation Securities shall be
distributed ratably (in proportion to the full distributable amounts to which
holders of Series A Preferred Stock and Parity Liquidation Securities, if any,
are respectively entitled upon such dissolution, liquidation or winding up)
among the holders of the then-outstanding shares of Series A Preferred Stock and
Parity Liquidation Securities, if any, when such assets are not sufficient to
pay in full the aggregate amounts payable thereon.
Neither a consolidation or merger of the Corporation with or
into any other Person or Persons, nor a sale, conveyance, lease, exchange or
transfer of all or part of the Corporation's assets for cash, securities or
other property to a Person or Persons shall be deemed to be a liquidation,
dissolution or winding up of the Corporation for purposes of this Article IV,
but the holders of shares of Series A Preferred Stock shall nevertheless be
entitled from and after any such consolidation, merger or sale, conveyance,
lease, exchange or transfer of all or part of the Corporation's assets to the
rights provided by this Article IV following any such transaction. Notice of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, stating the payment date or dates when, and the place or places
where, the amounts distributable to each holder of shares of Series A Preferred
Stock in such circumstances shall be payable, shall be given by first-class
mail, postage prepaid, mailed not less than 45 days prior to any payment date
stated therein, to holders of record as they appear on the stock record books of
the Corporation as of the date such notices are first mailed.
V. MANDATORY CONVERSION AND REDEMPTION
A. MANDATORY CONVERSION. (a) If the 180-Day Average Price and
the related Two-Week Average Price for any 180-Day Reference Period (which
Reference Period shall have ended no earlier than the first anniversary of the
original issuance of the Series A Preferred Stock and no later than the second
anniversary of the original issuance of the Series A Preferred Stock), both
exceed 200% of the Conversion Price, then the Corporation shall have the right,
at its option and election, to exchange the then-outstanding shares of Series A
Preferred Stock, in whole and not in part, for shares of Common Stock, as if
such then-outstanding shares of Series A Preferred
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Stock had been converted by the holders thereof pursuant to Article IX hereof on
the date of such exchange.
(b) If the 45-Trading Day Average Price and the related
Two-Week Average Price for any 45-Trading Day Reference Period (which Reference
Period shall have ended no earlier than the second anniversary of the original
issuance of the Series A Preferred Stock), both exceed 200% of the Conversion
Price, then the Corporation shall have the right, at its option and election, to
exchange the then-outstanding shares of Series A Preferred Stock, in whole and
not in part, for shares of Common Stock, as if such then-outstanding shares of
Series A Preferred Stock had been converted by the holders thereof pursuant to
Article IX hereof on the date of such exchange.
(c) Notwithstanding anything in this Section A to the
contrary, the Corporation shall not have the right to exchange the Series A
Preferred Stock for Common Stock pursuant to this Section A unless (i) the
Common Stock shall have been validly listed for trading on the NYSE or other
national securities exchange or quoted on a nationally recognized quotation
system on each day in the relevant Reference Period and as of the date of such
exchange, (ii) the average daily trading volume in the Common Stock during the
relevant Reference Period and during the two-week calendar period ending on the
last day of the relevant Reference Period is at least 50% of the average daily
trading volume in the Common Stock for the 180-day period ending on the date of
the Investment Agreement, (iii) the Corporation shall have obtained the Series A
Shareholder Approval, (iv) as of the date of such exchange, the Shelf
Registration Statement (as such term is defined in the Registration Rights
Agreement) is effective under the Securities Act and is available for use in
connection with the offer and sale of such shares of Common Stock by those
holders that have such right under the Registration Rights Agreement (it being
understood that if a Shelf Suspension (as such term is defined in the
Registration Rights Agreement) is in effect, the Shelf Registration Statement
shall not be deemed effective or available for use), and (v) the Corporation
simultaneously exchanges any issued and outstanding Series B Preferred Stock
pursuant to subsection (a) or (b) of Section A of Article V of the Certificate
of Designations for the Series B Preferred Stock. The Corporation may not effect
any such exchange if such exchange would: (a) violate any provision of the
certificate of incorporation or the bylaws of the Corporation; (b) conflict
with, contravene or result in a breach or violation of any of the terms or
provisions of, or constitute a default (with or without notice or the passage of
time) under, or result in or give rise to a right of termination, cancellation,
acceleration or modification of any right or obligation under, or give rise to a
right to put or to compel a tender offer for outstanding securities of the
Corporation or any of its Subsidiaries under, or require any consent, waiver or
approval under, any note, bond, debt instrument, indenture, mortgage, deed of
trust, lease, loan agreement, joint venture agreement, Regulatory Approval,
contract or any other agreement, instrument or obligation to which the
Corporation or any of its Subsidiaries is a party or by which the Corporation or
any of its Subsidiaries or any property of the Corporation or any of its
Subsidiaries is bound; (c) result in the creation or imposition of any Lien upon
any assets or properties of the Corporation or any of its Subsidiaries; or (d)
violate any Law applicable to the Corporation or any of its Subsidiaries.
(d) Notice of an exchange of shares of Series A Preferred
Stock pursuant to this Section A (a "NOTICE OF EXCHANGE") shall be sent to the
holders of record of the shares of Series A Preferred Stock by first class mail,
postage prepaid, at each such holder's address as it appears
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on the stock record books of the Corporation, not more than three Business Days
subsequent to the last day of the relevant Reference Period. The Notice of
Exchange shall set forth the date fixed for the exchange (the "EXCHANGE DATE")
and shall set forth in reasonable detail the calculations and supporting data
used by the Corporation in its determination that it had the right to effect
such exchange. From and after the Exchange Date, all dividends on the shares of
Series A Preferred Stock that are exchanged shall cease to accumulate and all
rights of the holders thereof as holders of Series A Preferred Stock shall cease
and terminate, except if the Corporation shall default in its obligation to
deliver shares of Common Stock and cash in lieu of fractional shares to holders
on the Exchange Date, in which case all such rights shall continue unless and
until such shares are exchanged (or redeemed or converted) in accordance with
the terms hereof. Prior to the Exchange Date, each holder shall provide a
written notice to the Corporation specifying the name or names in which such
holder wishes the certificate or certificates for shares of Common Stock to be
issued. If no such notice is delivered, such shares of Common Stock and cash in
lieu of fractional shares, if any, shall be delivered to such holder. In case
such notice shall specify a name or names other than that of such holder, such
notice shall be accompanied by payment of all transfer taxes payable upon the
issuance of shares of Common Stock in such name or names. Other than such taxes,
the Corporation will pay any and all issue and other taxes (other than taxes
based on income) that may be payable in respect of any issue or delivery of
shares of Common Stock on exchange of Series A Preferred Stock pursuant to this
Section A. On or after the Exchange Date, each holder of shares of Series A
Preferred Stock that are to be exchanged shall surrender the certificate
evidencing such shares of Series A Preferred Stock to the Corporation at the
place designated in the Notice of Exchange. As promptly as practical, and in any
event within three Business Days after the Exchange Date, the Corporation shall
deliver or cause to be delivered as directed by the holder of shares of Series A
Preferred Stock being exchanged (i) certificates representing the number of
validly issued, fully paid and nonassessable full shares of Common Stock to
which such holder shall be entitled and (ii) cash in lieu of fractional shares,
if any, to which such holder shall be entitled. Except as otherwise specified in
this Article V, for the purposes hereof, such exchange shall be deemed a
conversion effected pursuant to Article IX and the terms and procedures set
forth in Article IX shall apply. For such purpose, the applicable Conversion
Date shall be the Exchange Date.
(e) In the event the Corporation delivers a Notice of
Exchange, the Corporation shall be obligated to effect the exchange described
therein, PROVIDED that each of the conditions to such exchange set forth in
subsections (a), (b) and (c) above is (i) satisfied or (ii) waived by the
holders of a majority of the shares of Series A Preferred Stock then
outstanding.
(f) Notwithstanding anything to the contrary in the
Registration Rights Agreement, in the event the Corporation effects an exchange
pursuant to this Section A, the Corporation shall not exercise its right to
declare a Shelf Suspension (as such term is defined in the Registration Rights
Agreement) pursuant to Section 2.1(c) of the Registration Rights Agreement
during the period beginning on the Exchange Date and ending 90 days after the
Exchange Date.
B. MANDATORY REDEMPTION. The Corporation shall not have any
right to redeem any shares of Series A Preferred Stock prior to the Mandatory
Redemption Date (as defined below). On the tenth anniversary of the original
issuance of the Series A Preferred Stock (the "MANDATORY REDEMPTION DATE"), the
Corporation shall redeem (the "MANDATORY REDEMPTION")
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all outstanding shares of Series A Preferred Stock by paying the redemption
price therefor in cash out of funds legally available for such purpose. The
redemption price for each share of Series A Preferred Stock shall equal the sum
of (i) the amount, if any, of all unpaid dividends accumulated thereon to the
date of actual payment of the Redemption Price, whether or not such dividends
have been declared, and (ii) the Stated Value thereof (such sum, the "REDEMPTION
PRICE").
C. NOTICE AND REDEMPTION PROCEDURES. Notice of the redemption
of shares of Series A Preferred Stock pursuant to Section B of this Article V (a
"NOTICE OF REDEMPTION") shall be sent to the holders of record of the shares of
Series A Preferred Stock to be redeemed by first class mail, postage prepaid, at
each such holder's address as it appears on the stock record books of the
Corporation, not more than 100 nor fewer than 60 days prior to the date fixed
for redemption, which date shall be set forth in such notice (the "REDEMPTION
DATE"); PROVIDED, HOWEVER, that failure to give such Notice of Redemption to any
holder, or any defect in such Notice of Redemption to any holder shall not
affect the validity of the proceedings for the redemption of any shares of
Series A Preferred Stock held by any other holder. In order to facilitate the
redemption of shares of Series A Preferred Stock, the Board of Directors may fix
a record date for the determination of the holders of shares of Series A
Preferred Stock to be redeemed, in each case, not more than 10 days prior to the
date the Notice of Redemption is mailed. On or after the Redemption Date, except
with respect to shares of Series A Preferred Stock for which the Conversion Date
has occurred on or prior to such Redemption Date, each holder of the shares
called for redemption shall surrender the certificate evidencing such shares to
the Corporation at the place designated in such notice and shall thereupon be
entitled to receive payment of the Redemption Price. From and after the
Redemption Date, all dividends on shares of Series A Preferred Stock shall cease
to accumulate and all rights of the holders thereof as holders of Series A
Preferred Stock shall cease and terminate, except if the Corporation shall
default in payment of the Redemption Price on the Redemption Date in which case
all such rights shall continue unless and until such shares are redeemed and
such price is paid in accordance with the terms hereof.
D. CHANGE OF CONTROL. In the event there occurs a Change of
Control, any holder of record of shares of Series A Preferred Stock, in
accordance with the procedures set forth in Section E of this Article V, may
require the Corporation to redeem any or all of the shares of Series A Preferred
Stock held by such holder in an amount per share equal to the sum of (i) the
amount, if any, of all unpaid dividends accumulated thereon to the date of
actual payment thereof, whether or not such dividends have been declared, and
(ii) 101% of Stated Value (the "CHANGE OF CONTROL PRICE"). By accepting a share
of Series A Preferred Stock the holder thereof shall be deemed to have
acknowledged and agreed that (a) such holder's right, to receive payment of the
Change in Control Price is subject and subordinated in right of payment to the
payment in full and discharge of all amounts of principal, interest and fees
(however denominated) then outstanding under the Credit Agreement and the Senior
Subordinated Notes and (b) until payment in full of all such amounts (however
denominated) under the Credit Agreement and the Senior Subordinated Notes has
been made in cash, no payment, whether directly or indirectly, by exercise of
any right of set off or otherwise in respect of the Change of Control Price
shall be made by the Corporation, and, notwithstanding anything to the contrary
in Section F of this Article V, no deposit in respect of the Change of Control
Price shall be made pursuant to Section F of this Article V. In the event that
any payment by, or distribution of the
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assets of, the Corporation of any kind or character (whether in cash, property
or securities, whether directly or indirectly, by exercise of any right of
set-off or otherwise and whether as a result of a bankruptcy proceeding with
respect to the Corporation or otherwise) shall be received by a holder of
Series A Preferred Stock at any time when such payment is prohibited by this
paragraph, such payment shall be held in trust for the benefit of, and shall
be paid over to, the lenders under the Credit Agreement or the holders of
Senior Subordinated Notes, as the case may be, as their interests may appear.
The preceding two sentences address the relative rights of holders of Series A
Preferred Stock or Debentures, on the one hand, and the lenders under the Credit
Agreement or the holders of Senior Subordinated Notes, as the case may be, on
the other hand, and nothing in this Certificate of Designations shall impair,
as between the Corporation and the holders of Series A Preferred Stock or
Debentures, the obligation of the Corporation, which is absolute and
unconditional, to pay amounts due in respect of the Series A Preferred Stock
and Debentures in accordance with their terms. Upon a Change of Control, the
Corporation shall pay all amounts outstanding under the Credit Agreement and
the Indenture to the extent necessary in order to permit the payment of the
Change of Control Price hereunder.
E. CHANGE OF CONTROL NOTICE AND REDEMPTION PROCEDURES. Notice
of any Change of Control shall be sent to the holders of record of the
outstanding shares of Series A Preferred Stock not more than five days following
a Change of Control, which notice (a "CHANGE OF CONTROL NOTICE") shall describe
the transaction or transactions constituting such Change of Control and set
forth each holder's right to require the Corporation to redeem any or all shares
of Series A Preferred Stock held by him or her out of funds legally available
therefor, the redemption date, which date shall be not less than 30 nor more
than 45 days from the date of such Change of Control Notice, (the "CHANGE OF
CONTROL REDEMPTION DATE") and the procedures to be followed by such holders in
exercising his or her right to cause such redemption; PROVIDED, HOWEVER, that if
all of the outstanding shares of Series A Preferred Stock are owned by more than
50 holders or groups of Affiliated holders and if the Series A Preferred Stock
is listed on any national securities exchange or quoted on any national
quotation system, the Corporation shall give such Change of Control Notice by
publication in a newspaper of general circulation in the Borough of Manhattan,
The City of New York, within 30 days following such Change of Control and, in
any case, a similar notice shall be mailed concurrently to each holder of shares
of Series A Preferred Stock. Failure by the Corporation to give the Change of
Control Notice as prescribed by the preceding sentence, or the formal
insufficiency of any such Change of Control Notice, shall not prejudice the
rights of any holder of shares of Series A Preferred Stock to cause the
Corporation to redeem any such shares held by him or her. In the event a holder
of shares of Series A Preferred Stock shall elect to require the Corporation to
redeem any or all such shares of Series A Preferred Stock pursuant to Section D
hereof, such holder shall deliver, prior to the Change of Control Redemption
Date as set forth in the Change of Control Notice, or, if the Change of Control
Notice is not given as required by this Section E, at any time following the
last day the Corporation was required to give the Change of Control Notice in
accordance with this Section E (in which case the Change of Control Redemption
Date shall be the date which is the later of (x) 45 days following the last day
the Corporation was required to give the Change of Control Notice in accordance
with this Section E and (y) 30 days following the delivery of such election by
such holder), a written notice, in the form specified by the Corporation (if the
Corporation did in fact give the notice required by this Section E), to the
Corporation so stating, and specifying the number of shares to be redeemed
pursuant to Section D of this Article V; PROVIDED, HOWEVER, that if all of the
outstanding shares of the Series A Preferred Stock are owned
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by 50 or fewer holders or groups of affiliated holders, such holders or groups
may deliver a notice or an election to redeem at any time within 90 days
following the occurrence of a Change of Control without awaiting receipt of a
Change of Control Notice or the expiration of the time allowed for the delivery
of a Change of Control Notice hereunder. The Corporation shall redeem the number
of shares so specified on the Change of Control Redemption Date fixed by the
Corporation or as provided in the preceding sentence. The Corporation shall
comply with the requirements of Rules 13e-4 and 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the shares of
Series A Preferred Stock as a result of a Change of Control. From and after the
time the Change of Control Redemption Price is paid in accordance with the terms
hereof with respect to any share of Series A Preferred Stock, all dividends on
such share of Series A Preferred Stock shall cease to accumulate and all rights
of the holder thereof as a holder of Series A Preferred Stock shall cease and
terminate.
F. DEPOSIT OF FUNDS. The Corporation shall, no later than
11:00 a.m., New York City time, on any Redemption Date or Change of Control
Redemption Date pursuant to this Article V, deposit with its transfer agent or
other redemption agent in the Borough of Manhattan, The City of New York having
a capital and surplus of at least $500,000,000, as a trust fund for the benefit
of the holders of the shares of Series A Preferred Stock to be redeemed, cash
that is sufficient in amount to redeem the shares to be redeemed in accordance
with the Notice of Redemption or Change of Control Notice, with irrevocable
instructions and authority to such transfer agent or other redemption agent to
pay to the respective holders of such shares, as evidenced by a list of such
holders certified by an officer of the Corporation, the Redemption Price or
Change of Control Redemption Price, as the case may be, upon surrender of their
respective share certificates. Such deposit shall be deemed to constitute full
payment of such shares to the holders, and from and after the date of such
deposit, all rights of the holders of the shares of Series A Preferred Stock
that are to be redeemed as stockholders of the Corporation with respect to such
shares, except the right to receive the Redemption Price upon the surrender of
their respective certificates and all rights under Articles IX and XI hereof,
shall cease and terminate. In case holders of any shares of Series A Preferred
Stock called for redemption shall not, within two years after such deposit,
claim the cash deposited for redemption thereof, such transfer agent or other
redemption agent shall, upon demand, pay over to the Corporation the balance so
deposited. Thereupon, such transfer agent or other redemption agent shall be
relieved of all responsibility to the holders thereof and the sole right of such
holders, with respect to shares to be redeemed, shall be to receive the
Redemption Price as general creditors of the Corporation. Any interest accrued
on any funds so deposited shall belong to the Corporation, and shall be paid to
it from time to time on demand.
VI. EXCHANGE OF SERIES A PREFERRED STOCK FOR DEBENTURES
A. After the Option has been exercised or has expired or is no
longer exercisable in whole or in part, the Series A Preferred Stock shall be
exchangeable at the option of the Corporation and to the extent permitted by
applicable law and the terms of the instruments governing the Corporation's
then-outstanding Indebtedness, in whole but not in part, on any Dividend Payment
Date for unsecured Junior Subordinated Convertible Debentures (issued pursuant
to an indenture (the "SERIES A INDENTURE") prepared in accordance with the
Investment
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Agreement), in principal amount of $1,000 per share of Series A Preferred Stock
(a "DEBENTURE" and, collectively, the "DEBENTURES"), in accordance with this
Article VI:
(i) Each share of Series A Preferred Stock shall be
exchangeable at the offices of the Corporation and at such other place
or places, if any, as the Board of Directors may designate. Except with
the prior written consent of the holders of all outstanding shares of
Series A Preferred Stock, the Corporation may not exchange any shares
of Series A Preferred Stock if (a) full cumulative dividends through
the date of exchange, have not been paid, accrued or set aside for
payment on all outstanding shares of the Series A Preferred Stock,
(b) the Corporation has failed to amend its Certificate of
Incorporation in accordance with Delaware law to confer the power to
vote upon holders of the Debentures as shall be contemplated by the
Series A Indenture or (c) such exchange could result in any adverse
tax consequence to any such holder.
(ii) Prior to giving notice of its intention to exchange, the
Corporation shall execute and deliver to a bank or trust company and,
if required by applicable law, qualify under the Trust Indenture Act of
1939, as amended, the Series A Indenture.
(iii) The Corporation shall mail written notice of its
intention to exchange Series A Preferred Stock for Debentures (the
"EXCHANGE NOTICE") to each holder of record of shares of Series A
Preferred Stock not less than 60 nor more than 100 days prior to the
date fixed for exchange. The Exchange Notice shall notify holders of
their right to deliver an Objection Notice (as defined below) pursuant
to Section B of this Article VI.
(iv) Prior to effecting any exchange provided above, the
Corporation shall deliver to each holder of shares of Series A
Preferred Stock an opinion of nationally recognized legal counsel to
the effect that: (a) each of the Series A Indenture and the Debentures
have been duly authorized and executed by the Corporation and, when
delivered by the Corporation in exchange for shares of Series A
Preferred Stock, will constitute valid and legally binding obligations
of the Corporation enforceable against the Corporation in accordance
with their terms, subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and to general
principles of equity; (b) the exchange of the Debentures for the shares
of Series A Preferred Stock will not violate the provisions of this
Article VI or of the Delaware General Corporation Law, including
Section 221 thereof; and (c) the exchange of the Debentures for the
shares of Series A Preferred Stock is exempt from the registration
requirements of the Securities Act or that the exchange of such
Debentures has been duly registered under the Securities Act.
(v) The Corporation may not effect any exchange provided
above if such exchange would: (a) violate any provision of the
certificate of incorporation or the bylaws of the Corporation;
(b) conflict with, contravene or result in a breach or violation of any
of the terms or provisions of, or constitute a default (with or without
notice or the passage of time) under, or result in or give rise to a
right of termination, cancellation, acceleration or modification of
any right or obligation under, or give rise to a right to put or to
compel a tender offer for outstanding securities of the Corporation or
any of its Subsidiaries under, or require any consent, waiver or
approval that has not been obtained or granted under, any note, bond,
debt instrument, indenture, mortgage, deed of trust,
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lease, loan agreement, joint venture agreement, Regulatory Approval,
contract or any other agreement, instrument or obligation to which the
Corporation or any of its Subsidiaries is a party or by which the
Corporation or any of its Subsidiaries or any property of the
Corporation or any of its Subsidiaries is bound; (c) result in the
creation or imposition of any Lien upon any assets or properties of
the Corporation or any of its Subsidiaries; or (d) violate any Law
applicable to the Corporation or any of its Subsidiaries;
(vi) Upon the exchange of shares of Series A Preferred Stock
for Debentures, the rights of the holders of shares of Series A
Preferred Stock as stockholders of the Corporation shall terminate and
such shares shall no longer be deemed outstanding; and
(vii) Before any holder of shares of Series A Preferred Stock
shall be entitled to receive Debentures, such holder shall surrender
the certificate or certificates therefor, at the office of the
Corporation or at such other place or places, if any, as the Board of
Directors shall have designated, and shall state in writing the name or
names (with addresses) in which he or she wishes the certificate or
certificates for the Debentures to be issued. The Corporation will, as
soon as practicable thereafter, issue and deliver at said office or
place to such holder of shares of Series A Preferred Stock, or to his
or her nominee or nominees, certificates for the Debentures to which he
or she shall be entitled as aforesaid. Shares of Series A Preferred
Stock shall be deemed to have been exchanged as of the close of
business on the date fixed for exchange as provided above, and the
Person or Persons entitled to receive the Debentures issuable upon such
exchange shall be treated for all purposes (including the accrual and
payment of interest) as the record holder or holders of such Debentures
as of the close of business on such date.
B. For purposes of clause (c) of paragraph (i) of Section A of
this Article VI, an exchange of shares of Series A Preferred Stock shall be
deemed to be an exchange that could result in a tax consequence to any holder
which is materially adverse only if such holder shall have delivered to the
Corporation a written notice to such effect on or before the fifteenth day after
its receipt of the Exchange Notice (an "OBJECTION NOTICE"), which Objection
Notice shall specify in reasonable detail the nature of such tax consequence
which could result from the exchange. If the Corporation receives an Objection
Notice, then the Corporation shall not exchange the shares of Series A Preferred
Stock and the Corporation shall, within 15 days after its receipt of the
Objection Notice mail written notice to the effect that it is canceling the
proposed exchange of shares of Series A Preferred Stock to each holder of record
of shares of Series A Preferred Stock to which it mailed the Exchange Notice.
Notwithstanding the foregoing, if the Corporation, based on the advice of
nationally recognized tax counsel, believes that the tax consequences described
in an Objection Notice are incorrect, the Corporation may contact the holder who
delivered such notice to discuss the tax consequences described therein. If such
holder withdraws such notice within 15 days of its delivery, the Corporation
shall be permitted to consummate the proposed exchange.
VII. RESTRICTIONS ON DIVIDENDS
So long as any shares of the Series A Preferred Stock are
outstanding, the Board of Directors shall not declare, and the Corporation shall
not pay or set apart for payment any
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dividend on any Junior Securities or Parity Securities or make any payment on
account of, or set apart for payment money for a sinking or other similar fund
for, the repurchase, redemption or other retirement of, any Junior Securities or
Parity Securities or any warrants, rights or options exercisable for or
convertible into any Junior Securities or Parity Securities (other than the
repurchase, redemption or other retirement of debentures or other debt
securities that are convertible or exchangeable into any Junior Securities or
Parity Securities), or make any distribution in respect of the Junior Securities
or Parity Securities, either directly or indirectly, and whether in cash,
obligations or shares of the Corporation or other property (other than
distributions or dividends in Junior Securities to the holders of Junior
Securities), and shall not permit any Person directly or indirectly controlled
by the Corporation to purchase or redeem any Junior Securities or Parity
Securities or any warrants, rights, calls or options exercisable for or
convertible into any Junior Securities or Parity Securities (other than the
repurchase, redemption or other retirement of debentures or other debt
securities that are convertible or exchangeable into any Junior Securities or
Parity Securities) unless prior to or concurrently with such declaration,
payment, setting apart for payment, repurchase, redemption or other retirement
or distribution, as the case may be, all accumulated and unpaid dividends on
shares of the Series A Preferred Stock not paid on the dates provided for in
Section A of Article III hereof (including Arrearages and accumulated dividends
thereon and regardless of whether the Corporation shall have had the right to
elect to defer such payments as provided for in Article III hereof) shall have
been paid, except that when dividends are not paid in full as aforesaid upon the
shares of Series A Preferred Stock, all dividends declared on the Series A
Preferred Stock and any series of Parity Dividend Securities shall be declared
and paid pro rata so that the amount of dividends so declared and paid on
Series A Preferred Stock and such series of Parity Dividend Securities shall in
all cases bear to each other the same ratio that accumulated dividends
(including interest accrued on or additional dividends accumulated in respect of
such accumulated dividends) on the shares of Series A Preferred Stock and such
Parity Dividend Securities bear to each other. Notwithstanding the foregoing,
this paragraph shall not prohibit (i) the acquisition, repurchase, exchange,
conversion, redemption or other retirement for value of shares of Series A
Preferred Stock or any Parity Dividend Security by the Corporation in accordance
with the terms of such securities or (ii) the acquisition, repurchase, exchange,
conversion, redemption or other retirement for value by the Corporation of any
Junior Dividend Securities by the Corporation in accordance with obligations in
existence at the time of original issuance of the Series A Preferred Stock.
VIII. VOTING RIGHTS
A. The holders of shares of Series A Preferred Stock shall
have no voting rights except as set forth below or as otherwise from time to
time required by law.
B. So long as any shares of the Series A Preferred Stock are
outstanding, each share of Series A Preferred Stock shall entitle the holder
thereof to vote on all matters voted on by holders of Common Stock, and the
shares of Series A Preferred Stock shall vote together with shares of Common
Stock (and any shares of Series B Preferred Stock entitled to vote) as a single
class. With respect to any such vote, each share of Series A Preferred Stock
shall entitle its holder to a number of votes equal to the number of shares of
Common Stock into which such share of Series A Preferred Stock is convertible at
the time of the record date with respect to such vote (assuming all conditions
precedent to such conversion have been satisfied and that such
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conversion had occurred as of the record date for such vote, PROVIDED, that if
the Series A Shareholder Approval has not been obtained as of such record date,
it shall not be assumed that the Series A Shareholder Approval had been obtained
as of such record date). Notwithstanding the foregoing, holders of shares of
Series A Preferred Stock shall not be entitled to vote with the holders of
Common Stock on any proposal related to the approval of the issuance of shares
of Common Stock in payment of dividends on the Series A Preferred Stock or upon
the issuance of Common Stock with respect to Arrearages upon the conversion of
the Series A Preferred Stock into shares of Common Stock.
C. If on any date (i) dividends payable on the Series A
Preferred Stock or Series B Preferred Stock shall not have been paid in full
when required pursuant to the terms hereof or (ii) the Corporation shall have
failed to satisfy its obligation to redeem shares of Series A Preferred Stock or
Series B Preferred Stock pursuant to the terms of the relevant Certificate of
Designations (provided, that for the purpose of this Section C, any obligation
of the Corporation to repurchase shares of Series B Preferred Stock or make a
Make-Whole Payment pursuant to Section G of Article V of the Certificate of
Designations with respect to the Series B Preferred Stock, shall not be
considered an obligation to redeem such shares), then the number of directors
constituting the Board of Directors shall, without further action, be increased
by two, or if the requisite increase in the number of directors constituting the
Board of Directors would require the approval of the Corporation's stockholders
or is prohibited by the Investment Agreement, then the number of directors
constituting the Board of Directors shall be increased to the extent the
approval of the Corporation's stockholders is not required and the Investment
Agreement would not be breached and a number of directors (other than Investor
Nominees) shall resign from the Board of Directors so that the holders of shares
of Series A Preferred Stock and, if then entitled to vote with respect to such
matters, the holders of shares of Series B Preferred Stock, voting together as a
single class without regard to series, may elect two directors to the Board of
Directors, and the holders of a majority of the outstanding shares of Series A
Preferred Stock and any shares of Series B Preferred Stock entitled to vote with
respect to such matters, voting together as a single class without regard to
series, shall have, in addition to the other voting rights set forth herein, the
exclusive right to elect two directors (the "ADDITIONAL DIRECTORS") of the
Corporation to fill such newly-created or vacated directorships. Additional
Directors shall continue as directors and such additional voting right shall
continue until such time as (a) all dividends accumulated on the Series A
Preferred Stock and Series B Preferred Stock shall have been paid in full as
required pursuant to the terms hereof or (b) any redemption obligation with
respect to the Series A Preferred Stock or Series B Preferred Stock that has
become due shall have been satisfied or all necessary funds shall have been set
aside for payment, as the case may be, at which time such Additional Directors
shall cease to be directors and such additional voting right of the holders of
shares of Series A Preferred Stock and Series B Preferred Stock shall terminate
subject to revesting in the event of each and every subsequent event of the
character indicated above.
D. So long as members of the Investor Group Beneficially Own a
majority of the outstanding shares of Series A Preferred Stock and Series B
Preferred Stock, if any default or event of default has occurred and is
continuing under any contract, agreement, indenture, mortgage, note, lease or
other instrument evidencing Indebtedness of the Corporation or any of its
Subsidiaries (other than inter-company Indebtedness between the Corporation and
any of its Subsidiaries or between Subsidiaries of the Corporation) the
outstanding principal amount of
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which is in excess of $10,000,000, and as a result of such default or event of
default the holders thereof have accelerated or have the right to accelerate the
maturity thereof, and such default, event of default or event is not cured or
waived within 75 days of the occurrence thereof, then the number of directors
constituting the Board of Directors shall, upon the request of members of the
Investor Group who Beneficially Own a majority of the outstanding shares of
Series A Preferred Stock and Series B Preferred Stock then Beneficially Owned by
members of the Investor Group delivered to the Corporation in writing, be
increased by that number that is necessary to enable the Investor Group to
designate a majority of the members of the Board of Directors (including the
Investor Nominees), or if such requisite increase in the number of directors
constituting the Board of Directors would require the approval of the
Corporation's stockholders or is prohibited by the Investment Agreement, then
the number of directors constituting the Board of Directors shall be increased
to the extent the approval of the Corporation's stockholders is not required and
the Investment Agreement would not be breached and a number of directors (other
than Investor Nominees) shall resign from the Board of Directors so as to enable
the Investor Group to designate a majority of the Board of Directors (including
the Investor Nominees), and the holders of a majority of the outstanding shares
of Series A Preferred Stock then held by the Investor Group and any shares of
Series B Preferred Stock entitled to vote with respect to such matters then held
by the Investor Group, voting together as a single class without regard to
series, shall have, in addition to the other voting rights set forth herein, the
exclusive right, voting separately as a class, to elect that number of directors
(the "MAJORITY DIRECTORS") of the Corporation necessary to fill such
newly-created or vacated directorships. Majority Directors shall continue as
directors and such additional voting right shall continue until such time as
such default, event of default or event is cured, at which time such Majority
Directors shall cease to be directors and such additional voting right of the
Series A Preferred Stock and Series B Preferred Stock shall terminate subject to
revesting in the event of each and every subsequent event of the character
indicated above.
E. So long as the Investor or any of its Affiliates
Beneficially Owns any shares of Series A Preferred Stock, in the event that one
or more of the Investor Nominees required to be designated for election to the
Board of Directors pursuant to the Investment Agreement are not so designated or
are not elected to the Board of Directors, then the number of directors
constituting the Board of Directors shall, without further action, be increased
by the number of such Investor Nominees not elected to the Board of Directors
pursuant to the Investment Agreement, or if such requisite increase in the
number of directors constituting the Board of Directors would require the
approval of the Corporation's stockholders or is prohibited by the Investment
Agreement, then the number of directors constituting the Board of Directors
shall be increased to the extent the approval of the Corporation's stockholders
is not required and the Investment Agreement would not be breached and a number
of directors (other than Investment Nominees) shall resign from the Board of
Directors, so as to enable the Investor and its Affiliates to designate as
directors the number of Investor Nominees not elected to the Board of Directors
pursuant to the Investment Agreement, and the Investor and its Affiliates shall
have, in addition to the other voting rights set forth herein, the exclusive
right, voting separately as a single class, to elect a number of directors to
the Board of Directors equal to the number of such Investor Nominees not elected
to the Board of Directors. Directors elected pursuant to this Section E shall
continue as directors and such additional voting right shall continue until such
time as the requisite number of Investor Nominees are elected to the Board of
Directors pursuant to the Investment Agreement, at which time the directors
elected by the Investor and its Affiliates
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pursuant to this Section E shall cease to be directors (unless elected as
Investor Nominees), and such additional voting rights shall terminate subject to
revesting in the event of each and every subsequent event of the character
indicated above.
F. (a) The foregoing rights of holders of shares of Series A
Preferred Stock to take any action as provided in this Article VIII may be
exercised at any annual meeting of stockholders or at a special meeting of
stockholders held for such purpose as hereinafter provided or at any adjournment
thereof, or by the written consent, delivered to the Secretary of the
Corporation, of the holders of the minimum number of shares required to take
such action. So long as such right to vote continues (and unless such right has
been exercised by written consent of the minimum number of shares required to
take such action), the Chairman of the Board of Directors may call, and upon the
written request of holders of record of 25% of the outstanding shares of Series
A Preferred Stock, addressed to the Secretary of the Corporation at the
principal office of the Corporation, shall call, a special meeting of the
holders of shares entitled to vote as provided herein. Such meeting shall be
held as soon as reasonably practicable after delivery of such request to the
Secretary, at the place and upon the notice provided by law and in the Bylaws
for the holding of meetings of stockholders.
(b) Each director elected pursuant to Section C, D or E
hereof shall serve until the next annual meeting or until his or her successor
shall be elected and shall qualify, unless the director's term of office shall
have terminated pursuant to the provisions of Section C, D or E hereof, as the
case may be. In case any vacancy shall occur among the directors elected
pursuant to Section C, D or E hereof, such vacancy shall be filled for the
unexpired portion of the term by vote of the remaining director or directors
theretofore elected pursuant to the same Section (or such director's or
directors' successor in office), if any. If any such vacancy is not so filled
within 20 days after the creation thereof or if all of the directors so elected
shall cease to serve as directors before their term shall expire, the holders of
the shares of Series A Preferred Stock then outstanding and entitled to vote for
such director pursuant to the provisions of Section C, D or E hereof, as the
case may be, may elect successors to hold office for the unexpired terms of any
vacant directorships, by written consent as provided herein, or at a special
meeting of such holders called as provided herein. The holders of a majority of
the shares entitled to vote for directors pursuant to Section C, D or E hereof,
as the case may be, shall have the right to remove with or without cause at any
time and replace any directors such holders have elected pursuant to such
section, by written consent as herein provided, or at a special meeting of such
holders called as provided herein.
G. Without the consent or affirmative vote of the holders of
at least sixty-seven percent (67%) of the outstanding shares of Series A
Preferred Stock, voting separately as a class, the Corporation shall not: (i)
authorize, create or issue, or increase the authorized amount of, (a) any Senior
Securities or (b) any class or series of capital stock or any security
convertible into or exercisable for any class or series of capital stock, that
is redeemable mandatorily or redeemable at the option of the holder thereof at
any time on or prior to the Mandatory Redemption Date (whether or not only upon
the occurrence of a specified event); (ii) amend, alter or repeal any provision
of the Certificate of Incorporation or the Bylaws, if the amendment, alteration
or repeal alters or changes the powers, preferences or special rights of the
Series A Preferred Stock so as to affect them adversely; or (iii) authorize or
take any other action if such action alters or changes any of the rights of the
Series A Preferred Stock in any respect or
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otherwise would be inconsistent with the provisions of this Certificate of
Designations and the holders of any class or series of the capital stock of the
Corporation is entitled to vote thereon.
H. OTHER SECURITIES. The Corporation shall not, from and after
the date of the original issuance of the Series A Preferred Stock, enter into
any agreement, amend or modify any existing agreement or obligation, or issue
any security that prohibits, conflicts or is inconsistent with, or would be
breached by, the Corporation's performance of its obligations hereunder.
IX. CONVERSION
A. CONVERSION. (a) At the option and election of the holder
thereof, each share of Series A Preferred Stock, including all unpaid dividends
accumulated thereon to the Conversion Date (as defined below), whether or not
such dividends have been declared, may be converted in the manner provided
herein at any time into fully paid and nonassessable shares of Common Stock. As
of the Conversion Date with respect to a share of Series A Preferred Stock,
subject to subsections (d) and (e) of this Section A, such share shall be
converted into that number (the "CONVERSION NUMBER") of shares of Common Stock
equal to the quotient of (i) the sum of (A) the Stated Value plus (B) all unpaid
dividends accumulated on such share of Series A Preferred Stock to the
Conversion Date whether or not such dividends have been declared, divided by
(ii) the Conversion Price in effect on the Conversion Date.
(b) Conversion of shares of the Series A Preferred Stock may
be effected by any holder thereof upon the surrender to the Corporation at the
principal office of the Corporation or at the office of any agent or agents of
the Corporation, as may be designated by the Board of Directors of the
Corporation and identified to the holders in writing upon such designation, of
the certificate for such shares of Series A Preferred Stock to be converted
accompanied by a written notice stating that such holder elects to convert all
or a specified whole number of shares represented by such certificate in
accordance with the provisions of this Section A and specifying the name or
names in which such holder wishes the certificate or certificates for shares of
Common Stock to be issued. In case such notice shall specify a name or names
other than that of such holder, such notice shall be accompanied by payment of
all transfer taxes payable upon the issuance of shares of Common Stock in such
name or names. Other than such taxes, the Corporation will pay any and all issue
and other taxes (other than taxes based on income) that may be payable in
respect of any issue or delivery of shares of Common Stock on conversion of
Series A Preferred Stock pursuant hereto. As promptly as practical, and in any
event within three Business Days after the Conversion Date, the Corporation
shall deliver or cause to be delivered as directed by the holder of shares of
Series A Preferred Stock being converted (i) certificates representing the
number of validly issued, fully paid and nonassessable full shares of Common
Stock to which such holder shall be entitled to, (ii) any cash that is required
to be paid pursuant to subsections (d) and (e) of this Section A, (iii)
certificates representing any shares of Series B Preferred Stock that are
required to be delivered pursuant to subsection (e) of this Section A, and
(iv) if less than the full number of shares of Series A Preferred Stock
evidenced by the surrendered certificate or certificates is being converted, a
new certificate or certificates, of like tenor, for the number of shares of
Series A Preferred Stock evidenced by such surrendered certificate or
certificates less the number of shares of Series A Preferred Stock being
converted. Such conversion shall be deemed to have occurred at the close of
business on the date (the "CONVERSION DATE") of the giving of such notice by
the holder of the Series A Preferred
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Stock to be converted and of such surrender of the certificate or certificates
representing the shares of Series A Preferred Stock to be converted so that as
of such time the rights of the holder thereof as to the shares being converted
shall cease except for the right to receive shares of Common Stock, shares of
Series B Preferred Stock and/or cash in accordance herewith, and the person
entitled to receive the shares of Common Stock and/or shares of Series B
Preferred Stock issued as a result of such conversion shall be treated for all
purposes as having become the holder of such shares of Common Stock and/or
shares of Series B Preferred Stock at such time.
(c) In the event that the Series A Preferred Stock is to be
redeemed pursuant to Article V hereof, from and after the Redemption Date, the
right of a holder to convert shares of Series A Preferred Stock pursuant to this
Section A shall cease and terminate, except if the Corporation shall default in
payment of the Redemption Price on the Redemption Date in which case all such
rights shall continue unless and until such shares are redeemed and such price
is paid in full in accordance with the terms hereof. Notwithstanding anything in
the foregoing to the contrary, if the Conversion Date shall occur with respect
to any shares of Series A Preferred Stock on or prior to any Redemption Date,
such shares of Series A Preferred Stock shall be converted by the Corporation
into Common Stock in the manner provided in this Section A.
(d) In connection with the conversion of any shares of
Series A Preferred Stock, no fractions of shares of Common Stock shall be
issued, but in lieu thereof the Corporation shall pay a cash adjustment in
respect of such fractional interest in an amount equal to such fractional
interest multiplied by the Closing Price per share of Common Stock on the
Conversion Date (or on the Trading Day immediately preceding the Conversion
Date, if the Conversion Date is not a Trading Day). If more than one share of
Series A Preferred Stock shall be surrendered for conversion by the same holder
on the same Conversion Date, the number of full shares of Common Stock issuable
on conversion thereof shall be computed on the basis of the total number of
shares of Series A Preferred Stock so surrendered.
(e) Notwithstanding anything in the foregoing to the
contrary, in the event that a Conversion Date with respect to a share of
Series A Preferred Stock occurs prior to the date on which the Series A
Shareholder Approval is obtained, as of such Conversion Date, subject to
subsection (d) of this Section A, such share shall be converted into that
number of shares of Common Stock equal to the quotient of (i) the Stated Amount
thereof, divided by (ii) the Conversion Price in effect on the Conversion Date,
and upon delivery of such shares in accordance with the terms hereof, the
Corporation shall pay in cash all accrued and unpaid dividends on such share as
directed by the holder thereof; PROVIDED, HOWEVER, that if, as of such
Conversion Date, the Corporation is prohibited by the terms of the Credit
Agreement (as in effect on the date of the Investment Agreement or any Credit
Agreement containing restrictions regarding such payments that are no more
restrictive that those in effect on the date of the Investment Agreement) or
the Indenture (as in effect on the date of the Investment Agreement or any
Indenture containing restrictions regarding such payments that are no more
restrictive that those in effect on the date of the Investment Agreement) from
paying such accrued and unpaid dividends in cash as required pursuant to this
sentence, in satisfaction of such accrued and unpaid dividends and in lieu of
such cash payment, the Corporation may deliver shares of Series B Preferred
Stock having an aggregate stated value equal to the aggregate amount of such
accrued and unpaid dividends. Until the Series A Shareholder Approval is
obtained, the Corporation shall not (A) utilize amounts available under
Section 6.06(a)(ii) of the Credit Agreement (or any comparable provision of
the Credit Agreement) for any purpose except to pay dividends in respect of
the Series A Preferred Stock in cash as required pursuant to this
subsection (e) or to make payments with respect to the Series B Preferred Stock,
or (B) amend the Credit Agreement in any manner so as to reduce the amounts
available to pay dividends in respect of the Series A Preferred Stock in cash
under Section 6.06(a)(ii) of the Credit Agreement (or any
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comparable provision of the Credit Agreement). Notwithstanding the foregoing,
this paragraph shall not prohibit (i) the acquisition, repurchase, exchange,
conversion, redemption or other retirement for value of shares of Series A
Preferred Stock or any Parity Dividend Security by the Corporation in accordance
with the terms of such securities, (ii) purchases of Equity Securities of the
Corporation or any of its Subsidiaries from executives and other
management-level employees of the Corporation or any of its Subsidiaries in
connection with customary employment and severance arrangements, or (iii) the
acquisition, repurchase, exchange, conversion, redemption or other retirement
for value by the Corporation of any Junior Dividend Securities by the
Corporation in accordance with obligations in existence at the time of original
issuance of the Series A Preferred Stock.
(f) The Corporation shall at all times reserve and keep
available for issuance upon the conversion of the Series A Preferred Stock in
accordance with the terms hereof, such number of its authorized but unissued
shares of Common Stock as will from time to time be sufficient to permit the
conversion of all outstanding shares of Series A Preferred Stock, and shall take
all action required to increase the authorized number of shares of Common Stock
if necessary to permit the conversion of all outstanding shares of Series A
Preferred Stock.
B. ADJUSTMENT OF CONVERSION PRICE. Except in connection with
an Organic Change, which shall be subject to Section C below, the Conversion
Price shall be subject to adjustment from time to time as follows:
(a) STOCK DIVIDENDS. In case the Corporation after the date
of the original issuance of the Series A Preferred Stock shall pay a dividend or
make a distribution to all holders of shares of Common Stock in shares of Common
Stock, then in any such case the Conversion Price in effect at the opening of
business on the day following the record date for the determination of
stockholders entitled to receive such dividend or distribution shall be reduced
to a price obtained by multiplying such Conversion Price by a fraction of which
(x) the numerator shall be the number of shares of Common Stock outstanding at
the close of business on such record date and (y) the denominator shall be the
sum of such number of shares of Common Stock outstanding and the total number of
shares of Common Stock constituting such dividend or distribution, such
reduction to become effective immediately after the opening of business on the
day following such record date. For purposes of this subsection (a), the number
of shares of Common Stock at any time outstanding shall not include shares held
in the treasury of the Corporation but shall include shares issuable in respect
of scrip certificates issued in lieu of fractions of shares of Common Stock. The
Corporation will not pay any dividend or make any distribution on shares of
Common Stock held in the treasury of the Corporation.
(b) STOCK SPLITS AND REVERSE SPLITS. In case after the date
of the original issuance of the Series A Preferred Stock 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
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proportionately reduced, and, conversely, in case after the original issuance of
the Series A Preferred Stock 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.
(c) ISSUANCES BELOW MARKET. In case the Corporation after
the date of the original issuance of the Series A Preferred Stock shall issue
rights or warrants to holders of shares of Common Stock entitling them to
subscribe for or purchase shares of Common Stock at a price per share less than
the Closing Price per share on the record date for the determination of
stockholders entitled to receive such rights or warrants, the Conversion Price
in effect at the opening of business on the day following such record date shall
be adjusted to a price obtained by multiplying such Conversion Price by a
fraction of which (x) the numerator shall be the number of shares of Common
Stock outstanding at the close of business on such record date PLUS the number
of shares of Common Stock that the aggregate offering price of the total number
of shares so to be offered would purchase at such Closing Price and (y) the
denominator shall be the number of shares of Common Stock outstanding at the
close of business on such record date PLUS the number of additional shares of
Common Stock so to be offered for subscription or purchase, such adjustment to
become effective immediately after the opening of business on the day following
such record date; PROVIDED, HOWEVER, that no adjustment shall be made if the
Corporation issues or distributes to each holder of Series A Preferred Stock the
rights or warrants that each such holder would have been entitled to receive had
the Series A Preferred Stock held by such holder been converted prior to such
record date. For purposes of this subsection (c), the number of shares of Common
Stock at any time outstanding shall not include shares held in the treasury of
the Corporation but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock. The
Corporation shall not issue any rights or warrants in respect of shares of
Common Stock held in the treasury of the Corporation. Rights or warrants issued
by the Corporation to all holders of Common Stock entitling the holders thereof
to subscribe for or purchase Equity Securities, which rights or warrants (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, including shares of Common Stock issued upon conversion of shares of
Series A Preferred Stock, in each case in clauses (i) through (iii) until the
occurrence of a specified event or events (a "TRIGGER EVENT"), shall for
purposes of this subsection (c) not be deemed issued until the occurrence of the
earliest Trigger Event.
(d) SPECIAL DIVIDENDS. In case the Corporation after the
date of the original issuance of the Series A Preferred Stock shall distribute
to all holders of shares of Common Stock evidences of its indebtedness or assets
(excluding any regular periodic cash dividend but including any extraordinary
cash dividend), Equity Securities (other than Common Stock) or rights to
subscribe (excluding those referred to in subsection (c) above) for Equity
Securities other than Common Stock, in each such case the Conversion Price in
effect immediately prior to the close of business on the record date for the
determination of stockholders entitled to receive such distribution shall be
adjusted to a price obtained by multiplying such Conversion Price by a fraction
of which (x) the numerator shall be the Closing Price per share of Common Stock
on such record date, LESS the then-current fair market value as of such record
date (as determined by
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the Board of Directors in its good faith judgment) of the portion of assets or
evidences of indebtedness or Equity Securities or subscription rights so
distributed applicable to one share of Common Stock, and (y) the denominator
shall be such Closing Price, such adjustment to become effective immediately
prior to the opening of business on the day following such record date;
PROVIDED, HOWEVER, that no adjustment shall be made (1) if the Corporation
issues or distributes to each holder of Series A Preferred Stock the
subscription rights referred to above that each such holder would have been
entitled to receive had the Series A Preferred Stock held by such holder been
converted prior to such record date or (2) if the Corporation grants to each
such holder the right to receive, upon the conversion of the Series A Preferred
Stock held by such holder at any time after the distribution of the evidences of
indebtedness or assets or Equity Securities referred to above, the evidences of
indebtedness or assets or Equity Securities that such holder would have been
entitled to receive had such Series A Preferred Stock been converted prior to
such record date. The Corporation shall provide any holder of Series A Preferred
Stock, upon receipt of a written request therefor, with any indenture or other
instrument defining the rights of the holders of any indebtedness, assets,
subscription rights or Equity Securities referred to in this subsection (d).
Rights or warrants issued by the Corporation to all holders of Common Stock
entitling the holders thereof to subscribe for or purchase Equity Securities,
which rights or warrants (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, including shares of Common Stock issued upon
conversion of shares of Series A Preferred Stock, in each case in clauses (i)
through (iii) until the occurrence of a Trigger Event, shall for purposes of
this subsection (d) not be deemed issued until the occurrence of the earliest
Trigger Event.
(e) TENDER OR EXCHANGE OFFER. In case, after the date of the
original issuance of the Series A Preferred Stock, a tender or exchange offer
made by the Corporation or any subsidiary of the Corporation for all or any
portion of the Common Stock shall be consummated and such tender offer shall
involve an aggregate consideration having a fair market value (as determined by
the Board of Directors in its good faith judgment) at the last time (the "OFFER
TIME") tenders may be made pursuant to such tender or exchange offer (as it may
be amended) that, together with the aggregate of the cash plus the fair market
value (as determined by the Board of Directors in its good faith judgment), as
of the Offer Time, of consideration payable in respect of any tender or exchange
offer by the Corporation or any such subsidiary for all or any portion of the
Common Stock consummated preceding the Offer Time and in respect of which no
Conversion Price adjustment pursuant to this subsection (e) has been made,
exceeds 5% of the product of the Closing Price of the Common Stock at the Offer
Time multiplied by the number of shares of Common Stock outstanding (including
any tendered shares) at the Offer Time, 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 Offer Time by a fraction of which
(x) the numerator shall be (i) the product of the Closing Price of the Common
Stock at the Offer Time multiplied by the number of shares of Common Stock
outstanding (including any tendered shares) at the Offer Time minus (ii) the
fair market value (determined as aforesaid) of the aggregate consideration
payable to stockholders based on the acceptance (up to any maximum specified
in the terms of the tender or exchange offer) of all shares validly tendered
and not withdrawn as of the Offer Time (the shares deemed so accepted, up to
any such maximum, being referred to as the "PURCHASED Shares") and (y) the
denominator shall be the product of (i) such Closing Price at the Offer Time
multiplied by (ii) such number of outstanding
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shares at the Offer Time minus the number of Purchased Shares, such reduction to
become effective immediately prior to the opening of business on the day
following the Offer Time. For purposes of this subsection (e), the number of
shares of Common Stock at any time outstanding shall not include shares held in
the treasury of the Corporation but shall include shares issuable in respect of
scrip certificates issued in lieu of fractions of shares of Common Stock.
(f) CLOSING PRICE DETERMINATION. For the purpose of any
computation under subsections (c) and (d) of this Section B, the Closing Price
of Common Stock on any date shall be deemed to be the average of the Closing
Prices for the five consecutive Trading Days ending on the day in question (or
if such day is not a Trading Day, the next preceding Trading Day), PROVIDED,
HOWEVER, that (i) if the "ex" date for any event (other than the issuance or
distribution requiring such computation) that requires an adjustment to the
Conversion Price pursuant to this Section occurs on or after the 20th Trading
Day prior to the day in question and prior to the "ex" date for the issuance or
distribution requiring such computation, 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 which the Conversion Price is so
required to be adjusted as a result of such other event, (ii) if the "ex" date
for any event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the Conversion Price pursuant to
this Section occurs on or after the "ex" date for the issuance or distribution
requiring such computation and on or 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 (iii) if the "ex" date for the issuance or distribution
requiring such computation is on or prior to the day in question, after taking
into account any adjustment required pursuant to clause (ii) of this proviso,
the Closing Price for each Trading Day on or after such "ex" date shall be
adjusted by adding thereto the fair market value on the day in question (as
determined by the Board of Directors in a manner consistent with any
determination of such value for the purposes of subsection (d) of this
Section B) of the assets, evidences of indebtedness, Equity Securities or
subscription rights being distributed applicable to one share of Common Stock
as of the close of business on the day before such "ex" date. For the purposes
of any computation under subsection (e) of this Section B, the Closing Price on
any date shall be deemed to be the average of the daily Closing Prices for the
five consecutive Trading Days ending at the Offer Time; 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 this Section occurs on or after the date of commencement of such
tender or exchange offer and prior to the Offer Time for such tender or exchange
offer, 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. For purposes of this subsection (f), the term "ex" date,
(i) when used with respect to any issuance or distribution, means the first date
on which the Common Stock trades regular way on the NYSE or 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, (ii) 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 the NYSE or such
exchange or in such market after the time at which such subdivision or
combination becomes effective, and (iii) when used with respect to any tender
or exchange offer
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means the first date on which the Common Stock trades regular way on the NYSE or
such exchange or in such market after the Offer Time of such tender or exchange
offer.
(g) The Corporation may make such reductions in the
Conversion Price, in addition to those required by clauses (a), (b), (c), (d),
(e) and (f) of this Section B, as it considers to be advisable to avoid or
diminish any income tax to holders of Common Stock or rights to purchase Common
Stock resulting from any dividend or distribution of stock or from any event
treated as such for income tax purposes. Whenever the Conversion Price is
reduced pursuant to the preceding sentence, the Corporation shall mail to the
holders of then-outstanding shares of Series A Preferred Stock a notice of the
reduction at least fifteen (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 will be in effect.
(h) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least one
percent (1%) in the Conversion Price; PROVIDED, HOWEVER, that any adjustments
which by reason of this subsection (h) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
(i) Notwithstanding any other provision of this Section B,
no adjustment to the Conversion Price shall reduce the Conversion Price below
$0.25, and any such purported adjustment shall instead reduce the Conversion
Price to $0.25. The Corporation hereby covenants not to take any action that
would or does result in any adjustment in the Conversion Price that, if made
without giving effect to the previous sentence, would cause the Conversion Price
to be less than $0.25.
(j) Whenever the Conversion Price is adjusted as herein
provided, a notice stating that the Conversion Price has been adjusted and
setting forth the adjusted Conversion Price shall promptly be mailed by the
Corporation to the holders of the Series A Preferred Stock.
C. ORGANIC CHANGE.
(a) CORPORATION SURVIVES. Upon the consummation of an
Organic Change (other than a transaction in which the Corporation is not the
surviving entity), then lawful provision shall be made as part of the terms of
such transaction whereby the terms hereof shall be modified, without payment of
any additional consideration by any holder, so as to provide that upon the
conversion of shares of Series A Preferred Stock following the consummation of
such Organic Change, a holder of Series A Preferred Stock shall have the right
to acquire and receive (in lieu of or in addition to the shares of Common Stock
acquirable and receivable prior to the Organic Change), without payment of
additional consideration therefor (except as would otherwise have been required
by the terms of the Series A Preferred Stock as in effect prior to such Organic
Change), such securities, cash and other property as such holder would have
received if such holder had converted such shares of Series A Preferred Stock
into Common Stock immediately prior to such Organic Change. Lawful provision
also shall be made as part of the terms of the Organic Change so that all other
terms hereof shall remain in full force and effect following such an Organic
Change. The provisions of this subsection (a) shall similarly apply to
successive Organic Changes of the character described in this subsection (a).
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(b) CORPORATION DOES NOT SURVIVE. The Corporation shall not
enter into an Organic Change that is a transaction in which the Corporation is
not the surviving entity unless lawful provision shall be made as part of the
terms of such transaction whereby the surviving entity shall issue new
securities (the "NEW SECURITIES") to each holder of Series A Preferred Stock,
without payment of any additional consideration by such holder, with terms that
provide that upon the conversion of the New Securities, the holder of such
securities shall have the right to acquire and receive (in lieu of or in
addition to the shares of Common Stock acquirable and receivable prior to the
Organic Change), without payment of additional consideration therefor (except as
would otherwise have been required by the terms of the Series A Preferred Stock
as in effect prior to such Organic Change), such securities, cash and other
property as such holder would have received if such holder had converted such
shares of Series A Preferred Stock into Common Stock immediately prior to such
Organic Change. The certificate or articles of incorporation or other
constituent document of the surviving entity shall provide for such adjustments
which, for events subsequent to the effective date of such certificate or
articles of incorporation or other constituent document, shall be equivalent to
the adjustments provided for in Section B of this Article IX. All other terms of
such New Securities shall be substantially equivalent to the terms provided
herein. The provisions of this subsection (b) shall similarly apply to
successive Organic Changes of the character described in of this subsection (b).
D. CERTAIN EVENTS. If any event similar to or of the type
contemplated by the provisions of Section B or Section C of this Article IX, but
not expressly provided for by such provisions, occurs, then the Board of
Directors of the Corporation, will make an appropriate and equitable adjustment
in the Conversion Price so as to protect the rights of the holders of Series A
Preferred Stock; PROVIDED, that no such adjustment will decrease the number of
shares of Common Stock issuable upon conversion of the Series A Preferred Stock.
E. NOTICE OF APPROVAL DATE. When and if the Approval Date
shall occur, the Corporation shall promptly mail or cause to be mailed a notice
of such occurrence to each holder of Series A Preferred Stock.
X. ADDITIONAL DEFINITIONS
For the purposes of this Certificate of Designations of
Series A Preferred Stock, the following terms shall have the meanings indicated:
"AFFILIATE" has the meaning set forth in Rule 12b-2 under the
Exchange Act as in effect on the date of the Investment Agreement. The term
"Affiliated" has a correlative meaning. Notwithstanding the foregoing, for all
purposes hereof, the Investor, and each Person controlled by, controlling or
under common control with the Investor (each, a "TPG PERSON"), shall not be
deemed an "Affiliate" of any Designated Purchaser Person (as defined below), and
no Designated Purchaser, and no Person controlled by, controlling or under
common control with such Designated Purchaser (each, a "DESIGNATED PURCHASER
PERSON"), shall be deemed an "Affiliate" of any TPG Person or any other
Designated Purchaser Person, in any such case solely as a consequence of this
Agreement or the transactions contemplated hereby.
"APPROVAL DATE" means the date, if any, on which the
Corporation obtains the Series A Shareholder Approval.
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"BENEFICIALLY OWN" with respect to any securities means having
"beneficial ownership" of such securities (as determined pursuant to Rule 13d-3
under the Exchange Act as in effect on the date of the Investment Agreement,
except that a Person shall be deemed to Beneficially Own all such securities
that such Person has the right to acquire whether such right is exercisable
immediately or after the passage of time). The terms "Beneficial Ownership" and
"Beneficial Owner" have correlative meanings. Notwithstanding the foregoing, for
all purposes hereof, (i) no TPG Person shall be deemed to Beneficially Own any
securities that are held by any Designated Purchaser Person, and no Designated
Purchaser Person shall be deemed to Beneficially Own any securities that are
held by any TPG Person or any other Designated Purchaser Person, in any such
case solely as a consequence of this Agreement or the transactions contemplated
hereby, and (ii) no member of the Investor Group shall be deemed to Beneficially
Own any Option Shares or securities issuable in respect of the Option Shares
unless and until the Option is exercised.
"BUSINESS DAY" means any day, other than a Saturday, 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.
"BYLAWS" means the Bylaws of the Corporation, as amended from
time to time.
"CHANGE OF CONTROL" shall be deemed to have occurred if (a)
any person or group (within the meaning of Rule 13d-5 under the Exchange Act as
in effect on February 12, 1998) shall own directly or indirectly, beneficially
or of record, shares representing more than 35% of the aggregate ordinary voting
power represented by the issued and outstanding Equity Securities of the
Corporation, other than any Person or Group that owned at least 5% of such
Equity Securities on the Closing Date (as such term is defined in the Credit
Agreement as in effect on the date of the Investment Agreement); (b) a majority
of the seats (other than vacant seats) on the board of directors of the
Corporation shall at any time be occupied by persons who were neither
(i) nominated by the board of directors of the Corporation nor (ii) appointed
by directors so nominated; (c) any change in control (or similar event, however
denominated) with respect to the Corporation shall occur under and as defined in
any indenture or agreement in respect of Indebtedness for borrowed money in
excess of the aggregate principal amount of $10,000,000 to which any Borrower
(as such term is defined in the Credit Agreement as in effect on the date of the
Investment Agreement) or any Guarantor (as such term is defined in the Credit
Agreement as in effect on the date of the Investment Agreement) is a party,
other than the Existing Parent Borrower Notes Indenture (as such term is defined
in the Credit Agreement as in effect on the date of the Investment Agreement) in
connection with a Permitted CBHS Sale (as such term is defined in the Credit
Agreement as in effect on the date of the Investment Agreement); or (d) a
"Change in Control" or "Change of Control" (or similar event) shall have
occurred under the Credit Agreement or the Senior Subordinated Notes, unless, in
the case of a "Change of Control" under the Indenture, the aggregate principal
amount outstanding under the Senior Subordinated Notes is less than $10,000,000.
Notwithstanding the foregoing, no event described above shall constitute a
"Change of Control" if such event resulted directly from any action taken by the
Investor or any of its Affiliates.
"CLOSING" shall have the meaning assigned to such term in the
Investment Agreement.
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"CLOSING PRICE" with respect to a share of Common Stock on any
day means, subject to subsection (f) of Section B of Article IX if applicable,
the last reported sale price on that day or, in case no such reported sale takes
place on such day, the average of the last reported bid and asked prices,
regular way, on that day, in either case, as reported in the consolidated
transaction reporting system with respect to securities listed on the NYSE or,
if the shares of Common Stock are not listed on the NYSE, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the shares of
Common Stock are listed or, if the shares of Common Stock are not listed on NYSE
and not listed on any national securities exchange, the last quoted price or, if
not so quoted, the average of the high bid and low asked prices on such other
nationally recognized quotation system then in use, or, if on any such day the
shares of Common Stock are not quoted on any such quotation system, the average
of the closing bid and asked prices as furnished by a professional market maker
selected by the Board of Directors in good faith making a market in the shares
of Common Stock. If the shares of Common Stock are not publicly held or so
listed, quoted or publicly traded, the "Closing Price" means the fair market
value of a share of Common Stock, as determined in good faith by the Board of
Directors.
"CONVERSION PRICE" shall mean $9.375, as adjusted from time to
time pursuant to Section B of Article IX hereof. With respect to any share of
Series A Preferred Stock issued after the date of the original issuance of the
Series A Preferred Stock, the Conversion Price of such share shall be determined
as if such share were issued on the date of the original issuance of the
Series A Preferred Stock.
"CONVERSION SHARES" has the meaning set forth in the
Investment Agreement.
"CREDIT AGREEMENT" means the Credit Agreement, dated as of
February 12, 1998, among the Corporation, the banks and other financial
institutions named therein, and The Chase Manhattan Bank, as Administrative
Agent, together with all other documents entered into pursuant to or in
connection with the Credit Agreement, in each case, as the same may be amended,
restated, supplemented, extended, renewed or increased from time to time,
replaced, substituted, refunded or refinanced or otherwise modified from time to
time, in whole or in part, and any successive replacements, substitutions,
refundings or refinancings.
"DESIGNATED PURCHASER" has the meaning set forth in the
Investment Agreement.
"DESIGNATED PURCHASER PERSON" has the meaning set forth in the
definition of "Affiliate."
"EQUITY SECURITIES" of any Person, means any and all common
stock, preferred stock and any other class of capital stock of, and any
partnership or limited liability company interests in, such Person or any other
similar interests of any Person that is not a corporation, partnership or
limited liability company.
"EXCHANGE ACT" means the U.S. Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder, from time to
time.
"45-TRADING DAY AVERAGE PRICE" means the average of the
Closing Prices per share of Common Stock for the Trading Days in any period of
45 consecutive Trading Days (a
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"45-TRADING DAY REFERENCE PERIOD"); PROVIDED, HOWEVER, that in the event that an
adjustment to the Conversion Price takes effect pursuant to Section B of Article
IX hereof during the period used to compute such average, the Closing Prices
used to compute such average for all Trading Days ended prior to the time such
adjustment takes effect shall be similarly adjusted.
"45-TRADING DAY REFERENCE PERIOD" has the meaning set forth in
the definition of "45-Trading Day Average Price."
"GOVERNMENTAL ENTITY" means any government or political
subdivision or department thereof, any governmental or regulatory body,
commission, board, bureau, agency or instrumentality, or any court or arbitrator
or alternative dispute resolution body, in each case whether federal, state,
local or foreign.
"GROUP" has the meaning set forth in Rule 13d-5 under the
Exchange Act.
"GUARANTEE" means any direct or indirect obligation,
contingent or otherwise, to guarantee (or having the economic effect of
guaranteeing) Indebtedness in any manner, including, without limitation, any
monetary obligation to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness (whether arising by agreement to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise).
"INDEBTEDNESS" means, with respect to any Person, without
duplication, (i) all obligations of such Person for money borrowed, (ii) all
obligations of such Person evidenced by bonds, debentures, notes, or other
similar instruments, (iii) all obligations of such Person upon which interest
charges are customarily paid, (iv) all obligations of such Person under
conditional sale or other title retention agreements relating to property or
assets purchased by such Person, (v) all obligations of such Person issued or
assumed as the deferred purchase price of property or services (excluding
(x) trade accounts payable and accrued obligations incurred in the ordinary
course of business and (y) deferred earn-out and other performance-based payment
obligations incurred in connection with any Permitted Acquisition (as such term
is defined in the Credit Agreement as in effect on the date of the Investment
Agreement) or any similar transactions consummated prior to February 12, 1998),
(vi) all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (vii) all Guarantees by such
Person of Indebtedness of others, (viii) all capital lease obligations of such
Person, (ix) all obligations (determined on the basis of actual, not notional,
obligations) of such Person in respect of interest rate protection agreements,
foreign currency exchange agreements or other interest or exchange rate hedging
arrangements and (x) all obligations of such Person as an account party in
respect of letters of credit and bankers' acceptances issued in support of
obligations that constitute Indebtedness under any other clause of this
definition (unless such obligations are fully cash collateralized), PROVIDED
that all obligations in respect of letters of credit shall be deemed
Indebtedness to the extent drawings thereunder are unreimbursed (after any
applicable grace period) regardless of the purpose for which such letter of
credit was issued. The Indebtedness of any Person shall include the recourse
Indebtedness of any partnership in which such Person is a general partner.
Notwithstanding the foregoing, no portion of Indebtedness that becomes the
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subject of a defeasance (whether a legal defeasance or a "covenant" or "in
substance" defeasance) shall, at any time that such defeasance remains in
effect, be treated as Indebtedness for purposes hereof.
"INDENTURE" means the Indenture entered into between the
Corporation and the Marine Midland Bank, as Trustee, dated as of February 12,
1998, as the same may be amended, restated, supplemented, extended, renewed or
increased from time to time, replaced, substituted, refunded or refinanced or
otherwise modified from time to time, in whole or in part, and any successive
replacements, substitutions, refundings or refinancings.
"INVESTMENT AGREEMENT" means the Investment Agreement, dated
as of July 19, 1999, by and between the Investor and the Corporation, as
amended, supplemented or otherwise modified from time to time.
"INVESTOR" has the meaning set forth in the Investment
Agreement.
"INVESTOR GROUP" means, collectively, the Investor, the
Designated Purchasers, if any, and the respective Affiliates of such Persons.
"INVESTOR NOMINEE" means a person designated for election to
the Board of Directors by the Investor pursuant to the Investment Agreement.
"LAW" means any law, treaty, statute, ordinance, code, rule,
regulation, judgment, decree, order, writ, award, injunction or determination of
any Governmental Entity.
"LIEN" means any mortgage, pledge, lien , security interest,
claim, voting agreement, conditional sale agreement, title retention agreement,
restriction, option or encumbrance of any kind, character or description
whatsoever.
"MAKE-WHOLE PAYMENT" has the meaning set forth in the
Certificate of Designations with respect to the Series B Preferred Stock.
"NYSE" means the New York Stock Exchange, Inc.
"NYSE RULES" has the meaning set forth in the Investment
Agreement.
"180-DAY AVERAGE PRICE" means the average of the Closing
Prices per share of Common Stock for the Trading Days in any period of 180
consecutive calendar days (a "180-DAY REFERENCE PERIOD"); PROVIDED, HOWEVER,
that in the event that an adjustment to the Conversion Price takes effect
pursuant to Section B of Article IX hereof during the period used to compute
such average, the Closing Prices used to compute such average for all Trading
Days ended prior to the time such adjustment takes effect shall be similarly
adjusted.
"180-DAY REFERENCE PERIOD" has the meaning set forth in the
definition of "180-Day Average Price."
"OPTION" has the meaning set forth in the Investment
Agreement.
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"OPTION SHARES" has the meaning set forth in the Investment
Agreement.
"ORGANIC CHANGE" means, with respect to the Corporation, any
transaction (including without limitation any recapitalization, capital
reorganization or reclassification of any class of capital stock, any
consolidation or amalgamation of the Corporation with, or merger of the
Corporation into, any other Person, any merger of another Person into the
Corporation (other than a merger which does not result in a reclassification,
conversion, exchange or cancellation of outstanding shares of capital stock of
the Corporation), any sale or transfer or lease of all or substantially all of
the assets of the Corporation or any compulsory share exchange) pursuant to
which any class of capital stock of the Corporation is converted into the right
to receive other securities, cash or other property.
"PERSON" means any individual, corporation, company,
association, partnership, limited liability company, joint venture, trust or
unincorporated organization, or a government or any agency or political
subdivision thereof.
"REFERENCE PERIOD" means a 45-Trading Day Reference Period or
a 180-Day Reference Period, as the case may be.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of July 19, 1999, by and between the Investor and the
Corporation, as amended, supplemented or otherwise modified from time to time.
"REGULATORY APPROVALS" means any and all certificates,
permits, licenses, franchises, concessions, grants, consents, approvals, orders,
registrations, authorizations, waivers, variances or clearances from, or filings
or registrations with, Governmental Entities.
"SECURITIES ACT" means the U.S. Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder, from time to
time.
"SENIOR SUBORDINATED NOTES" means the Senior Subordinated
Notes of the Corporation issued pursuant to the Indenture.
"SERIES A SHAREHOLDER APPROVAL" means the approval by the
stockholders of the Corporation, in accordance with the General Corporation Law
of the State of Delaware and in accordance with and in satisfaction of Paragraph
312.00 of the NYSE's Listed Company Manual and the related NYSE Rules and
interpretations of (i) the issuance of Common Stock in respect of accrued and
unpaid dividends on the Series A Preferred Stock (including upon the conversion
or exchange thereof), (ii) the issuance of the Option Shares upon the exercise
of the Option and (iii) the issuance of Common Stock upon the conversion or
exchange of the Option Shares, in each case in accordance with the terms hereof
and the Investment Agreement.
"SUBSIDIARY" means as to any Person, any other Person of which
more than 50% of the shares of the voting stock or other voting interests are
owned or controlled, or the ability to select or elect more than 50% of the
directors or similar managers is held, directly or indirectly, by such first
Person or one or more of its Subsidiaries or by such first Person and one or
more of its Subsidiaries; PROVIDED, HOWEVER, that no Joint Venture (as such term
is defined in the
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Investment Agreement) shall be considered (i) a "Subsidiary" of the Corporation
or (ii) a "Subsidiary" of any Subsidiary of the Corporation.
"TPG PERSON" has the meaning set forth in the definition of
"Affiliate."
"TRADING DAY" means any day on which the NYSE is open for
trading, or if the shares of Common Stock are not quoted on the NYSE, any day on
which the principal national securities exchange or national quotation system on
which the shares of Common Stock are listed, admitted to trading or quoted is
open for trading, or if the shares of Common Stock are not so listed, admitted
to trading or quoted, any Business Day.
"TWO-WEEK AVERAGE PRICE" means the average of the Closing
Prices per share of Common Stock for the Trading Days in the two-calendar week
period ending on the last day of a Reference Period; PROVIDED, HOWEVER, that in
the event that an adjustment to the Conversion Price takes effect pursuant to
Section B of Article IX hereof during the period used to compute such average,
the Closing Prices used to compute such average for all Trading Days ended prior
to the time such adjustment takes effect shall be similarly adjusted.
"VOTING SECURITIES" means the shares of Common Stock and any
other securities of the Corporation entitled to vote generally for the election
of directors.
XI. MISCELLANEOUS
A. NOTICES. Any notice referred to herein shall be in writing
and, unless first-class mail shall be specifically permitted for such notices
under the terms hereof, shall be deemed to have been given upon personal
delivery thereof, upon transmittal of such notice by telecopy (with confirmation
of receipt by telecopy or telex) or five days after transmittal by registered or
certified mail, postage prepaid, addressed as follows:
(i) if to the Corporation, to its office at 6950 Columbia
Gateway Drive, Fourth Floor, Columbia, Maryland 21046 (Attention:
General Counsel) or to the transfer agent for the Series A Preferred
Stock;
(ii) if to a holder of the Series A Preferred Stock, to such
holder at the address of such holder as listed in the stock record
books of the Corporation (which may include the records of any transfer
agent for the Series A Preferred Stock); or
(iii) to such other address as the Corporation or such holder,
as the case may be, shall have designated by notice similarly given.
B. REACQUIRED SHARES. Any shares of Series A Preferred Stock
redeemed, purchased or otherwise acquired by the Corporation, directly or
indirectly, in any manner whatsoever shall be retired and canceled promptly
after the acquisition thereof (and shall not be deemed to be outstanding for any
purpose) and, if necessary to provide for the lawful redemption or purchase of
such shares, the capital represented by such shares shall be reduced in
accordance with the Delaware General Corporation Law. All such shares of
Series A Preferred Stock shall upon their cancellation and upon the filing of
an appropriate certificate with the Secretary of State of the State of Delaware,
become authorized but unissued shares of Preferred Stock, without par value, of
the Corporation and may be reissued as part of another series of Preferred
Stock,
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without par value, of the Corporation subject to the conditions or restrictions
on issuance set forth herein.
C. ENFORCEMENT. Any registered holder of shares of Series A
Preferred Stock may proceed to protect and enforce its rights and the rights of
such holders by any available remedy by proceeding at law or in equity to
protect and enforce any such rights, whether for the specific enforcement of any
provision in this Certificate of Designations or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
D. TRANSFER TAXES. Except as otherwise agreed upon pursuant to
the terms of this Certificate of Designations, the Corporation shall pay any and
all documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Common Stock or Debentures on conversion or exchange
of, or other securities or property issued on account of, shares of Series A
Preferred Stock pursuant hereto or certificates representing such shares or
securities. The Corporation shall not, however, be required to pay any such tax
or other charge that may be imposed in connection with any transfer involved in
the issue or transfer and delivery of any certificate for Common Stock or
Debentures or other securities or property in a name other than that in which
the shares of Series A Preferred Stock so converted or exchanged, or on account
of which such securities were issued, were registered and no such issue or
delivery shall be made unless and until the Person requesting such issue has
paid to the Corporation the amount of any such tax or has established to the
satisfaction of the Corporation that such tax has been paid or is not payable.
E. TRANSFER AGENT. The Corporation may appoint, and from time
to time discharge and change, a transfer agent for the Series A Preferred Stock.
Upon any such appointment or discharge of a transfer agent, the Corporation
shall send notice thereof by first-class mail, postage prepaid, to each holder
of record of shares of Series A Preferred Stock.
F. RECORD DATES. In the event that the Series A Preferred
Stock shall be registered under either the Securities Act or the Exchange Act,
the Corporation shall establish appropriate record dates with respect to
payments and other actions to be made with respect to the Series A Preferred
Stock.
G. SUBORDINATION TO SENIOR SUBORDINATED NOTES. By accepting a
share of Series A Preferred Stock or Debenture, the holder thereof shall be
deemed to have acknowledged and agreed that (a) such holder's right to receive
payments in respect of the Series A Preferred Stock or Debenture is subject and
subordinated in right of payment to the payment in full and discharge of all
amounts (however denominated) then due and payable under the Senior Subordinated
Notes, and (b) until payment in full of all such amounts (however denominated)
under the Senior Subordinated Notes has been made in cash, no payment, whether
directly or indirectly, by exercise of any right of set off or otherwise in
respect of the Series A Preferred Stock or Debenture shall be made by the
Corporation, and no deposit in respect of the Series A Preferred Stock or
Debenture shall be made pursuant to the terms hereof. In the event that any
payment by, or distribution of the assets of, the Corporation of any kind or
character (whether in cash, property or securities, whether directly or
indirectly, by exercise of any right of set-off or
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otherwise and whether as a result of a bankruptcy proceeding with respect to the
Corporation or otherwise) shall be received by a holder of Series A Preferred
Stock at any time when such payment is prohibited by this paragraph, such
payment shall be held in trust for the benefit of, and shall be paid over to,
the holders of Senior Subordinated Notes as their interests may appear. The
preceding two sentences address the relative rights of holders of Series A
Preferred Stock or Debentures, on the one hand, and the holders of Senior
Subordinated Notes, on the other hand, and nothing in this Certificate of
Designations shall impair, as between the Corporation and the holders of Series
A Preferred Stock or Debentures, the obligation of the Corporation, which is
absolute and unconditional, to pay amounts due in respect of the Series A
Preferred Stock and Debentures in accordance with their terms. This Section G
shall not be construed to limit in any manner the subordination provisions set
forth in Section D of Article V hereof.
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IN WITNESS WHEREOF, this Certificate of Designations is
executed on behalf of the Corporation by its Chief Financial Officer and
attested by its Assistant Secretary, this [ ] day of [ ], 1999.
MAGELLAN HEALTH SERVICES, INC.
By:
---------------------------------
Name: Cliff Donnelly
Title: Chief Financial Officer
[Corporate Seal]
ATTEST:
- ------------------------------------
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EXHIBIT B
Form of Series B Certificate of Designations
CERTIFICATE OF DESIGNATIONS
OF
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
MAGELLAN HEALTH SERVICES, INC.
(PURSUANT TO SECTION 151 OF THE
DELAWARE GENERAL CORPORATION LAW)
--------------
Magellan Health Services, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"CORPORATION"), hereby certifies that the following resolutions were adopted by
the Board of Directors of the Corporation (the "BOARD OF DIRECTORS") pursuant to
authority of the Board of Directors as required by Section 151 of the General
Corporation Law of the State of Delaware:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors in accordance with the provisions of the Restated
Certificate of Incorporation of the Corporation, as amended (the "CERTIFICATE OF
INCORPORATION"), the Board of Directors hereby creates a series of the
Corporation's previously authorized preferred stock, without par value (the
"PREFERRED STOCK"), and hereby states the designation and number thereof, and
fixes the voting powers, preferences and relative, participating, optional and
other special rights, and the qualifications, limitations and restrictions
thereof, as follows:
Series B Cumulative Convertible Preferred Stock:
I. DESIGNATION AND AMOUNT
The designation of this series of shares shall be "Series B
Cumulative Convertible Preferred Stock" (the "SERIES B PREFERRED STOCK"); the
stated value per share shall be $1,000 (the "STATED VALUE"); and the number of
shares constituting such series shall be [_________]. Shares of Series B
Preferred Stock may be issued by the Company from time to time by a resolution
or resolutions of the Board of Directors. The number of shares of the Series B
Preferred Stock may be decreased from time to time by a resolution or
resolutions of the Board of Directors; PROVIDED, HOWEVER, that such number shall
not be decreased below the sum of the aggregate number of shares of the Series B
Preferred Stock then outstanding and the number of shares of the Series B
Preferred Stock that the Corporation may be obligated to issue pursuant to the
terms of the Series A Preferred Stock (as defined below).
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II. RANK
A. With respect to dividend rights, the Series B Preferred
Stock shall rank (i) junior to each other class or series of Preferred Stock
which by its terms ranks senior to the Series B Preferred Stock as to payment of
dividends, (ii) on a parity with each other class or series of Preferred Stock
which by its terms ranks on a parity with the Series B Preferred Stock as to
payment of dividends, including the Series A Cumulative Convertible Preferred
Stock, without par value (the "SERIES A PREFERRED STOCK"), of the Corporation
and (iii) prior to the Corporation's Series C Junior Participating Preferred
Stock, par value $0.01 per share (the "JUNIOR PREFERRED STOCK"), and Common
Stock, par value $0.25 per share (the "COMMON STOCK"), and, except as specified
above, all other classes and series of capital stock of the Corporation
hereafter issued by the Corporation. With respect to dividends, all equity
securities of the Corporation to which the Series B Preferred Stock ranks
senior, including the Common Stock, are collectively referred to herein as the
"JUNIOR DIVIDEND SECURITIES"; all equity securities of the Corporation with
which the Series B Preferred Stock ranks on a parity, including the Series A
Preferred Stock, are collectively referred to herein as the "PARITY DIVIDEND
SECURITIES"; and all equity securities of the Corporation (other than
convertible debt securities) to which the Series B Preferred Stock ranks junior,
with respect to dividends, are collectively referred to herein as the "SENIOR
DIVIDEND SECURITIES."
B. With respect to the distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the Series B Preferred Stock shall rank (i) junior to each other
class or series of Preferred Stock which by its terms ranks senior to the Series
B Preferred Stock as to distribution of assets upon liquidation, dissolution or
winding up, (ii) on a parity with each other class or series of Preferred Stock
which by its terms ranks on a parity with the Series B Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding up of the
Corporation, including the Series A Preferred Stock, and (iii) prior to the
Junior Preferred Stock and Common Stock, and, except as specified above, all
other classes and series of capital stock of the Corporation hereinafter issued
by the Corporation. With respect to the distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
all equity securities of the Corporation to which the Series B Preferred Stock
ranks senior, including the Common Stock, are collectively referred to herein as
"JUNIOR LIQUIDATION SECURITIES" (and together with the Junior Dividend
Securities are referred to herein as the "JUNIOR SECURITIES"); all equity
securities of the Corporation (other than convertible debt securities) to which
the Series B Preferred Stock ranks on parity, including the Series A Preferred
Stock, are collectively referred to herein as "PARITY LIQUIDATION SECURITIES"
(and together with the Parity Dividend Securities are referred to herein as the
"PARITY SECURITIES"); and all equity securities of the Corporation to which the
Series B Preferred Stock ranks junior are collectively referred to herein as
"SENIOR LIQUIDATION SECURITIES" (and together with the Senior Dividend
Securities are referred to herein as the "SENIOR SECURITIES").
III. DIVIDENDS
A. DIVIDENDS. Shares of Series B Preferred Stock shall
accumulate dividends at a rate of 6.50% PER ANNUM; PROVIDED, that in the event
that the Series B Shareholder Approval has not been obtained by the Corporation
on or prior to the Anniversary Date, shares of Series B Preferred Stock shall
accumulate dividends at a rate of 12.00% PER ANNUM from and after the
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Anniversary Date through the Approval Date. After the Approval Date, shares of
Series B Preferred Stock shall accumulate dividends at a rate of 6.50% PER
ANNUM. Payment of dividends shall be made in cash except as otherwise provided
in this Article III. Dividends shall be paid in four equal quarterly
installments on the last day of March, June, September and December of each
year, or if any such date is not a Business Day, on the Business Day next
preceding such day (each such date, regardless of whether any dividends have
been paid or declared and set aside for payment on such date, a "DIVIDEND
PAYMENT Date"), to holders of record (the "REGISTERED HOLDERS") as they appear
on the stock record books of the Corporation on the fifteenth day prior to the
relevant Dividend Payment Date; PROVIDED, HOWEVER, that the Corporation may
elect not to make any dividend payment due hereunder on any Dividend Payment
Date (other than as required in connection with any redemption or repurchase of
shares of Series B Preferred Stock or any liquidation, dissolution or winding up
of the Corporation), and any such amount then due in respect of dividends shall
constitute an Arrearage (as defined below). Dividends shall be paid only when,
as and if declared by the Board of Directors out of funds at the time legally
available for the payment of dividends. Dividends shall begin to accumulate on
outstanding shares of Series B Preferred Stock from the date of issuance and
shall be deemed to accumulate from day to day whether or not earned or declared
until paid. Dividends shall accumulate on the basis of a 360-day year consisting
of twelve 30-day months (four 90-day quarters) and the actual number of days
elapsed in the period for which payable. Dividends payable at more than one
annual rate for any dividend period or partial dividend period shall be pro
rated on the basis of the number of days in such dividend period or partial
dividend period, calculated as aforesaid, and the actual number of days elapsed
for which dividends are payable at each such annual rate.
B. ACCUMULATION. Dividends on the Series B Preferred Stock
shall be cumulative, and from and after any Dividend Payment Date on which any
dividend that has accumulated or been deemed to have accumulated through such
date has not been paid in full or any payment date set for a redemption or
repurchase on which such redemption or repurchase payment has not been paid in
full, additional dividends shall accumulate in respect of the amount of such
unpaid dividends or unpaid redemption or repurchase payment (such amount, the
"ARREARAGE") at the annual rate then in effect as provided in Section A of this
Article III (or such lesser rate as may be the maximum rate that is then
permitted by applicable law). Such additional dividends in respect of any
Arrearage shall be deemed to accumulate from day to day whether or not earned or
declared until the Arrearage is paid, shall be calculated as of such successive
Dividend Payment Date and shall constitute an additional Arrearage from and
after any Dividend Payment Date to the extent not paid on such Dividend Payment
Date. References in any Article herein to dividends that have accumulated or
that have been deemed to have accumulated with respect to the Series B Preferred
Stock shall include the amount, if any, of any Arrearage together with any
dividends accumulated or deemed to have accumulated on such Arrearage pursuant
to the immediately preceding two sentences. Additional dividends in respect of
any Arrearage may be declared and paid at any time, in whole or in part, without
reference to any regular Dividend Payment Date, to Registered Holders as they
appear on the stock record books of the Corporation on such record date as may
be fixed by the Board of Directors (which record date shall be no less than 10
days prior to the corresponding payment date).
C. PAYMENT IN COMMON STOCK. Notwithstanding the provisions of
Section A of this Article III, (i) any dividend payment (such payment, a
"NON-ARREARAGE PAYMENT") made in
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full on the first Dividend Payment Date on which such payment is due (without
taking into account the proviso to the fourth sentence of Section A of this
Article III in determining the first Dividend Payment Date on which such payment
is due) and (ii) any payment (such payment, an "ARREARAGE PAYMENT") made at any
time prior to the second anniversary of the original issuance of the Series A
Preferred Stock in respect of any dividend Arrearage, may be made in the form of
shares of Common Stock; PROVIDED that:
(i) the Common Stock is then validly listed for trading on
the NYSE or other national securities exchange or quoted on a
nationally recognized quotation system;
(ii) such shares of Common Stock have been duly authorized
and when issued in connection with such payment, will be validly
issued, fully paid and non-assessable;
(iii) the issuance of such shares of Common Stock in
satisfaction of such payment does not: (a) violate any provision of the
Certificate of Incorporation or the Bylaws; (b) give rise to any
preemptive rights, rights of first refusal or other similar rights on
behalf of any Person under any applicable Law or any provision of the
Certificate of Incorporation or the Bylaws or any agreement or
instrument applicable to the Corporation or any of its Subsidiaries;
(c) conflict with, contravene or result in a breach or violation of any
of the terms or provisions of, or constitute a default (with or without
notice or the passage of time) under, or result in or give rise to a
right of termination, cancellation, acceleration or modification of any
right or obligation under, or give rise to a right to put or to compel
a tender offer for outstanding securities of the Corporation or any of
its Subsidiaries under, or require any consent, waiver or approval
under, any note, bond, debt instrument, indenture, mortgage, deed of
trust, lease, loan agreement, joint venture agreement, Regulatory
Approval, contract or any other agreement, instrument or obligation to
which the Corporation or any of its Subsidiaries is a party or by which
the Corporation or any of its Subsidiaries or any property of the
Corporation or any of its Subsidiaries is bound (assuming for the
purpose of this clause (c) that all conditions precedent to the
conversion of Series B Preferred Stock have been satisfied and that all
outstanding shares of the Series B Preferred Stock have been converted
into Common Stock); (d) result in the creation or imposition of any
Lien upon any assets or properties of the Corporation or any of its
Subsidiaries; or (e) violate any Law applicable to the Corporation or
any of its Subsidiaries;
(iv) (a) no default or event of default, or event that with
notice or the passage of time would constitute a default or event of
default, has occurred and is continuing (or will occur as a result of
the issuance of shares of Common Stock in satisfaction of such
payment), under any contract, agreement, indenture, mortgage, note,
lease or other instrument evidencing Indebtedness of the Corporation or
any of its Subsidiaries (other than inter-company Indebtedness between
the Corporation and any of its Subsidiaries or between Subsidiaries of
the Corporation) the outstanding principal amount of which is in excess
of $10,000,000 and as a result of such default, event of default or
event the holders thereof have accelerated or have the right to
accelerate (or would have the right to accelerate with notice or the
passage of time) the maturity thereof, and (b) the Corporation has not
been notified that a breach of the Investment Agreement or the terms
B-4
of the Series A Preferred Stock or Series B Preferred Stock has
occurred and is continuing;
(v) (a) with respect to any Non-Arrearage Payment, the
Trailing Average Value (as defined below) is equal to or greater than
the product of (A) 0.40, multiplied by (B) the Conversion Price, and
(b) with respect to any Arrearage Payment, the Trailing Average Value
(as defined below) is equal to or greater than the product of (A) 0.60,
multiplied by (B) the Conversion Price;
(vi) (a) with respect to any Non-Arrearage Payment, the
average daily trading volume in the Common Stock during the period used
to calculate the Trailing Average Value is at least 50% of the average
daily trading volume in the Common Stock for the 180-day period ending
on the date of the Investment Agreement, and (b) with respect to any
Arrearage Payment, the average daily trading volume in the Common Stock
during the period used to calculate the Trailing Average Value is at
least 67% of the average daily trading volume in the Common Stock for
the 180-day period ending on the date of the Investment Agreement;
(vii) the issuance of such shares of Common Stock in
satisfaction of such payment does not require the approval or
affirmative vote of the holders of any class or series of the
Corporation's Equity Securities; and
(viii) as of the relevant Dividend Payment Date, the Shelf
Registration Statement (as such term is defined in the Registration
Rights Agreement) is effective under the Securities Act and is
available for use in connection with the offer and sale of such shares
of Common Stock by those holders of Series B Preferred Stock that have
such right under the Registration Rights Agreement (it being understood
that if a Shelf Suspension (as such term is defined in the Registration
Rights Agreement) is in effect, the Shelf Registration Statement shall
not be deemed effective or available for use); PROVIDED, HOWEVER, that
in the case of any Non-Arrearage Payment (and only in the case of a
Non-Arrearage Payment), this clause (viii) shall not prohibit the
issuance of shares of Common Stock in satisfaction of such payment if
the Shelf Registration Statement is not effective or not available for
use in accordance with Section 2.1(c) of the Registration Rights
Agreement.
For the purpose of this Section C, the value of a share of Common Stock used to
pay dividends on the Series B Preferred Stock shall equal (the "TRAILING AVERAGE
VALUE") the average of the Closing Prices per share of Common Stock for the
twenty consecutive Trading Days ending on the second Trading Day prior to the
relevant Dividend Payment Date; PROVIDED, HOWEVER, that in the event that an
adjustment to the Conversion Price takes effect pursuant to Section B of Article
IX hereof during the period used to compute such average, the Closing Prices
used to compute such average for all Trading Days ended prior to the time such
adjustment takes effect shall be similarly adjusted. Except as otherwise
expressly provided in this Section C, Common Stock may not be used to make any
payment in respect of any Arrearage.
D. METHOD OF PAYMENT. Dividends paid on the shares of Series B
Preferred Stock in an amount less than the total amount of such dividends at the
time accumulated and payable
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on all outstanding shares of Series B Preferred Stock shall be allocated pro
rata on a share-by-share basis among all such shares then outstanding.
Notwithstanding the provisions of Section C of this Article III, any such
partial payment shall be made in cash. Dividends that are declared and paid in
an amount less than the full amount of dividends accumulated on the Series B
Preferred Stock (and on any Arrearage) shall be applied first to the earliest
dividend which has not theretofore been paid. All cash payments of dividends on
the shares of Series B Preferred Stock shall be made in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.
IV. LIQUIDATION PREFERENCE
In the event of a liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of
then-outstanding shares of Series B Preferred Stock shall be entitled to receive
out of the assets of the Corporation, whether such assets are capital or surplus
of any nature, an amount per share equal to the greater of (A) the sum of (i)
the Stated Value thereof and (ii) the dividends, if any, accumulated or deemed
to have accumulated thereon to the date of final distribution to such holders,
whether or not such dividends are declared, and (B) the amount that would be
payable to such holders if the holders had converted all outstanding shares of
Series B Preferred Stock into shares of Common Stock immediately prior to such
liquidation, dissolution or winding up, and shall, after the holders of Common
Stock have received an amount per share of Common Stock equal to the amount paid
per share of Series B Preferred Stock, be entitled to participate on a pro rata
basis with the holders of Common Stock. After any such payment in full, the
holders of Series B Preferred Stock shall not, as such, be entitled to any
further participation in any distribution of assets of the Corporation. All the
assets of the Corporation available for distribution to stockholders after the
liquidation preferences of any Senior Liquidation Securities shall be
distributed ratably (in proportion to the full distributable amounts to which
holders of Series B Preferred Stock and Parity Liquidation Securities, if any,
are respectively entitled upon such dissolution, liquidation or winding up)
among the holders of the then-outstanding shares of Series B Preferred Stock and
Parity Liquidation Securities, if any, when such assets are not sufficient to
pay in full the aggregate amounts payable thereon.
Neither a consolidation or merger of the Corporation with or
into any other Person or Persons, nor a sale, conveyance, lease, exchange or
transfer of all or part of the Corporation's assets for cash, securities or
other property to a Person or Persons shall be deemed to be a liquidation,
dissolution or winding up of the Corporation for purposes of this Article IV,
but the holders of shares of Series B Preferred Stock shall nevertheless be
entitled from and after any such consolidation, merger or sale, conveyance,
lease, exchange or transfer of all or part of the Corporation's assets to the
rights provided by this Article IV following any such transaction. Notice of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, stating the payment date or dates when, and the place or places
where, the amounts distributable to each holder of shares of Series B Preferred
Stock in such circumstances shall be payable, shall be given by first-class
mail, postage prepaid, mailed not less than 45 days prior to any payment date
stated therein, to holders of record as they appear on the stock record books of
the Corporation as of the date such notices are first mailed.
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V. MANDATORY CONVERSION, REDEMPTION AND REPURCHASE
A. MANDATORY CONVERSION. (a) If the 180-Day Average Price and
the related Two-Week Average Price for any 180-Day Reference Period (which
Reference Period shall have ended no earlier than the first anniversary of the
original issuance of the Series A Preferred Stock and no later than the second
anniversary of the original issuance of the Series A Preferred Stock), both
exceed 200% of the Conversion Price, then the Corporation shall have the right,
at its option and election, to exchange the then-outstanding shares of Series B
Preferred Stock, in whole and not in part, for shares of Common Stock, as if
such then-outstanding shares of Series B Preferred Stock had been converted by
the holders thereof pursuant to Article IX hereof on the date of such exchange.
(b) If the 45-Trading Day Average Price and the related
Two-Week Average Price for any 45-Trading Day Reference Period (which Reference
Period shall have ended no earlier than the second anniversary of the original
issuance of the Series A Preferred Stock), both exceed 200% of the Conversion
Price, then the Corporation shall have the right, at its option and election, to
exchange the then-outstanding shares of Series B Preferred Stock, in whole and
not in part, for shares of Common Stock, as if such then-outstanding shares of
Series B Preferred Stock had been converted by the holders thereof pursuant to
Article IX hereof on the date of such exchange.
(c) Notwithstanding anything in this Section A to the
contrary, the Corporation shall not have the right to exchange the Series B
Preferred Stock for Common Stock pursuant to this Section A unless (i) the
Common Stock shall have been validly listed for trading on the NYSE or other
national securities exchange or quoted on a nationally recognized quotation
system on each day in the relevant Reference Period and as of the date of such
exchange, (ii) the average daily trading volume in the Common Stock during the
relevant Reference Period and during the two-week calendar period ending on the
last day of the relevant Reference Period is at least 50% of the average daily
trading volume in the Common Stock for the 180-day period ending on the date of
the Investment Agreement, (iii) the Corporation shall have obtained the Series B
Shareholder Approval, (iv) as of the date of such exchange, the Shelf
Registration Statement (as such term is defined in the Registration Rights
Agreement) is effective under the Securities Act and is available for use in
connection with the offer and sale of such shares of Common Stock by those
holders that have such right under the Registration Rights Agreement (it being
understood that if a Shelf Suspension (as such term is defined in the
Registration Rights Agreement) is in effect, the Shelf Registration Statement
shall not be deemed effective or available for use), and (v) the Corporation
simultaneously exchanges the Series A Preferred Stock pursuant to subsection (a)
or (b) of Section A of Article V of the Certificate of Designations for the
Series A Preferred Stock. The Corporation may not effect any such exchange if
such exchange would: (a) violate any provision of the certificate of
incorporation or the bylaws of the Corporation; (b) conflict with, contravene or
result in a breach or violation of any of the terms or provisions of, or
constitute a default (with or without notice or the passage of time) under, or
result in or give rise to a right of termination, cancellation, acceleration or
modification of any right or obligation under, or give rise to a right to put or
to compel a tender offer for outstanding securities of the Corporation or any of
its Subsidiaries under, or require any consent, waiver or approval under, any
note, bond, debt instrument, indenture, mortgage, deed of trust, lease, loan
agreement, joint venture agreement, Regulatory Approval, contract or any other
B-7
agreement, instrument or obligation to which the Corporation or any of its
Subsidiaries is a party or by which the Corporation or any of its Subsidiaries
or any property of the Corporation or any of its Subsidiaries is bound; (c)
result in the creation or imposition of any Lien upon any assets or properties
of the Corporation or any of its Subsidiaries; or (d) violate any Law applicable
to the Corporation or any of its Subsidiaries.
(d) Notice of an exchange of shares of Series B Preferred
Stock pursuant to this Section A (a "NOTICE OF EXCHANGE") shall be sent to the
holders of record of the shares of Series B Preferred Stock by first class mail,
postage prepaid, at each such holder's address as it appears on the stock record
books of the Corporation, not more than three Business Days subsequent to the
last day of the relevant Reference Period. The Notice of Exchange shall set
forth the date fixed for the exchange (the "EXCHANGE DATE") and shall set forth
in reasonable detail the calculations and supporting data used by the
Corporation in its determination that it had the right to effect such exchange.
From and after the Exchange Date, all dividends on the shares of Series B
Preferred Stock that are exchanged shall cease to accumulate and all rights of
the holders thereof as holders of Series B Preferred Stock shall cease and
terminate, except if the Corporation shall default in its obligation to deliver
shares of Common Stock and cash in lieu of fractional shares to holders on the
Exchange Date, in which case all such rights shall continue unless and until
such shares are exchanged (or redeemed, repurchased or converted) in accordance
with the terms hereof. Prior to the Exchange Date, each holder shall provide a
written notice to the Corporation specifying the name or names in which such
holder wishes the certificate or certificates for shares of Common Stock to be
issued. If no such notice is delivered, such shares of Common Stock and cash in
lieu of fractional shares, if any, shall be delivered to such holder. In case
such notice shall specify a name or names other than that of such holder, such
notice shall be accompanied by payment of all transfer taxes payable upon the
issuance of shares of Common Stock in such name or names. Other than such taxes,
the Corporation will pay any and all issue and other taxes (other than taxes
based on income) that may be payable in respect of any issue or delivery of
shares of Common Stock on exchange of Series B Preferred Stock pursuant to this
Section A. On or after the Exchange Date, each holder of shares of Series B
Preferred Stock that are to be exchanged shall surrender the certificate
evidencing such shares of Series B Preferred Stock to the Corporation at the
place designated in the Notice of Exchange. As promptly as practical, and in any
event within three Business Days after the Exchange Date, the Corporation shall
deliver or cause to be delivered as directed by the holder of shares of Series B
Preferred Stock being exchanged (i) certificates representing the number of
validly issued, fully paid and nonassessable full shares of Common Stock to
which such holder shall be entitled and (ii) cash in lieu of fractional shares,
if any, to which such holder shall be entitled. Except as otherwise specified in
this Article V, for the purposes hereof, such exchange shall be deemed a
conversion effected pursuant to Article IX and the terms and procedures set
forth in Article IX shall apply. For such purpose, the applicable Conversion
Date shall be the Exchange Date.
(e) In the event the Corporation delivers a Notice of
Exchange, the Corporation shall be obligated to effect the exchange described
therein, PROVIDED that each of the conditions to such exchange set forth in
subsections (a), (b) and (c) above is (i) satisfied or (ii) waived by the
holders of a majority of the shares of Series B Preferred Stock then
outstanding.
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(f) Notwithstanding anything to the contrary in the
Registration Rights Agreement, in the event the Corporation effects an exchange
pursuant to this Section A, the Corporation shall not exercise its right to
declare a Shelf Suspension (as such term is defined in the Registration Rights
Agreement) pursuant to Section 2.1(c) of the Registration Rights Agreement
during the period beginning on the Exchange Date and ending 90 days after the
Exchange Date.
B. MANDATORY REDEMPTION. The Corporation shall not have any
right to redeem any shares of Series B Preferred Stock prior to the Mandatory
Redemption Date (as defined below). On the tenth anniversary of the original
issuance of the Series A Preferred Stock (the "MANDATORY REDEMPTION DATE"), the
Corporation shall redeem (the "MANDATORY REDEMPTION") all outstanding shares of
Series B Preferred Stock by paying the redemption price therefor in cash out of
funds legally available for such purpose. The redemption price for each share of
Series B Preferred Stock shall equal the sum of (i) the amount, if any, of all
unpaid dividends accumulated thereon to the date of actual payment of the
Redemption Price, whether or not such dividends have been declared, and (ii) the
Stated Value thereof (such sum, the "REDEMPTION PRICE").
C. NOTICE AND REDEMPTION PROCEDURES. Notice of the redemption
of shares of Series B Preferred Stock pursuant to Section B of this Article V (a
"NOTICE OF REDEMPTION") shall be sent to the holders of record of the shares of
Series B Preferred Stock to be redeemed by first class mail, postage prepaid, at
each such holder's address as it appears on the stock record books of the
Corporation, not more than 100 nor fewer than 60 days prior to the date fixed
for redemption, which date shall be set forth in such notice (the "REDEMPTION
DATE"); PROVIDED, HOWEVER, that failure to give such Notice of Redemption to any
holder, or any defect in such Notice of Redemption to any holder shall not
affect the validity of the proceedings for the redemption of any shares of
Series B Preferred Stock held by any other holder. In order to facilitate the
redemption of shares of Series B Preferred Stock, the Board of Directors may fix
a record date for the determination of the holders of shares of Series B
Preferred Stock to be redeemed, in each case, not more than 10 days prior to the
date the Notice of Redemption is mailed. On or after the Redemption Date, except
with respect to shares of Series B Preferred Stock for which the Conversion Date
has occurred on or prior to such Redemption Date, each holder of the shares
called for redemption shall surrender the certificate evidencing such shares to
the Corporation at the place designated in such notice and shall thereupon be
entitled to receive payment of the Redemption Price. From and after the
Redemption Date, all dividends on shares of Series B Preferred Stock shall cease
to accumulate and all rights of the holders thereof as holders of Series B
Preferred Stock shall cease and terminate, except if the Corporation shall
default in payment of the Redemption Price on the Redemption Date in which case
all such rights shall continue unless and until such shares are redeemed and
such price is paid in accordance with the terms hereof.
D. CHANGE OF CONTROL. In the event there occurs a Change of
Control, any holder of record of shares of Series B Preferred Stock, in
accordance with the procedures set forth in Section E of this Article V, may
require the Corporation to redeem any or all of the shares of Series B Preferred
Stock held by such holder in an amount per share equal to the sum of (i) the
amount, if any, of all unpaid dividends accumulated thereon to the date of
actual payment thereof, whether or not such dividends have been declared, and
(ii) 101% of Stated Value (the
B-9
"CHANGE OF CONTROL PRICE"). By accepting a share of Series B Preferred Stock the
holder thereof shall be deemed to have acknowledged and agreed that (a) such
holder's right, to receive payment of the Change in Control Price is subject and
subordinated in right of payment to the payment in full and discharge of all
amounts of principal, interest and fees (however denominated) then outstanding
under the Credit Agreement and the Senior Subordinated Notes and (b) until
payment in full of all such amounts (however denominated) under the Credit
Agreement and the Senior Subordinated Notes has been made in cash, no payment,
whether directly or indirectly, by exercise of any right of set off or otherwise
in respect of the Change of Control Price shall be made by the Corporation, and,
notwithstanding anything to the contrary in Section F of this Article V, no
deposit in respect of the Change of Control Price shall be made pursuant to
Section F of this Article V. In the event that any payment by, or distribution
of the assets of, the Corporation of any kind or character (whether in cash,
property or securities, whether directly or indirectly, by exercise of any right
of set-off or otherwise and whether as a result of a bankruptcy proceeding with
respect to the Corporation or otherwise) shall be received by a holder of Series
B Preferred Stock at any time when such payment is prohibited by this paragraph,
such payment shall be held in trust for the benefit of, and shall be paid over
to, the lenders under the Credit Agreement or the holders of Senior Subordinated
Notes, as the case may be, as their interests may appear. The preceding two
sentences address the relative rights of holders of Series B Preferred Stock or
Debentures, on the one hand, and the lenders under the Credit Agreement or the
holders of Senior Subordinated Notes, as the case may be, on the other hand, and
nothing in this Certificate of Designations shall impair, as between the
Corporation and the holders of Series B Preferred Stock or Debentures, the
obligation of the Corporation, which is absolute and unconditional, to pay
amounts due in respect of the Series B Preferred Stock and Debentures in
accordance with their terms. Upon a Change of Control, the Corporation shall pay
all amounts outstanding under the Credit Agreement and the Indenture to the
extent necessary in order to permit the payment of the Change of Control Price
hereunder.
E. CHANGE OF CONTROL NOTICE AND REDEMPTION PROCEDURES. Notice
of any Change of Control shall be sent to the holders of record of the
outstanding shares of Series B Preferred Stock not more than five days following
a Change of Control, which notice (a "CHANGE OF CONTROL NOTICE") shall describe
the transaction or transactions constituting such Change of Control and set
forth each holder's right to require the Corporation to redeem any or all shares
of Series B Preferred Stock held by him or her out of funds legally available
therefor, the redemption date, which date shall be not less than 30 nor more
than 45 days from the date of such Change of Control Notice, (the "CHANGE OF
CONTROL REDEMPTION DATE") and the procedures to be followed by such holders in
exercising his or her right to cause such redemption; PROVIDED, HOWEVER, that if
all of the outstanding shares of Series B Preferred Stock are owned by more than
50 holders or groups of Affiliated holders and if the Series B Preferred Stock
is listed on any national securities exchange or quoted on any national
quotation system, the Corporation shall give such Change of Control Notice by
publication in a newspaper of general circulation in the Borough of Manhattan,
The City of New York, within 30 days following such Change of Control and, in
any case, a similar notice shall be mailed concurrently to each holder of shares
of Series B Preferred Stock. Failure by the Corporation to give the Change of
Control Notice as prescribed by the preceding sentence, or the formal
insufficiency of any such Change of Control Notice, shall not prejudice the
rights of any holder of shares of Series B Preferred Stock to cause the
Corporation to redeem any such shares held by him or her. In the event a holder
of shares of Series B Preferred Stock shall elect to require the Corporation to
redeem any or all such shares of
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Series B Preferred Stock pursuant to Section D hereof, such holder shall
deliver, prior to the Change of Control Redemption Date as set forth in the
Change of Control Notice, or, if the Change of Control Notice is not given as
required by this Section E, at any time following the last day the Corporation
was required to give the Change of Control Notice in accordance with this
Section E (in which case the Change of Control Redemption Date shall be the date
which is the later of (x) 45 days following the last day the Corporation was
required to give the Change of Control Notice in accordance with this Section E
and (y) 30 days following the delivery of such election by such holder), a
written notice, in the form specified by the Corporation (if the Corporation did
in fact give the notice required by this Section E), to the Corporation so
stating, and specifying the number of shares to be redeemed pursuant to Section
D of this Article V; PROVIDED, HOWEVER, that if all of the outstanding shares of
the Series B Preferred Stock are owned by 50 or fewer holders or groups of
affiliated holders, such holders or groups may deliver a notice or an election
to redeem at any time within 90 days following the occurrence of a Change of
Control without awaiting receipt of a Change of Control Notice or the expiration
of the time allowed for the delivery of a Change of Control Notice hereunder.
The Corporation shall redeem the number of shares so specified on the Change of
Control Redemption Date fixed by the Corporation or as provided in the preceding
sentence. The Corporation shall comply with the requirements of Rules 13e-4 and
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the shares of Series B Preferred Stock as a result of a
Change of Control. From and after the time the Change of Control Redemption
Price is paid in accordance with the terms hereof with respect to any share of
Series B Preferred Stock, all dividends on such share of Series B Preferred
Stock shall cease to accumulate and all rights of the holder thereof as a holder
of Series B Preferred Stock shall cease and terminate.
F. DEPOSIT OF FUNDS. The Corporation shall, no later than
11:00 a.m., New York City time, on any Redemption Date or Change of Control
Redemption Date pursuant to this Article V, deposit with its transfer agent or
other redemption agent in the Borough of Manhattan, The City of New York having
a capital and surplus of at least $500,000,000, as a trust fund for the benefit
of the holders of the shares of Series B Preferred Stock to be redeemed, cash
that is sufficient in amount to redeem the shares to be redeemed in accordance
with the Notice of Redemption or Change of Control Notice, with irrevocable
instructions and authority to such transfer agent or other redemption agent to
pay to the respective holders of such shares, as evidenced by a list of such
holders certified by an officer of the Corporation, the Redemption Price or
Change of Control Redemption Price, as the case may be, upon surrender of their
respective share certificates. Such deposit shall be deemed to constitute full
payment of such shares to the holders, and from and after the date of such
deposit, all rights of the holders of the shares of Series B Preferred Stock
that are to be redeemed as stockholders of the Corporation with respect to such
shares, except the right to receive the Redemption Price upon the surrender of
their respective certificates and all rights under Articles IX and XI hereof,
shall cease and terminate. In case holders of any shares of Series B Preferred
Stock called for redemption shall not, within two years after such deposit,
claim the cash deposited for redemption thereof, such transfer agent or other
redemption agent shall, upon demand, pay over to the Corporation the balance so
deposited. Thereupon, such transfer agent or other redemption agent shall be
relieved of all responsibility to the holders thereof and the sole right of such
holders, with respect to shares to be redeemed, shall be to receive the
Redemption Price as general creditors of the
B-11
Corporation. Any interest accrued on any funds so deposited shall belong to the
Corporation, and shall be paid to it from time to time on demand.
G. CERTAIN REPURCHASES. (a) If, at any time after April 5,
2002, one or more members of the Investor Group (collectively, the "SELLING
INVESTORS") sell shares of Series A Preferred Stock and/or Common Shares, in a
transaction or series of related transactions (such sale, an "INVESTOR SALE"),
to any Person other than a member of the Investor Group, the Corporation shall,
if the Selling Investors so elect, repurchase (a "CORPORATION REPURCHASE") from
the Selling Investors, for cash, shares of Series B Preferred Stock representing
a number of Conversion Shares equal to the Sale Number less the number of
Make-Whole Conversion Shares with respect to such Investor Sale. The price paid
by the Corporation in any Corporation Repurchase shall equal the Investor Sale
Price per Conversion Share represented by the securities purchased in such
Corporation Repurchase. Subject to subsection (b) of this Section G, in the
event that the Selling Investors include shares of Series B Preferred Stock in
an Investor Sale, the Corporation shall pay the Selling Investors, with respect
to the Make-Whole Conversion Shares, an amount per Make-Whole Conversion Share
equal to the Investor Sale Price less the amount per Make-Whole Conversion Share
paid in such Investor Sale (such payment, the "MAKE-WHOLE PAYMENT").
Notwithstanding the foregoing, the Corporation shall have no obligation to
effect a Corporation Repurchase or make a Make-Whole Payment unless the Selling
Investors afford the Corporation a reasonable opportunity to include in the
Investor Sale up to that number of shares of Common Stock that would be
sufficient to permit the Corporation to satisfy its obligations pursuant to this
Section G, and the Corporation shall have no obligation to effect a Corporation
Repurchase or make a Make-Whole Payment with respect to any Investor Sale that
is consummated after the Approval Date. Each Corporation Repurchase and
Make-Whole Payment shall be completed by the Corporation within 15 days of the
consummation of the related Investor Sale.
(b) Prior to any sale by the Selling Investors of any shares
of Series B Preferred Stock in an Investor Sale, the Selling Investors shall
give written notice to the Corporation of the Selling Investors' desire to sell
such shares, which notice shall identify the number of such shares the Selling
Investors desire to sell (such notice, a "SERIES B SALE NOTICE"). The Series B
Sale Notice shall be given at least 10 Business Days prior to the consummation
of the related Investor Sale. The Selling Investors shall not include such
shares in such Investor Sale if, within 5 Business Days of the delivery of the
Series B Sale Notice, the Corporation delivers a written notice to the Selling
Investors to the effect that it will effect a Corporation Repurchase with
respect to such shares following the completion of such Investor Sale.
(c) Prior to the Approval Date, the Corporation shall not
effect any direct or indirect redemption or repurchase of Common Stock unless it
has complied with the procedures set forth in this subsection (c). In the event
the Corporation intends to effect any direct or indirect redemption or
repurchase of Common Stock, the Corporation shall first offer (a "REPURCHASE
OFFER") to repurchase shares of Series B Preferred Stock and Junior Preferred
Stock at the Repurchase Price (as defined below) per Conversion Share
represented by the shares of Series B Preferred Stock and Junior Preferred Stock
to be repurchased. The Corporation shall give written notice (a "PROPOSED
REPURCHASE NOTICE") of such offer to each holder of Series B Preferred Stock and
each holder of Junior Preferred Stock which notice shall specify (i) the
aggregate number (the "REPURCHASE NUMBER") of Conversion Shares represented by
shares of
B-12
Series B Preferred Stock and Junior Preferred Stock that the Corporation is
willing to repurchase, and (ii) the proposed repurchase price for each such
Conversion Share (the "REPURCHASE PRICE"). The date on which such Proposed
Repurchase Notice is given is referred to herein as the "NOTICE DATE." To accept
a Repurchase Offer a holder must, within 20 days of the Notice Date, notify the
Corporation in writing of its acceptance of the Repurchase Offer and the number
of shares of Series B Preferred Stock and number of shares of Junior Preferred
Stock it wishes to have repurchased by the Corporation. If a holder does not
provide such notice to the Corporation within such 20-day period, then such
holder shall be deemed to have rejected the Repurchase Offer. Within 5 days
following the end of such 20-day period, the Corporation shall repurchase the
securities specified by each accepting holder at the Repurchase Price per
Conversion Share represented by such securities. The date on which such
repurchases are effected is referred to herein as the "REPURCHASE DATE." If the
aggregate number of Conversion Shares represented by the shares of Series B
Preferred Stock and Junior Preferred Stock with respect to which holders have
accepted the Repurchase Offer exceeds the Repurchase Number, the Corporation
shall repurchase such securities on a pro rata basis based on the number of
Conversion Shares with respect to which each such holder accepted the Repurchase
Offer. During the period commencing on the Repurchase Date and ending on the
120th day after the Notice Date, the Corporation may repurchase and redeem, at a
price not in excess of the Repurchase Price per share, up to an aggregate number
of shares of its Common Stock equal to the Repurchase Number less the number of
Conversion Shares represented by the shares of Series B Preferred Stock and
Junior Preferred Stock repurchased pursuant to the Repurchase Offer. After such
120th day, in order to directly or indirectly repurchase or redeem shares of
Common Stock, the Corporation must again comply with the procedures set forth in
this subsection (c). Notwithstanding the foregoing, this paragraph shall not
prohibit (i) purchases of Equity Securities of the Corporation or any of its
Subsidiaries from executives and other management-level employees of the
Corporation or any of its Subsidiaries in connection with customary employment
and severance arrangements, or (ii) the acquisition, repurchase, exchange,
conversion, redemption or other retirement for value by the Corporation of any
Junior Dividend Securities by the Corporation in accordance with obligations in
existence at the time of original issuance of the Series A Preferred Stock.
(d) Until the Series B Shareholder Approval is obtained, the
Corporation shall not (A) utilize amounts available under Section 6.06(a)(ii) of
the Credit Agreement (or any comparable provision of any Credit Agreement) for
any purpose except to effect repurchases or make payments in respect of the
Series B Preferred Stock as required pursuant to this Section G or to make
payments with respect to the Series A Preferred Stock, or (B) amend the Credit
Agreement in any manner so as to reduce the amounts available to effect
repurchases or make payments in respect of the Series B Preferred Stock as
required pursuant to this Section G under Section 6.06(a)(ii) of the Credit
Agreement (or any comparable provision of any Credit Agreement). Notwithstanding
the foregoing, this paragraph shall not prohibit (i) the acquisition,
repurchase, exchange, conversion, redemption or other retirement for value of
shares of Series B Preferred Stock or any Parity Dividend Security by the
Corporation in accordance with the terms of such securities, (ii) purchases of
Equity Securities of the Corporation or any of its Subsidiaries from executives
and other management-level employees of the Corporation or any of its
Subsidiaries in connection with customary employment and severance arrangements,
or (iii) the acquisition, repurchase, exchange, conversion, redemption or other
retirement for value by the
B-13
Corporation of any Junior Dividend Securities by the Corporation in accordance
with obligations in existence at the time of original issuance of the Series A
Preferred Stock.
(e) If a Make-Whole Payment would result in an event of
default under the Credit Agreement or the Indenture, the Corporation shall not
be obligated to make such Make-Whole Payment until such time as the Make-Whole
Payment would not result in an event of default under the Credit Agreement or
the Indenture, as the case may be; PROVIDED that if the Make-Whole Payment would
not result in such an event of default if made from the proceeds of the sale of
Equity Securities of the Corporation, the Corporation shall use commercially
reasonable efforts to effect a sale of Equity Securities to permit it to make
the Make-Whole Payment and avoid such an event of default. In the event (i) the
Corporation defaults with respect to its obligation to make a Make-Whole Payment
or (ii) a Make-Whole Payment is delayed pursuant to the preceding sentence, a
late-payment charge shall accrue with respect to the Make-Whole Payment at a per
annum rate equal to the dividend rate then in effect pursuant to Section A of
Article III hereof from (A) the time of such default in the case of clause (i)
above or (B) from the time such Make-Whole Payment would have been due except
for the operation of the preceding sentence in the case of clause (ii) above,
and shall accrue until such amount and such charge is paid.
VI. EXCHANGE OF SERIES B PREFERRED STOCK FOR
DEBENTURES
A. After the Option has expired or is no longer exercisable in
whole or in part, the Series B Preferred Stock shall be exchangeable at the
option of the Corporation and to the extent permitted by applicable law and the
terms of the instruments governing the Corporation's then-outstanding
Indebtedness, in whole but not in part, on any Dividend Payment Date for
unsecured Junior Subordinated Convertible Debentures (issued pursuant to an
indenture (the "SERIES B INDENTURE") prepared in accordance with the Investment
Agreement), in principal amount of $1,000 per share of Series B Preferred Stock
(a "DEBENTURE" and, collectively, the "DEBENTURES"), in accordance with this
Article VI:
(i) Each share of Series B Preferred Stock shall be
exchangeable at the offices of the Corporation and at such other place
or places, if any, as the Board of Directors may designate. Except with
the prior written consent of the holders of all outstanding shares of
Series B Preferred Stock, the Corporation may not exchange any shares
of Series B Preferred Stock if (a) full cumulative dividends through
the date of exchange, have not been paid, accrued or set aside for
payment on all outstanding shares of the Series B Preferred Stock, (b)
the Corporation has failed to amend its Certificate of Incorporation in
accordance with Delaware law to confer the power to vote upon holders
of the Debentures as shall be contemplated by the Series B Indenture or
(c) such exchange could result in any adverse tax consequence to any
such holder.
(ii) Prior to giving notice of its intention to exchange, the
Corporation shall execute and deliver to a bank or trust company and,
if required by applicable law, qualify under the Trust Indenture Act of
1939, as amended, the Series B Indenture.
(iii) The Corporation shall mail written notice of its
intention to exchange Series B Preferred Stock for Debentures (the
"EXCHANGE NOTICE") to each holder of record of
B-14
shares of Series B Preferred Stock not less than 60 nor more than 100
days prior to the date fixed for exchange. The Exchange Notice shall
notify holders of their right to deliver an Objection Notice (as
defined below) pursuant to Section B of this Article VI.
(iv) Prior to effecting any exchange provided above, the
Corporation shall deliver to each holder of shares of Series B
Preferred Stock an opinion of nationally recognized legal counsel to
the effect that: (a) each of the Series B Indenture and the Debentures
have been duly authorized and executed by the Corporation and, when
delivered by the Corporation in exchange for shares of Series B
Preferred Stock, will constitute valid and legally binding obligations
of the Corporation enforceable against the Corporation in accordance
with their terms, subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and to general
principles of equity; (b) the exchange of the Debentures for the shares
of Series B Preferred Stock will not violate the provisions of this
Article VI or of the Delaware General Corporation Law, including
Section 221 thereof; and (c) the exchange of the Debentures for the
shares of Series B Preferred Stock is exempt from the registration
requirements of the Securities Act or that the exchange of such
Debentures has been duly registered under the Securities Act.
(v) The Corporation may not effect any exchange provided
above if such exchange would: (a) violate any provision of the
certificate of incorporation or the bylaws of the Corporation; (b)
conflict with, contravene or result in a breach or violation of any of
the terms or provisions of, or constitute a default (with or without
notice or the passage of time) under, or result in or give rise to a
right of termination, cancellation, acceleration or modification of
any right or obligation under, or give rise to a right to put or to
compel a tender offer for outstanding securities of the Corporation or
any of its Subsidiaries under, or require any consent, waiver or
approval that has not been obtained or granted under, any note, bond,
debt instrument, indenture, mortgage, deed of trust, lease, loan
agreement, joint venture agreement, Regulatory Approval, contract or
any other agreement, instrument or obligation to which the Corporation
or any of its Subsidiaries is a party or by which the Corporation or
any of its Subsidiaries or any property of the Corporation or any of
its Subsidiaries is bound; (c) result in the creation or imposition of
any Lien upon any assets or properties of the Corporation or any of
its Subsidiaries; or (d) violate any Law applicable to the Corporation
or any of its Subsidiaries.
(vi) Upon the exchange of shares of Series B Preferred Stock
for Debentures, the rights of the holders of shares of Series B
Preferred Stock as stockholders of the Corporation shall terminate and
such shares shall no longer be deemed outstanding.
(vii) Before any holder of shares of Series B Preferred Stock
shall be entitled to receive Debentures, such holder shall surrender
the certificate or certificates therefor, at the office of the
Corporation or at such other place or places, if any, as the Board of
Directors shall have designated, and shall state in writing the name or
names (with addresses) in which he or she wishes the certificate or
certificates for the Debentures to be issued. The Corporation will, as
soon as practicable thereafter, issue and deliver at said office or
place to such holder of shares of Series B Preferred Stock, or to his
or her nominee or nominees, certificates for the Debentures to which he
or she shall be entitled
B-15
as aforesaid. Shares of Series B Preferred Stock shall be deemed to
have been exchanged as of the close of business on the date fixed for
exchange as provided above, and the Person or Persons entitled to
receive the Debentures issuable upon such exchange shall be treated
for all purposes (including the accrual and payment of interest) as
the record holder or holders of such Debentures as of the close of
business on such date.
B. For purposes of clause (c) of paragraph (i) of Section A of
this Article VI, an exchange of shares of Series B Preferred Stock shall be
deemed to be an exchange that could result in a tax consequence to any holder
which is materially adverse only if such holder shall have delivered to the
Corporation a written notice to such effect on or before the fifteenth day after
its receipt of the Exchange Notice (an "OBJECTION NOTICE"), which Objection
Notice shall specify in reasonable detail the nature of such tax consequence
which could result from the exchange. If the Corporation receives an Objection
Notice, then the Corporation shall not exchange the shares of Series B Preferred
Stock and the Corporation shall, within 15 days after its receipt of the
Objection Notice mail written notice to the effect that it is canceling the
proposed exchange of shares of Series B Preferred Stock to each holder of record
of shares of Series B Preferred Stock to which it mailed the Exchange Notice.
Notwithstanding the foregoing, if the Corporation, based on the advice of
nationally recognized tax counsel, believes that the tax consequences described
in an Objection Notice are incorrect, the Corporation may contact the holder who
delivered such notice to discuss the tax consequences described therein. If such
holder withdraws such notice within 15 days of its delivery, the Corporation
shall be permitted to consummate the proposed exchange.
VII. RESTRICTIONS ON DIVIDENDS
So long as any shares of the Series B Preferred Stock are
outstanding, the Board of Directors shall not declare, and the Corporation shall
not pay or set apart for payment any dividend on any Junior Securities or Parity
Securities or make any payment on account of, or set apart for payment money for
a sinking or other similar fund for, the repurchase, redemption or other
retirement of, any Junior Securities or Parity Securities or any warrants,
rights or options exercisable for or convertible into any Junior Securities or
Parity Securities (other than the repurchase, redemption or other retirement of
debentures or other debt securities that are convertible or exchangeable into
any Junior Securities or Parity Securities), or make any distribution in respect
of the Junior Securities or Parity Securities, either directly or indirectly,
and whether in cash, obligations or shares of the Corporation or other property
(other than distributions or dividends in Junior Securities to the holders of
Junior Securities), and shall not permit any Person directly or indirectly
controlled by the Corporation to purchase or redeem any Junior Securities or
Parity Securities or any warrants, rights, calls or options exercisable for or
convertible into any Junior Securities or Parity Securities (other than the
repurchase, redemption or other retirement of debentures or other debt
securities that are convertible or exchangeable into any Junior Securities or
Parity Securities) unless prior to or concurrently with such declaration,
payment, setting apart for payment, repurchase, redemption or other retirement
or distribution, as the case may be, all accumulated and unpaid dividends on
shares of the Series B Preferred Stock not paid on the dates provided for in
Section A of Article III hereof (including Arrearages and accumulated dividends
thereon and regardless of whether the Corporation shall have had the right to
elect to defer such payments as provided for in Article III hereof) shall have
been paid, except that when dividends are not paid in full as aforesaid upon the
shares of Series
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B Preferred Stock, all dividends declared on the Series B Preferred Stock and
any series of Parity Dividend Securities shall be declared and paid pro rata so
that the amount of dividends so declared and paid on Series B Preferred Stock
and such series of Parity Dividend Securities shall in all cases bear to each
other the same ratio that accumulated dividends (including interest accrued on
or additional dividends accumulated in respect of such accumulated dividends) on
the shares of Series B Preferred Stock and such Parity Dividend Securities bear
to each other. Notwithstanding the foregoing, this paragraph shall not prohibit
(i) the acquisition, repurchase, exchange, conversion, redemption or other
retirement for value of shares of Series B Preferred Stock or any Parity
Dividend Security by the Corporation in accordance with the terms of such
securities or (ii) the acquisition, repurchase, exchange, conversion, redemption
or other retirement for value by the Corporation of any Junior Dividend
Securities by the Corporation in accordance with obligations in existence at the
time of original issuance of the Series A Preferred Stock.
VIII. VOTING RIGHTS
A. The holders of shares of Series B Preferred Stock shall
have no voting rights except as set forth below or as otherwise from time to
time required by law.
B. Through the Approval Date, shares of Series B Preferred
Stock shall have no voting rights. After the Approval Date, so long as any
shares of the Series B Preferred Stock are outstanding, each share of Series B
Preferred Stock shall entitle the holder thereof to vote on all matters voted on
by holders of Common Stock, and the shares of Series B Preferred Stock shall
vote together with shares of Common Stock (and any shares of Series A Preferred
Stock entitled to vote) as a single class. With respect to any such vote, each
share of Series B Preferred Stock shall entitle its holder to a number of votes
equal to the number of shares of Common Stock into which such share of Series B
Preferred Stock is convertible at the time of the record date with respect to
such vote (assuming all conditions precedent to such conversion have been
satisfied and that such conversion had occurred as of the record date for such
vote).
C. If on any date after the Approval Date (i) dividends
payable on the Series A Preferred Stock or Series B Preferred Stock shall not
have been paid in full when required pursuant to the terms hereof or (ii) the
Corporation shall have failed to satisfy its obligation to redeem shares of
Series A Preferred Stock or Series B Preferred Stock pursuant to the terms of
the relevant Certificate of Designations (provided, that for the purpose of this
Section C, any obligation of the Corporation to repurchase shares of Series B
Preferred Stock pursuant to Section G of Article V of this Certificate of
Designations shall not be considered an obligation to redeem such shares), then
the number of directors constituting the Board of Directors shall, without
further action, be increased by two, or if the requisite increase in the number
of directors constituting the Board of Directors would require the approval of
the Corporation's stockholders or is prohibited by the Investment Agreement,
then the number of directors constituting the Board of Directors shall be
increased to the extent the approval of the Corporation's stockholders is not
required and the Investment Agreement would not be breached and a number of
directors (other than Investor Nominees) shall resign from the Board of
Directors so that the holders of shares of Series A Preferred Stock and Series B
Preferred Stock, voting together as a single class without regard to series,
may elect two directors to the Board of Directors, and the holders of a majority
of the outstanding shares of Series A Preferred Stock and Series B Preferred
Stock,
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voting together as a single class without regard to series, shall have, in
addition to the other voting rights set forth herein, the exclusive right to
elect two directors (the "ADDITIONAL DIRECTORS") of the Corporation to fill such
newly-created or vacated directorships. Additional Directors shall continue as
directors and such additional voting right shall continue until such time as (a)
all dividends accumulated on the Series A Preferred Stock and Series B Preferred
Stock shall have been paid in full as required pursuant to the terms hereof or
(b) any redemption obligation with respect to the Series A Preferred Stock or
Series B Preferred Stock that has become due shall have been satisfied or all
necessary funds shall have been set aside for payment, as the case may be, at
which time such Additional Directors shall cease to be directors and such
additional voting right of the holders of shares of Series A Preferred Stock and
Series B Preferred Stock shall terminate subject to revesting in the event of
each and every subsequent event of the character indicated above.
D. After the Approval Date, so long as members of the Investor
Group Beneficially Own a majority of the outstanding shares of Series A
Preferred Stock and Series B Preferred Stock, if any default or event of default
has occurred and is continuing under any contract, agreement, indenture,
mortgage, note, lease or other instrument evidencing Indebtedness of the
Corporation or any of its Subsidiaries (other than inter-company Indebtedness
between the Corporation and any of its Subsidiaries or between Subsidiaries of
the Corporation) the outstanding principal amount of which is in excess of
$10,000,000, and as a result of such default, event of default or event the
holders thereof have accelerated or have the right to accelerate the maturity
thereof, and such default or event of default is not cured or waived within 75
days of the occurrence thereof, then the number of directors constituting the
Board of Directors shall, upon the request of members of the Investor Group who
Beneficially Own a majority of the outstanding shares of Series A Preferred
Stock and Series B Preferred Stock then Beneficially Owned by members of the
Investor Group delivered to the Corporation in writing, be increased by that
number that is necessary to enable the Investor Group to designate a majority of
the members of the Board of Directors (including the Investor Nominees), or if
such requisite increase in the number of directors constituting the Board of
Directors would require the approval of the Corporation's stockholders or is
prohibited by the Investment Agreement, then the number of directors
constituting the Board of Directors shall be increased to the extent the
approval of the Corporation's stockholders is not required and the Investment
Agreement would not be breached and a number of directors (other than Investor
Nominees) shall resign from the Board of Directors so as to enable the Investor
Group to designate a majority of the Board of Directors (including the Investor
Nominees), and the holders of a majority of the outstanding shares of Series A
Preferred Stock and Series B Preferred Stock then held by the Investor Group,
voting together as a single class without regard to series, shall have, in
addition to the other voting rights set forth herein, the exclusive right,
voting separately as a class, to elect that number of directors (the "MAJORITY
DIRECTORS") of the Corporation necessary to fill such newly-created or vacated
directorships. Majority Directors shall continue as directors and such
additional voting right shall continue until such time as such default, event of
default or event is cured, at which time such Majority Directors shall cease to
be directors and such additional voting right of the Series A Preferred Stock
and Series B Preferred Stock shall terminate subject to revesting in the event
of each and every subsequent event of the character indicated above.
E. Reserved.
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F. (a) The foregoing rights of holders of shares of Series B
Preferred Stock to take any action as provided in this Article VIII may be
exercised at any annual meeting of stockholders or at a special meeting of
stockholders held for such purpose as hereinafter provided or at any adjournment
thereof, or by the written consent, delivered to the Secretary of the
Corporation, of the holders of the minimum number of shares required to take
such action. So long as such right to vote continues (and unless such right has
been exercised by written consent of the minimum number of shares required to
take such action), the Chairman of the Board of Directors may call, and upon the
written request of holders of record of 25% of the outstanding shares of
Series B Preferred Stock, addressed to the Secretary of the Corporation at
the principal office of the Corporation, shall call, a special meeting of the
holders of shares entitled to vote as provided herein. Such meeting shall be
held as soon as reasonably practicable after delivery of such request to the
Secretary, at the place and upon the notice provided by law and in the Bylaws
for the holding of meetings of stockholders.
(b) Each director elected pursuant to Section C, D or E hereof
shall serve until the next annual meeting or until his or her successor shall be
elected and shall qualify, unless the director's term of office shall have
terminated pursuant to the provisions of Section C, D or E hereof, as the case
may be. In case any vacancy shall occur among the directors elected pursuant to
Section C, D or E hereof, such vacancy shall be filled for the unexpired portion
of the term by vote of the remaining director or directors theretofore elected
pursuant to the same Section (or such director's or directors' successor in
office), if any. If any such vacancy is not so filled within 20 days after the
creation thereof or if all of the directors so elected shall cease to serve as
directors before their term shall expire, the holders of the shares of Series B
Preferred Stock then outstanding and entitled to vote for such director pursuant
to the provisions of Section C, D or E hereof, as the case may be, may elect
successors to hold office for the unexpired terms of any vacant directorships,
by written consent as provided herein, or at a special meeting of such holders
called as provided herein. The holders of a majority of the shares entitled to
vote for directors pursuant to Section C, D or E hereof, as the case may be,
shall have the right to remove with or without cause at any time and replace any
directors such holders have elected pursuant to such section, by written consent
as herein provided, or at a special meeting of such holders called as provided
herein.
G. Without the consent or affirmative vote of the holders of
at least sixty-seven percent (67%) of the outstanding shares of Series B
Preferred Stock, voting separately as a class, the Corporation shall not:
(i) authorize, create or issue, or increase the authorized amount of, (a) any
Senior Securities or (b) any class or series of capital stock or any security
convertible into or exercisable for any class or series of capital stock,
that is redeemable mandatorily or redeemable at the option of the holder
thereof at any time on or prior to the Mandatory Redemption Date (whether or
not only upon the occurrence of a specified event); (ii) amend, alter or
repeal any provision of the Certificate of Incorporation or the Bylaws, if
the amendment, alteration or repeal alters or changes the powers, preferences
or special rights of the Series B Preferred Stock so as to affect them
adversely; or (iii) authorize or take any other action if such action alters
or changes any of the rights of the Series B Preferred Stock in any respect
or otherwise would be inconsistent with the provisions of this Certificate of
Designations and the holders of any class or series of the capital stock of
the Corporation is entitled to vote thereon.
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H. OTHER SECURITIES. The Corporation shall not, from and after
the date of original issuance of the Series A Preferred Stock, enter into any
agreement, amend or modify any existing agreement or obligation, or issue any
security that prohibits, conflicts or is inconsistent with, or would be breached
by, the Corporation's performance of its obligations hereunder.
IX. CONVERSION
A. CONVERSION. (a) At the option and election of the holder
thereof, each share of Series B Preferred Stock, including all unpaid dividends
accumulated thereon to the Conversion Date (as defined below), whether or not
such dividends have been declared, may be converted in the manner provided
herein, into (i) fully paid, duly authorized and nonassessable shares of Series
C Junior Participating Preferred Stock, without par value, of the Corporation
(the "JUNIOR PREFERRED STOCK"), on any Conversion Date occurring prior to the
Approval Date, and (ii) fully paid and nonassessable shares of Common Stock, on
any Conversion Date occurring on or after the Approval Date. As of the
Conversion Date with respect to a share of Series B Preferred Stock, subject to
subsections (d) and (e) of this Section A, such share shall be converted into
that number (the "CONVERSION Number") of Conversion Shares (as defined below)
equal to the quotient of (i) the sum of (A) the Stated Value thereof plus (B)
all unpaid dividends accumulated on such share of Series B Preferred Stock to
the Conversion Date whether or not such dividends have been declared, divided by
(ii) the Conversion Price in effect on the Conversion Date.
(b) Conversion of shares of the Series B Preferred Stock may
be effected by any holder thereof upon the surrender to the Corporation at the
principal office of the Corporation or at the office of any agent or agents of
the Corporation, as may be designated by the Board of Directors of the
Corporation and identified to the holders in writing upon such designation, of
the certificate for such shares of Series B Preferred Stock to be converted
accompanied by a written notice stating that such holder elects to convert all
or a specified whole number of shares represented by such certificate in
accordance with the provisions of this Section A and specifying the name or
names in which such holder wishes the certificate or certificates for Conversion
Shares to be issued. In case such notice shall specify a name or names other
than that of such holder, such notice shall be accompanied by payment of all
transfer taxes payable upon the issuance of Conversion Shares in such name or
names. Other than such taxes, the Corporation will pay any and all issue and
other taxes (other than taxes based on income) that may be payable in respect of
any issue or delivery of Conversion Shares on conversion of Series B Preferred
Stock pursuant hereto. As promptly as practical, and in any event within three
Business Days after the Conversion Date, the Corporation shall deliver or cause
to be delivered as directed by the holder of shares of Series B Preferred Stock
being converted (i) certificates representing the number of validly issued,
fully paid and nonassessable full Conversion Shares to which such holder shall
be entitled to, (ii) any cash that is required to be paid pursuant to
subsections (d) and (e) of this Section A, and (iii) if less than the full
number of shares of Series B Preferred Stock evidenced by the surrendered
certificate or certificates is being converted, a new certificate or
certificates, of like tenor, for the number of shares of Series B Preferred
Stock evidenced by such surrendered certificate or certificates less the number
of shares of Series B Preferred Stock being converted. Such conversion shall be
deemed to have occurred at the close of business on the date (the "CONVERSION
DATE") of the giving of such notice by the holder of the Series B Preferred
Stock to be converted and of such surrender of the certificate or certificates
representing the shares of Series B Preferred Stock to be converted so that as
of such time the rights of the holder
B-20
thereof as to the shares being converted shall cease except for the right to
receive Conversion Shares and/or cash in accordance herewith, and the person
entitled to receive the Conversion Shares issued as a result of such conversion
shall be treated for all purposes as having become the holder of such Conversion
Shares at such time.
(c) In the event that the Series B Preferred Stock is to be
redeemed or repurchased pursuant to Article V hereof, from and after the
Redemption Date or the applicable repurchase date, the right of a holder to
convert shares of Series B Preferred Stock pursuant to this Section A shall
cease and terminate, except if the Corporation shall default in payment of the
Redemption Price on the Redemption Date or the repurchase price on the
applicable repurchase date, in which case all such rights shall continue unless
and until such shares are redeemed or repurchased and such redemption or
repurchase price is paid in full in accordance with the terms hereof.
Notwithstanding anything in the foregoing to the contrary, if the Conversion
Date shall occur with respect to any shares of Series B Preferred Stock on or
prior to any Redemption Date or repurchase date, such shares of Series B
Preferred Stock shall be converted by the Corporation into Conversion Shares in
the manner provided in this Section A.
(d) In connection with the conversion of any shares of
Series B Preferred Stock, no fractions of Conversion Shares shall be issued,
but in lieu thereof the Corporation shall pay a cash adjustment in respect of
such fractional interest in an amount equal to such fractional interest
multiplied by the Closing Price per share of Common Stock on the Conversion
Date (or on the Trading Day immediately preceding the Conversion Date, if the
Conversion Date is not a Trading Day). If more than one share of Series B
Preferred Stock shall be surrendered for conversion by the same holder on the
same Conversion Date, the number of full Conversion Shares issuable on
conversion thereof shall be computed on the basis of the total number of
shares of Series B Preferred Stock so surrendered.
(e) The Corporation shall at all times reserve and keep
available for issuance upon the conversion of the Series B Preferred Stock in
accordance with the terms hereof, such number of its authorized but unissued
shares of Junior Preferred Stock and Common Stock as will from time to time be
sufficient to permit the conversion of all outstanding shares of Series B
Preferred Stock, and shall take all action required to increase the authorized
number of shares of Junior Preferred Stock or Common Stock if necessary to
permit the conversion of all outstanding shares of Series B Preferred Stock,
except that from and after the Approval Date no shares of Junior Preferred Stock
shall be required to be so reserved.
B. ADJUSTMENT OF CONVERSION PRICE. Except in connection with
an Organic Change, which shall be subject to Section C below, the Conversion
Price shall be subject to adjustment from time to time as follows:
(a) STOCK DIVIDENDS. In case the Corporation after the date of
the original issuance of the Series A Preferred Stock shall pay a dividend or
make a distribution to all holders of shares of Common Stock in shares of Common
Stock, then in any such case the Conversion Price in effect at the opening of
business on the day following the record date for the determination of
stockholders entitled to receive such dividend or distribution shall be reduced
to a price obtained by multiplying such Conversion Price by a fraction of which
(x) the numerator shall be the number of shares of Common Stock outstanding at
the close of business on such
B-21
record date and (y) the denominator shall be the sum of such number of shares of
Common Stock outstanding and the total number of shares of Common Stock
constituting such dividend or distribution, such reduction to become effective
immediately after the opening of business on the day following such record date.
For purposes of this subsection (a), the number of shares of Common Stock at any
time outstanding shall not include shares held in the treasury of the
Corporation but shall include shares issuable in respect of scrip certificates
issued in lieu of fractions of shares of Common Stock. The Corporation will not
pay any dividend or make any distribution on shares of Common Stock held in the
treasury of the Corporation.
(b) STOCK SPLITS AND REVERSE SPLITS. In case after the date of
the original issuance of the Series A Preferred Stock 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 after the original issuance of
the Series A Preferred Stock 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.
(c) ISSUANCES BELOW MARKET. In case the Corporation after the
date of the original issuance of the Series A Preferred Stock shall issue rights
or warrants to holders of shares of Common Stock entitling them to subscribe for
or purchase shares of Common Stock at a price per share less than the Closing
Price per share on the record date for the determination of stockholders
entitled to receive such rights or warrants, the Conversion Price in effect at
the opening of business on the day following such record date shall be adjusted
to a price obtained by multiplying such Conversion Price by a fraction of which
(x) the numerator shall be the number of shares of Common Stock outstanding at
the close of business on such record date PLUS the number of shares of Common
Stock that the aggregate offering price of the total number of shares so to be
offered would purchase at such Closing Price and (y) the denominator shall be
the number of shares of Common Stock outstanding at the close of business on
such record date PLUS the number of additional shares of Common Stock so to be
offered for subscription or purchase, such adjustment to become effective
immediately after the opening of business on the day following such record date;
PROVIDED, HOWEVER, that no adjustment shall be made if the Corporation issues or
distributes to each holder of Series B Preferred Stock the rights or warrants
that each such holder would have been entitled to receive had the Series B
Preferred Stock held by such holder been converted prior to such record date.
For purposes of this subsection (c), the number of shares of Common Stock at any
time outstanding shall not include shares held in the treasury of the
Corporation but shall include shares issuable in respect of scrip certificates
issued in lieu of fractions of shares of Common Stock. The Corporation shall not
issue any rights or warrants in respect of shares of Common Stock held in the
treasury of the Corporation. Rights or warrants issued by the Corporation to all
holders of Common Stock entitling the holders thereof to subscribe for or
purchase Equity Securities, which rights or warrants (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, including shares
of Common Stock issued upon conversion of shares of Series B Preferred Stock, in
each case in clauses (i) through (iii) until the
B-22
occurrence of a specified event or events (a "TRIGGER EVENT"), shall for
purposes of this subsection (c) not be deemed issued until the occurrence of the
earliest Trigger Event.
(d) SPECIAL DIVIDENDS. In case the Corporation after the date
of the original issuance of the Series A Preferred Stock shall distribute to all
holders of shares of Common Stock evidences of its indebtedness or assets
(excluding any regular periodic cash dividend but including any extraordinary
cash dividend), Equity Securities (other than Common Stock) or rights to
subscribe (excluding those referred to in subsection (c) above) for Equity
Securities other than Common Stock, in each such case the Conversion Price in
effect immediately prior to the close of business on the record date for the
determination of stockholders entitled to receive such distribution shall be
adjusted to a price obtained by multiplying such Conversion Price by a fraction
of which (x) the numerator shall be the Closing Price per share of Common Stock
on such record date, LESS the then-current fair market value as of such record
date (as determined by the Board of Directors in its good faith judgment) of the
portion of assets or evidences of indebtedness or Equity Securities or
subscription rights so distributed applicable to one share of Common Stock, and
(y) the denominator shall be such Closing Price, such adjustment to become
effective immediately prior to the opening of business on the day following such
record date; PROVIDED, HOWEVER, that no adjustment shall be made (1) if the
Corporation issues or distributes to each holder of Series B Preferred Stock the
subscription rights referred to above that each such holder would have been
entitled to receive had the Series B Preferred Stock held by such holder been
converted prior to such record date or (2) if the Corporation grants to each
such holder the right to receive, upon the conversion of the Series B Preferred
Stock held by such holder at any time after the distribution of the evidences of
indebtedness or assets or Equity Securities referred to above, the evidences of
indebtedness or assets or Equity Securities that such holder would have been
entitled to receive had such Series B Preferred Stock been converted prior to
such record date. The Corporation shall provide any holder of Series B Preferred
Stock, upon receipt of a written request therefor, with any indenture or other
instrument defining the rights of the holders of any indebtedness, assets,
subscription rights or Equity Securities referred to in this subsection (d).
Rights or warrants issued by the Corporation to all holders of Common Stock
entitling the holders thereof to subscribe for or purchase Equity Securities,
which rights or warrants (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, including shares of Common Stock issued upon
conversion of shares of Series B Preferred Stock, in each case in clauses
(i) through (iii) until the occurrence of a Trigger Event, shall for purposes
of this subsection (d) not be deemed issued until the occurrence of the
earliest Trigger Event.
(e) TENDER OR EXCHANGE OFFER. In case, after the date of the
original issuance of the Series A Preferred Stock, a tender or exchange offer
made by the Corporation or any subsidiary of the Corporation for all or any
portion of the Common Stock shall be consummated at any time after the original
issuance of the Series A Preferred Stock and such tender offer shall involve an
aggregate consideration having a fair market value (as determined by the Board
of Directors in its good faith judgment) at the last time (the "OFFER TIME")
tenders may be made pursuant to such tender or exchange offer (as it may be
amended) that, together with the aggregate of the cash plus the fair market
value (as determined by the Board of Directors in its good faith judgment), as
of the Offer Time, of consideration payable in respect of any tender or exchange
offer by the Corporation or any such subsidiary for all or any portion of the
Common Stock consummated preceding the Offer Time and in respect of which no
Conversion Price
B-23
adjustment pursuant to this subsection (e) has been made, exceeds 5% of the
product of the Closing Price of the Common Stock at the Offer Time multiplied by
the number of shares of Common Stock outstanding (including any tendered shares)
at the Offer Time, 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 Offer Time by a fraction of which (x) the numerator
shall be (i) the product of the Closing Price of the Common Stock at the Offer
Time multiplied by the number of shares of Common Stock outstanding (including
any tendered shares) at the Offer Time minus (ii) the fair market value
(determined as aforesaid) of the aggregate consideration payable to stockholders
based on the acceptance (up to any maximum specified in the terms of the tender
or exchange offer) of all shares validly tendered and not withdrawn as of the
Offer Time (the shares deemed so accepted, up to any such maximum, being
referred to as the "PURCHASED SHARES") and (y) the denominator shall be the
product of (i) such Closing Price at the Offer Time multiplied by (ii) such
number of outstanding shares at the Offer Time minus the number of Purchased
Shares, such reduction to become effective immediately prior to the opening of
business on the day following the Offer Time. For purposes of this
subsection (e), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of the Corporation but shall
include shares issuable in respect of scrip certificates issued in lieu of
fractions of shares of Common Stock.
(f) CLOSING PRICE DETERMINATION. For the purpose of any
computation under subsections (c) and (d) of this Section B, the Closing Price
of Common Stock on any date shall be deemed to be the average of the Closing
Prices for the five consecutive Trading Days ending on the day in question (or
if such day is not a Trading Day, the next preceding Trading Day), PROVIDED,
HOWEVER, that (i) if the "ex" date for any event (other than the issuance or
distribution requiring such computation) that requires an adjustment to the
Conversion Price pursuant to this Section occurs on or after the 20th Trading
Day prior to the day in question and prior to the "ex" date for the issuance or
distribution requiring such computation, 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 which the Conversion Price is so
required to be adjusted as a result of such other event, (ii) if the "ex" date
for any event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the Conversion Price pursuant to
this Section occurs on or after the "ex" date for the issuance or distribution
requiring such computation and on or 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 (iii) if the "ex" date for the issuance or distribution
requiring such computation is on or prior to the day in question, after taking
into account any adjustment required pursuant to clause (ii) of this proviso,
the Closing Price for each Trading Day on or after such "ex" date shall be
adjusted by adding thereto the fair market value on the day in question (as
determined by the Board of Directors in a manner consistent with any
determination of such value for the purposes of subsection (d) of this
Section B) of the assets, evidences of indebtedness, Equity Securities or
subscription rights being distributed applicable to one share of Common Stock
as of the close of business on the day before such "ex" date. For the
purposes of any computation under subsection (e) of this Section B, the
Closing Price on any date shall be deemed to be the average of the daily
Closing Prices for the five consecutive Trading Days ending at the Offer
Time; 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
B-24
Conversion Price pursuant to this Section occurs on or after the date of
commencement of such tender or exchange offer and prior to the Offer Time for
such tender or exchange offer, 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. For purposes of this subsection (f),
the term "ex" date, (i) when used with respect to any issuance or distribution,
means the first date on which the Common Stock trades regular way on the NYSE or
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, (ii)
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 the
NYSE or such exchange or in such market after the time at which such subdivision
or combination becomes effective, and (iii) when used with respect to any tender
or exchange offer means the first date on which the Common Stock trades regular
way on the NYSE or such exchange or in such market after the Offer Time of such
tender or exchange offer.
(g) The Corporation may make such reductions in the Conversion
Price, in addition to those required by clauses (a), (b), (c), (d), (e) and (f)
of this Section B, as it considers to be advisable to avoid or diminish any
income tax to holders of Common Stock or rights to purchase Common Stock
resulting from any dividend or distribution of stock or from any event treated
as such for income tax purposes. Whenever the Conversion Price is reduced
pursuant to the preceding sentence, the Corporation shall mail to the holders of
then-outstanding shares of Series B Preferred Stock a notice of the reduction at
least fifteen (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 will be in effect.
(h) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least one
percent (1%) in the Conversion Price; PROVIDED, HOWEVER, that any adjustments
which by reason of this subsection (h) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
(i) Notwithstanding any other provision of this Section B, no
adjustment to the Conversion Price shall reduce the Conversion Price below
$0.25, and any such purported adjustment shall instead reduce the Conversion
Price to $0.25. The Corporation hereby covenants not to take any action that
would or does result in any adjustment in the Conversion Price that, if made
without giving effect to the previous sentence, would cause the Conversion Price
to be less than $0.25.
(j) Whenever the Conversion Price is adjusted as herein
provided, a notice stating that the Conversion Price has been adjusted and
setting forth the adjusted Conversion Price shall promptly be mailed by the
Corporation to the holders of the Series B Preferred Stock.
C. ORGANIC CHANGE.
(a) CORPORATION SURVIVES. Upon the consummation of an Organic
Change (other than a transaction in which the Corporation is not the surviving
entity), then lawful provision shall be made as part of the terms of such
transaction whereby the terms hereof shall be
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modified, without payment of any additional consideration by any holder, so as
to provide that upon the conversion of shares of Series B Preferred Stock
following the consummation of such Organic Change, a holder of Series B
Preferred Stock shall have the right to acquire and receive (in lieu of or in
addition to the Conversion Shares acquirable and receivable prior to the Organic
Change), without payment of additional consideration therefor (except as would
otherwise have been required by the terms of the Series B Preferred Stock as in
effect prior to such Organic Change), such securities, cash and other property
as such holder would have received if such holder had converted such shares of
Series B Preferred Stock into Common Stock immediately prior to such Organic
Change. Lawful provision also shall be made as part of the terms of the Organic
Change so that all other terms hereof shall remain in full force and effect
following such an Organic Change. The provisions of this subsection (a) shall
similarly apply to successive Organic Changes of the character described in this
subsection (a).
(b) CORPORATION DOES NOT SURVIVE. The Corporation shall not
enter into an Organic Change that is a transaction in which the Corporation is
not the surviving entity unless lawful provision shall be made as part of the
terms of such transaction whereby the surviving entity shall issue new
securities (the "NEW SECURITIES") to each holder of Series B Preferred Stock,
without payment of any additional consideration by such holder, with terms that
provide that upon the conversion of the New Securities, the holder of such
securities shall have the right to acquire and receive (in lieu of or in
addition to the Conversion Shares acquirable and receivable prior to the Organic
Change), without payment of additional consideration therefor (except as would
otherwise have been required by the terms of the Series B Preferred Stock as in
effect prior to such Organic Change), such securities, cash and other property
as such holder would have received if such holder had converted such shares of
Series B Preferred Stock into Common Stock immediately prior to such Organic
Change. The certificate or articles of incorporation or other constituent
document of the surviving entity shall provide for such adjustments which, for
events subsequent to the effective date of such certificate or articles of
incorporation or other constituent document, shall be equivalent to the
adjustments provided for in Section B of this Article IX. All other terms of
such New Securities shall be substantially equivalent to the terms provided
herein. The provisions of this subsection (b) shall similarly apply to
successive Organic Changes of the character described in of this subsection (b).
D. CERTAIN EVENTS. If any event similar to or of the type
contemplated by the provisions of Section B or Section C of this Article IX, but
not expressly provided for by such provisions, occurs, then the Board of
Directors of the Corporation, will make an appropriate and equitable adjustment
in the Conversion Price so as to protect the rights of the holders of Series B
Preferred Stock; PROVIDED, that no such adjustment will decrease the number of
Conversion Shares issuable upon conversion of the Series B Preferred Stock.
E. RESTRICTION ON ACTIONS RELATING TO JUNIOR PREFERRED STOCK.
No action shall be taken by the Corporation with respect to the Junior Preferred
Stock, including without limitation stock splits, stock dividends, stock
combinations, issuances below market and special dividends, which would require
an adjustment to the Conversion Price if such action were taken with respect to
the Common Stock, except pursuant to, and in accordance with, Section B or C of
this Article IX.
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F. NOTICE OF APPROVAL DATE. When and if the Approval Date
shall occur, the Corporation shall promptly mail or cause to be mailed a notice
of such occurrence to each holder of Series B Preferred Stock and Junior
Preferred Stock.
X. ADDITIONAL DEFINITIONS
For the purposes of this Certificate of Designations of Series
B Preferred Stock, the following terms shall have the meanings indicated:
"AFFILIATE" has the meaning set forth in Rule 12b-2 under the
Exchange Act as in effect on the date of the Investment Agreement. The term
"Affiliated" has a correlative meaning. Notwithstanding the foregoing, for all
purposes hereof, the Investor, and each Person controlled by, controlling or
under common control with the Investor (each, a "TPG PERSON"), shall not be
deemed an "Affiliate" of any Designated Purchaser Person (as defined below), and
no Designated Purchaser, and no Person controlled by, controlling or under
common control with such Designated Purchaser (each, a "DESIGNATED PURCHASER
PERSON"), shall be deemed an "Affiliate" of any TPG Person or any other
Designated Purchaser Person, in any such case solely as a consequence of this
Agreement or the transactions contemplated hereby.
"APPROVAL DATE" means the date, if any, on which the
Corporation obtains the Series B Shareholder Approval.
"ANNIVERSARY DATE" means the date that is ninety days after
the date of the original issuance of the Series B Preferred Stock.
"BENEFICIALLY OWN" with respect to any securities means
having "beneficial ownership" of such securities (as determined pursuant to
Rule 13d-3 under the Exchange Act as in effect on the date of the Investment
Agreement, except that a Person shall be deemed to Beneficially Own all such
securities that such Person has the right to acquire whether such right is
exercisable immediately or after the passage of time). The terms "Beneficial
Ownership" and "Beneficial Owner" have correlative meanings. Notwithstanding
the foregoing, for all purposes hereof, (i) no TPG Person shall be deemed to
Beneficially Own any securities that are held by any Designated Purchaser
Person, and no Designated Purchaser Person shall be deemed to Beneficially
Own any securities that are held by any TPG Person or any other Designated
Purchaser Person, in any such case solely as a consequence of this Agreement
or the transactions contemplated hereby, and (ii) no member of the Investor
Group shall be deemed to Beneficially Own any Option Shares or securities
issuable in respect of the Option Shares unless and until the Option is
exercised.
"BUSINESS DAY" means any day, other than a Saturday, 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.
"BYLAWS" means the Bylaws of the Corporation, as amended from
time to time.
"CHANGE OF CONTROL" shall be deemed to have occurred if
(a) any person or group (within the meaning of Rule 13d-5 under the Exchange
Act as in effect on February 12, 1998) shall own directly or indirectly,
beneficially or of record, shares representing more than 35% of
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the aggregate ordinary voting power represented by the issued and outstanding
Equity Securities of the Corporation, other than any Person or Group that owned
at least 5% of such Equity Securities on the Closing Date (as such term is
defined in the Credit Agreement as in effect on the date of the Investment
Agreement); (b) a majority of the seats (other than vacant seats) on the board
of directors of the Corporation shall at any time be occupied by persons who
were neither (i) nominated by the board of directors of the Corporation nor
(ii) appointed by directors so nominated; (c) any change in control (or
similar event, however denominated) with respect to the Corporation shall
occur under and as defined in any indenture or agreement in respect of
Indebtedness for borrowed money in excess of the aggregate principal amount
of $10,000,000 to which any Borrower (as such term is defined in the Credit
Agreement as in effect on the date of the Investment Agreement) or any
Guarantor (as such term is defined in the Credit Agreement as in effect on
the date of the Investment Agreement) is a party, other than the Existing
Parent Borrower Notes Indenture (as such term is defined in the Credit
Agreement as in effect on the date of the Investment Agreement) in connection
with a Permitted CBHS Sale (as such term is defined in the Credit Agreement
as in effect on the date of the Investment Agreement); or (d) a "Change in
Control" or "Change of Control" (or similar event) shall have occurred under
the Credit Agreement or the Senior Subordinated Notes, unless, in the case of
a "Change of Control" under the Indenture, the aggregate principal amount
outstanding under the Senior Subordinated Notes is less than $10,000,000.
Notwithstanding the foregoing, no event described above shall constitute a
"Change of Control" if such event resulted directly from any action taken by
the Investor or any of its Affiliates.
"CLOSING" shall have the meaning assigned to such term in the
Investment Agreement.
"CLOSING PRICE" with respect to a share of Common Stock on any
day means, subject to subsection (f) of Section B of Article IX if applicable,
the last reported sale price on that day or, in case no such reported sale takes
place on such day, the average of the last reported bid and asked prices,
regular way, on that day, in either case, as reported in the consolidated
transaction reporting system with respect to securities listed on the NYSE or,
if the shares of Common Stock are not listed on the NYSE, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the shares of
Common Stock are listed or, if the shares of Common Stock are not listed on NYSE
and not listed on any national securities exchange, the last quoted price or, if
not so quoted, the average of the high bid and low asked prices on such other
nationally recognized quotation system then in use, or, if on any such day the
shares of Common Stock are not quoted on any such quotation system, the average
of the closing bid and asked prices as furnished by a professional market maker
selected by the Board of Directors in good faith making a market in the shares
of Common Stock. If the shares of Common Stock are not publicly held or so
listed, quoted or publicly traded, the "Closing Price" means the fair market
value of a share of Common Stock, as determined in good faith by the Board of
Directors.
"COMMON SHARES" means shares of Common Stock (or any successor
security) issued or issuable in respect of dividends on, or upon conversion of,
shares of Series A Preferred Stock.
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"CONVERSION PRICE" shall mean $9.375, as adjusted from time to
time pursuant to Section B of Article IX hereof; PROVIDED, that in the event (A)
the Series B Shareholder Approval is obtained by the Corporation on or prior to
Anniversary Date, as of the day after the Approval Date, the Conversion Price
shall equal the product of (i) the Conversion Price in effect on the Approval
Date, and (ii) 1.026666666667, or (B) the Series B Shareholder Approval is not
obtained by the Corporation on or prior to Anniversary Date, as of the day after
the Anniversary Date, the Conversion Price shall equal the product of (i) the
Conversion Price in effect on the Anniversary Date, and (ii) 0.9733333333333, in
each case as adjusted from time to time pursuant to Section B of Article IX
hereof. With respect to any share of Series B Preferred Stock issued after the
date of the original issuance of the Series A Preferred Stock, the Conversion
Price of such share shall be determined as if such share were issued on the date
of the original issuance of the Series A Preferred Stock.
"CONVERSION SHARES" means (i) prior to the Approval Date,
shares of Junior Preferred Stock, and (ii) on and after the Approval Date,
shares of Common Stock, in each case, issued, or issuable upon, conversion of
the Series B Preferred Stock.
"CREDIT AGREEMENT" means the Credit Agreement, dated as of
February 12, 1998, among the Corporation, the banks and other financial
institutions named therein, and The Chase Manhattan Bank, as Administrative
Agent, together with all other documents entered into pursuant to or in
connection with the Credit Agreement, in each case, as the same may be amended,
restated, supplemented, extended, renewed or increased from time to time,
replaced, substituted, refunded or refinanced or otherwise modified from time to
time, in whole or in part, and any successive replacements, substitutions,
refundings or refinancings.
"DESIGNATED PURCHASER" has the meaning set forth in the
Investment Agreement.
"DESIGNATED PURCHASER PERSON" has the meaning set forth in the
definition of "Affiliate."
"EQUITY SECURITIES" of any Person, means any and all common
stock, preferred stock and any other class of capital stock of, and any
partnership or limited liability company interests in, such Person or any other
similar interests of any Person that is not a corporation, partnership or
limited liability company.
"EXCHANGE ACT" means the U.S. Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder, from
time to time.
"45-TRADING DAY AVERAGE PRICE" means the average of the
Closing Prices per share of Common Stock for the Trading Days in any period of
45 consecutive Trading Days (a "45-TRADING DAY REFERENCE PERIOD"); PROVIDED,
HOWEVER, that in the event that an adjustment to the Conversion Price takes
effect pursuant to Section B of Article IX hereof during the period used to
compute such average, the Closing Prices used to compute such average for all
Trading Days ended prior to the time such adjustment takes effect shall be
similarly adjusted.
"45-TRADING DAY REFERENCE PERIOD" has the meaning set forth in
the definition of "45-Trading Day Average Price."
B-29
"GOVERNMENTAL ENTITY" means any government or political
subdivision or department thereof, any governmental or regulatory body,
commission, board, bureau, agency or instrumentality, or any court or arbitrator
or alternative dispute resolution body, in each case whether federal, state,
local or foreign.
"GROUP" has the meaning set forth in Rule 13d-5 under the
Exchange Act.
"GUARANTEE" means any direct or indirect obligation,
contingent or otherwise, to guarantee (or having the economic effect of
guaranteeing) Indebtedness in any manner, including, without limitation, any
monetary obligation to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness (whether arising by agreement to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise).
"INDEBTEDNESS" means, with respect to any Person, without
duplication, (i) all obligations of such Person for money borrowed, (ii) all
obligations of such Person evidenced by bonds, debentures, notes, or other
similar instruments, (iii) all obligations of such Person upon which interest
charges are customarily paid, (iv) all obligations of such Person under
conditional sale or other title retention agreements relating to property or
assets purchased by such Person, (v) all obligations of such Person issued or
assumed as the deferred purchase price of property or services (excluding (x)
trade accounts payable and accrued obligations incurred in the ordinary course
of business and (y) deferred earn-out and other performance-based payment
obligations incurred in connection with any Permitted Acquisition (as such term
is defined in the Credit Agreement as in effect on the date of the Investment
Agreement) or any similar transactions consummated prior to February 12, 1998),
(vi) all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (vii) all Guarantees by such
Person of Indebtedness of others, (viii) all capital lease obligations of such
Person, (ix) all obligations (determined on the basis of actual, not notional,
obligations) of such Person in respect of interest rate protection agreements,
foreign currency exchange agreements or other interest or exchange rate hedging
arrangements and (x) all obligations of such Person as an account party in
respect of letters of credit and bankers' acceptances issued in support of
obligations that constitute Indebtedness under any other clause of this
definition (unless such obligations are fully cash collateralized), PROVIDED
that all obligations in respect of letters of credit shall be deemed
Indebtedness to the extent drawings thereunder are unreimbursed (after any
applicable grace period) regardless of the purpose for which such letter of
credit was issued. The Indebtedness of any Person shall include the recourse
Indebtedness of any partnership in which such Person is a general partner.
Notwithstanding the foregoing, no portion of Indebtedness that becomes the
subject of a defeasance (whether a legal defeasance or a "covenant" or "in
substance" defeasance) shall, at any time that such defeasance remains in
effect, be treated as Indebtedness for purposes hereof.
"INDENTURE" means the Indenture entered into between the
Corporation and the Marine Midland Bank, as Trustee, dated as of February 12,
1998, as the same may be amended, restated, supplemented, extended, renewed or
increased from time to time, replaced, substituted,
B-30
refunded or refinanced or otherwise modified from time to time, in whole or in
part, and any successive replacements, substitutions, refundings or
refinancings.
"INVESTMENT AGREEMENT" means the Investment Agreement, dated
as of July 19, 1999, by and between the Investor and the Corporation, as
amended, supplemented or otherwise modified from time to time.
"INVESTOR" has the meaning set forth in the Investment
Agreement.
"INVESTOR GROUP" means, collectively, the Investor, the
Designated Purchasers, if any, and the respective Affiliates of such Persons.
"INVESTOR NOMINEE" means a person designated for election to
the Board of Directors by the Investor pursuant to the Investment Agreement.
"INVESTOR SALE PRICE" means with respect to any Investor Sale,
the price per Common Share paid in such sale; PROVIDED, that in the event shares
of Series A Preferred Stock are sold in such Investor Sale, the Investor Sale
Price shall equal the quotient of (A) the price per share of Series A Preferred
Stock paid in such Investor Sale, and (B) the number of Common Shares into which
such share of Series A Preferred Stock is convertible at the time of such sale.
"LAW" means any law, treaty, statute, ordinance, code, rule,
regulation, judgment, decree, order, writ, award, injunction or determination of
any Governmental Entity.
"LIEN" means any mortgage, pledge, lien , security interest,
claim, voting agreement, conditional sale agreement, title retention agreement,
restriction, option or encumbrance of any kind, character or description
whatsoever.
"MAKE-WHOLE CONVERSION SHARES" means, with respect to any
Investor Sale, the Conversion Shares represented by the shares of Series B
Preferred Stock and shares of Junior Preferred Stock included in such Investor
Sale; PROVIDED, that aggregate number of Make-Whole Conversion Shares with
respect to such Investor Sale shall not exceed the Sale Number with respect to
such Investor Sale.
"NYSE" means the New York Stock Exchange, Inc.
"NYSE RULES" has the meaning set forth in the Investment
Agreement.
"180-DAY AVERAGE PRICE" means the average of the Closing
Prices per share of Common Stock for the Trading Days in any period of 180
consecutive calendar days (a "180-DAY REFERENCE PERIOD"); PROVIDED, however,
that in the event that an adjustment to the Conversion Price takes effect
pursuant to Section B of Article IX hereof during the period used to compute
such average, the Closing Prices used to compute such average for all Trading
Days ended prior to the time such adjustment takes effect shall be similarly
adjusted.
"180-DAY REFERENCE PERIOD" has the meaning set forth in the
definition of "180-Day Average Price."
B-31
"OPTION" has the meaning set forth in the Investment
Agreement.
"OPTION SHARES" has the meaning set forth in the Investment
Agreement.
"ORGANIC CHANGE" means, with respect to the Corporation, any
transaction (including without limitation any recapitalization, capital
reorganization or reclassification of any class of capital stock, any
consolidation or amalgamation of the Corporation with, or merger of the
Corporation into, any other Person, any merger of another Person into the
Corporation (other than a merger which does not result in a reclassification,
conversion, exchange or cancellation of outstanding shares of capital stock of
the Corporation), any sale or transfer or lease of all or substantially all of
the assets of the Corporation or any compulsory share exchange) pursuant to
which any class of capital stock of the Corporation is converted into the right
to receive other securities, cash or other property.
"PERSON" means any individual, corporation, company,
association, partnership, limited liability company, joint venture, trust or
unincorporated organization, or a government or any agency or political
subdivision thereof.
"REFERENCE PERIOD" means a 45-Trading Day Reference Period or
a 180-Day Reference Period, as the case may be.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of July 19, 1999, by and between the Investor and the
Corporation, as amended, supplemented or otherwise modified from time to time.
"REGULATORY APPROVALS" means any and all certificates,
permits, licenses, franchises, concessions, grants, consents, approvals, orders,
registrations, authorizations, waivers, variances or clearances from, or filings
or registrations with, Governmental Entities.
"SALE NUMBER" means, with respect to any Investor Sale, the
aggregate number of Conversion Shares Beneficially Owned by the Selling Members
prior to such Investor Sale, multiplied by a fraction, the numerator of which is
the sum of (A) the aggregate number of Common Shares included in such Investor
Sale, plus (B) the aggregate number of Common Shares into which the shares of
Series A Preferred Stock included in such sale are convertible at the time of
such sale, and the denominator is the aggregate number of Common Shares
Beneficially Owned by the Selling Members prior to such Investor Sale.
"SECURITIES ACT" means the U.S. Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder, from time to
time.
"SENIOR SUBORDINATED NOTES" means the Senior Subordinated
Notes of the Corporation issued pursuant to the Indenture.
"SERIES B SHAREHOLDER APPROVAL" means the approval by the
stockholders of the Corporation, in accordance with the General Corporation Law
of the State of Delaware and in accordance with and in satisfaction of Paragraph
312.00 of the NYSE's Listed Company Manual and the related NYSE Rules and
interpretations of (i) the issuance of Common Stock in respect of accrued and
unpaid dividends on the Series B Preferred Stock (including upon the conversion
B-32
or exchange thereof), (ii) the issuance of Common Stock upon the conversion or
exchange of the Series B Preferred Stock, and (iii) the vesting of voting rights
in respect of the Series B Preferred Stock, in each case in accordance with the
terms hereof and the Investment Agreement.
"SUBSIDIARY" means as to any Person, any other Person of which
more than 50% of the shares of the voting stock or other voting interests are
owned or controlled, or the ability to select or elect more than 50% of the
directors or similar managers is held, directly or indirectly, by such first
Person or one or more of its Subsidiaries or by such first Person and one or
more of its Subsidiaries; PROVIDED, HOWEVER, that no Joint Venture (as such term
is defined in the Investment Agreement) shall be considered (i) a "Subsidiary"
of the Corporation or (ii) a "Subsidiary" of any Subsidiary of the Corporation.
"TPG PERSON" has the meaning set forth in the definition of
"Affiliate."
"TRADING DAY" means any day on which the NYSE is open for
trading, or if the shares of Common Stock are not quoted on the NYSE, any day on
which the principal national securities exchange or national quotation system on
which the shares of Common Stock are listed, admitted to trading or quoted is
open for trading, or if the shares of Common Stock are not so listed, admitted
to trading or quoted, any Business Day.
"TWO-WEEK AVERAGE PRICE" means the average of the Closing
Prices per share of Common Stock for the Trading Days in the two-calendar week
period ending on the last day of a Reference Period; PROVIDED, HOWEVER, that in
the event that an adjustment to the Conversion Price takes effect pursuant to
Section B of Article IX hereof during the period used to compute such average,
the Closing Prices used to compute such average for all Trading Days ended prior
to the time such adjustment takes effect shall be similarly adjusted.
"VOTING SECURITIES" means the shares of Common Stock and any
other securities of the Corporation entitled to vote generally for the election
of directors.
XI. MISCELLANEOUS
A. NOTICES. Any notice referred to herein shall be in writing
and, unless first-class mail shall be specifically permitted for such notices
under the terms hereof, shall be deemed to have been given upon personal
delivery thereof, upon transmittal of such notice by telecopy (with confirmation
of receipt by telecopy or telex) or five days after transmittal by registered or
certified mail, postage prepaid, addressed as follows:
(i) if to the Corporation, to its office at 6950 Columbia
Gateway Drive, Fourth Floor, Columbia, Maryland 21046 (Attention:
General Counsel) or to the transfer agent for the Series B Preferred
Stock;
(ii) if to a holder of the Series B Preferred Stock, to such
holder at the address of such holder as listed in the stock record
books of the Corporation (which may include the records of any transfer
agent for the Series B Preferred Stock); or
(iii) to such other address as the Corporation or such holder,
as the case may be, shall have designated by notice similarly given.
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B. REACQUIRED SHARES. Any shares of Series B Preferred Stock
redeemed, purchased or otherwise acquired by the Corporation, directly or
indirectly, in any manner whatsoever shall be retired and canceled promptly
after the acquisition thereof (and shall not be deemed to be outstanding for any
purpose) and, if necessary to provide for the lawful redemption or purchase of
such shares, the capital represented by such shares shall be reduced in
accordance with the Delaware General Corporation Law. All such shares of Series
B Preferred Stock shall upon their cancellation and upon the filing of an
appropriate certificate with the Secretary of State of the State of Delaware,
become authorized but unissued shares of Preferred Stock, without par value, of
the Corporation and may be reissued as part of another series of Preferred
Stock, without par value, of the Corporation subject to the conditions or
restrictions on issuance set forth herein.
C. ENFORCEMENT. Any registered holder of shares of Series B
Preferred Stock may proceed to protect and enforce its rights and the rights of
such holders by any available remedy by proceeding at law or in equity to
protect and enforce any such rights, whether for the specific enforcement of any
provision in this Certificate of Designations or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
D. TRANSFER TAXES. Except as otherwise agreed upon pursuant to
the terms of this Certificate of Designations, the Corporation shall pay any and
all documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Common Stock or Debentures on conversion or exchange
of, or other securities or property issued on account of, shares of Series B
Preferred Stock pursuant hereto or certificates representing such shares or
securities. The Corporation shall not, however, be required to pay any such tax
or other charge that may be imposed in connection with any transfer involved in
the issue or transfer and delivery of any certificate for Common Stock or
Debentures or other securities or property in a name other than that in which
the shares of Series B Preferred Stock so converted or exchanged, or on account
of which such securities were issued, were registered and no such issue or
delivery shall be made unless and until the Person requesting such issue has
paid to the Corporation the amount of any such tax or has established to the
satisfaction of the Corporation that such tax has been paid or is not payable.
E. TRANSFER AGENT. The Corporation may appoint, and from time
to time discharge and change, a transfer agent for the Series B Preferred Stock.
Upon any such appointment or discharge of a transfer agent, the Corporation
shall send notice thereof by first-class mail, postage prepaid, to each holder
of record of shares of Series B Preferred Stock.
F. RECORD DATES. In the event that the Series B Preferred
Stock shall be registered under either the Securities Act or the Exchange Act,
the Corporation shall establish appropriate record dates with respect to
payments and other actions to be made with respect to the Series B Preferred
Stock.
G. SUBORDINATION TO SENIOR SUBORDINATED NOTES. By accepting a
share of Series B Preferred Stock or Debenture, the holder thereof shall be
deemed to have acknowledged and agreed that (a) such holder's right to receive
payments in respect of the Series B Preferred Stock or Debenture is subject and
subordinated in right of payment to the payment in full and discharge
B-34
of all amounts (however denominated) then due and payable under the Senior
Subordinated Notes, and (b) until payment in full of all such amounts (however
denominated) under the Senior Subordinated Notes has been made, no payment,
whether directly or indirectly, by exercise of any right of set off or otherwise
in respect of the Series B Preferred Stock or Debenture shall be made by the
Corporation, and no deposit in respect of the Series B Preferred Stock or
Debenture shall be made pursuant to the terms hereof. In the event that any
payment by, or distribution of the assets of, the Corporation of any kind or
character (whether in cash, property or securities, whether directly or
indirectly, by exercise of any right of set-off or otherwise and whether as a
result of a bankruptcy proceeding with respect to the Corporation or otherwise)
shall be received by a holder of Series B Preferred Stock at any time when such
payment is prohibited by this paragraph, such payment shall be held in trust for
the benefit of, and shall be paid over to, the holders of Senior Subordinated
Notes as their interests may appear. The preceding two sentences address the
relative rights of holders of Series B Preferred Stock or Debentures, on the one
hand, and the holders of Senior Subordinated Notes, on the other hand, and
nothing in this Certificate of Designations shall impair, as between the
Corporation and the holders of Series B Preferred Stock or Debentures, the
obligation of the Corporation, which is absolute and unconditional, to pay
amounts due in respect of the Series B Preferred Stock and Debentures in
accordance with their terms. This Section G shall not be construed to limit in
any manner the subordination provisions set forth in Section D of Article V
hereof.
B-35
IN WITNESS WHEREOF, this Certificate of Designations is
executed on behalf of the Corporation by its Chief Financial Officer and
attested by its Assistant Secretary, this [___] day of [____________], 1999.
MAGELLAN HEALTH SERVICES, INC.
By:_____________________________________
Name: Cliff Donnelly
Title: Chief Financial Officer
[Corporate Seal]
ATTEST:
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EXHIBIT C
Form of Junior Certificate of Designations
CERTIFICATE OF DESIGNATIONS
OF
SERIES C JUNIOR PARTICIPATING PREFERRED STOCK
OF
MAGELLAN HEALTH SERVICES, INC.
(PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE)
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Magellan Health Services, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"CORPORATION"), hereby certifies that the following resolutions were adopted by
the Board of Directors (the "BOARD OF DIRECTORS") of the Corporation as required
by Section 151 of the General Corporation Law of the State of Delaware.
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of the Corporation in accordance with the provisions
of the Restated Certificate of Incorporation of the Corporation, as amended (the
"CERTIFICATE OF INCORPORATION"), the Board of Directors hereby creates a series
of preferred stock, without par value, of the Corporation, and hereby states the
designation and number thereof, and fixes the voting powers, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions thereof, as follows:
Series C Junior Participating Preferred Stock:
Section 1. DESIGNATION AND AMOUNT.
The designation of this series of shares shall be "Series C
Junior Participating Preferred Stock" (the "SERIES C PREFERRED STOCK"), and the
number of shares constituting such series shall be __________________. The
number of shares of the Series C Preferred Stock may be increased or decreased
by resolution of the Board of Directors; PROVIDED, HOWEVER, that no decrease
shall reduce the number of shares of Series C Preferred Stock to a number less
than the aggregate number of such shares then outstanding.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(a) Subject to the rights of the holders of any shares of any
series of preferred stock of the Corporation (the "PREFERRED STOCK") (or any
similar stock) ranking prior and superior to the Series C Preferred Stock with
respect to dividends, the holders of shares of Series C Preferred Stock, in
preference to the holders of the common stock, par value $0.25 per share (the
"COMMON STOCK"), of the Corporation, and of any other class of stock of the
Corporation ranking
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junior to the Series C Preferred Stock, shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds legally available for the
purpose, dividends and other distributions, in an amount per share (rounded to
the nearest cent) equal to, subject to the provision for adjustment hereinafter
set forth, the amount of all cash dividends, and the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock, declared on the Common Stock since
the immediately preceding dividend or distribution declared on the Series C
Preferred Stock. In the event the Corporation shall declare or pay any dividend
on Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount per share to which holders of shares of Series C Preferred
Stock were entitled immediately prior to such event under the preceding sentence
shall be adjusted by multiplying such amount by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
after such event and the denominator of which shall be the number of shares of
Common Stock that were outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution
on the Series C Preferred Stock as provided in paragraph (a) of this Section 2
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(c) The Board of Directors may fix a record date for the
determination of holders of shares of Series C Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be not more than 30 days prior to the date fixed for the payment
thereof.
Section 3. VOTING RIGHTS. Except as set forth in Section 10
hereof, or as otherwise from time to time required by law, holders of Series C
Preferred Stock shall have no voting rights and their consent shall not be
required for taking any corporate action.
Section 4. CERTAIN RESTRICTIONS.
(a) Whenever dividends or distributions payable on the Series
C Preferred Stock as provided in Section 2 are in arrears, thereafter and until
all unpaid dividends and distributions, whether or not declared, on outstanding
shares of Series C Preferred Stock shall have been paid in full, the Corporation
shall not:
(i) declare or pay dividends, or make any
other distributions, on any shares of stock ranking junior (as
to dividends) to the Series C Preferred Stock;
(ii) declare or pay dividends, or make any
other distributions, on any shares of stock ranking on a
parity (as to dividends) with the Series C Preferred Stock,
except dividends paid ratably on the Series C Preferred Stock
and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
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(iii) redeem or purchase or otherwise
acquire for consideration shares of any stock ranking junior
(either as to dividends or upon liquidation, dissolution or
winding up of the Corporation) to the Series C Preferred
Stock, PROVIDED, HOWEVER, that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such
junior stock in exchange for shares of any stock of the
Corporation ranking junior (as to dividends and upon
dissolution, liquidation or winding up of the Corporation) to
the Series C Preferred Stock or rights, warrants or options to
acquire such junior stock; or
(iv) redeem or purchase or otherwise acquire
for consideration any shares of Series C Preferred Stock, or
any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up of
the Corporation) with the Series C Preferred Stock, except in
accordance with a purchase offer made in writing to all
holders of such shares of Series C Preferred Stock, or shares
of Series C Preferred Stock and parity stock, as the case may
be, upon such terms as the Board of Directors, after
consideration of the respective dividend rates and other
relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(b) The Corporation shall not redeem or purchase or otherwise
acquire shares of Common Stock unless, in each case, within five days of such
transaction, the Corporation makes a purchase offer in writing to all holders of
shares of Series C Preferred Stock offering to purchase a number of shares of
Series C Preferred Stock equal to the number of shares of Common Stock redeemed
or purchased or otherwise acquired in such transaction at a price per share
equal to the amount of consideration paid for one share of Common Stock in such
transaction and otherwise on terms and conditions no less favorable to the
holders of Series C Preferred Stock than those applicable in such transaction
(as determined by the Board of Directors in good faith). In the event the
Corporation shall declare or pay any dividend on Common Stock payable in shares
of Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case (i) the number of shares of
Series C Preferred Stock which holders thereof were entitled to have the
Corporation offer to purchase immediately prior to such event under the
preceding sentence shall be adjusted by multiplying such number by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
immediately after such event and the denominator of which shall be the number of
shares of Common Stock that were outstanding immediately prior to such event,
and (ii) the amount per share to which holders of shares of Series C Preferred
Stock were entitled immediately prior to such event under the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock that were outstanding immediately after such event.
(c) The Corporation shall not, and shall not permit any
Subsidiary of the Corporation to, enter into any agreement with any Person
providing for the purchase or other acquisition by such Person (or any other
Person) of shares of Common Stock from any Person
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(other than the Corporation), whether pursuant to tender offer, exchange offer
or otherwise, unless, in each case, within five days of the commencement of such
transaction, such Person promptly makes a purchase offer in writing to all
holders of shares of Series C Preferred Stock offering to purchase a number of
shares of Series C Preferred Stock equal to the number of shares of Common Stock
purchased or otherwise acquired in such transaction at a price per share equal
to the amount of consideration paid for one share of Common Stock in such
transaction and otherwise on terms and conditions no less favorable to the
holders of Series C Preferred Stock than those applicable in such transaction
(as determined by the Board of Directors in good faith). In the event the
Corporation shall declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case (i) the number of
shares of Series C Preferred Stock which holders thereof were entitled to have
redeemed or purchased or otherwise acquired immediately prior to such event
under the preceding sentence shall be adjusted by multiplying such number by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately after such event and the denominator of which shall be
the number of shares of Common Stock that were outstanding immediately prior to
such event, and (ii) the amount per share to which holders of shares of Series C
Preferred Stock were entitled immediately prior to such event under the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock that were outstanding immediately after such event.
(d) The Corporation shall not permit any Subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) or,
(b) or (c) of this Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
(e) Notwithstanding the foregoing, this Section 4 shall not
prohibit (i) purchases of Equity Securities of the Corporation or any of its
Subsidiaries from executives and other management-level employees of the
Corporation or any of its Subsidiaries in connection with customary employment
and severance arrangements, or (ii) the acquisition, repurchase, exchange,
conversion, redemption or other retirement for value by the Corporation of any
Equity Securities of the Corporation in accordance with obligations in existence
at the time of original issuance of the Series A Preferred Stock.
Section 5. REACQUIRED SHARES. Any shares of Series C Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of the preferred stock of the Corporation and may be reissued as
part of a new series of the preferred stock of the Corporation, subject to the
conditions and restrictions on issuance set forth herein.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (a) to the holders of the Common Stock or of shares of any other stock
of the Corporation ranking junior, upon
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liquidation, dissolution or winding up of the Corporation, to the Series C
Preferred Stock unless, prior thereto, the holders of shares of Series C
Preferred Stock shall have received per share of Series C Preferred Stock (i) an
amount equal to declared and unpaid dividends and distributions thereon, to the
date of such payment, plus (ii) an aggregate amount, subject to the provision
for adjustment hereinafter set forth, equal to the aggregate amount to be
distributed per share to holders of shares of Common Stock, or (b) to the
holders of shares of stock ranking on a parity upon liquidation, dissolution or
winding up of the Corporation with the Series C Preferred Stock, except
distributions made ratably on the Series C Preferred Stock and all such parity
stock in proportion to the total amounts to which the holders of all such shares
are entitled upon such liquidation, dissolution or winding up. In the event the
Corporation shall declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the aggregate amount
per share to which holders of shares of Series C Preferred Stock were entitled
immediately prior to such event under clause (a)(ii) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which shall be the number of shares of Common Stock outstanding immediately
after such event and the denominator of which shall the number of shares of
Common Stock that were outstanding immediately prior to such event.
Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation
shall enter into any consolidation, merger, combination, recapitalization or
other transaction in which shares of Common Stock are converted into, exchanged
for or changed into other stock or securities, cash and/or any other property,
then in any such case each share of Series C Preferred Stock shall at the same
time be similarly converted into, exchanged for or changed into an amount per
share (subject to the provision for adjustment hereinafter set forth) equal to
the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Common Stock is converted, exchanged or changed. In the event the Corporation
shall declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the amount set forth in the
preceding sentence with respect to the conversion, exchange or change of shares
of Series C Preferred Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately after such event and the denominator of which shall be
the number of shares of Common Stock that were outstanding immediately prior to
such event.
Section 8. NO REDEMPTION. The shares of Series C Preferred
Stock shall not be redeemable by the Corporation.
Section 9. RANK. The Series C Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up of the Corporation, junior to all other
series of Preferred Stock (unless the terms of any such series shall provide
otherwise) and senior to the Common Stock.
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Section 10. AMENDMENT. Without the consent or affirmative vote
of the holders of at least a majority of the outstanding shares of Series C
Preferred Stock, voting separately as a class, the Corporation shall not (i)
amend, alter or repeal any provision of the Certificate of Incorporation or the
Bylaws, if the amendment, alteration or repeal alters or changes the powers,
preferences or special rights of the Series C Preferred Stock so as to affect
them adversely, or (ii) authorize or take any other action if such action alters
or changes any of the rights of the Series C Preferred Stock in any respect or
otherwise would be inconsistent with the provisions of this Certificate of
Designations and the holders of any class or series of the capital stock of the
Corporation is entitled to vote thereon.
Section 11. FRACTIONAL SHARES. Series C Preferred Stock may be
issued in fractions of a share which shall entitle the holder, in proportion to
such holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series C Preferred Stock.
Section 12. DEFINITIONS. The following terms shall have the
following definitions:
"EQUITY SECURITIES" of any Person, means any and all common
stock, preferred stock and any other class of capital stock of, and any
partnership or limited liability company interests in, such Person or
any other similar interests of any Person that is not a corporation,
partnership or limited liability company.
"INVESTMENT AGREEMENT" means the Investment Agreement, dated
as of July 19, 1999, by and between the Investor and the Corporation,
as amended, supplemented or otherwise modified from time to time.
"SERIES A PREFERRED STOCK" the Series A Cumulative Convertible
Preferred Stock, without par value, of the Corporation.
"SUBSIDIARY" means as to any Person, any other Person of
which more than 50% of the shares of the voting stock or other voting
interests are owned or controlled, or the ability to select or elect
more than 50% of the directors or similar managers is held, directly or
indirectly, by such first Person or one or more of its Subsidiaries or
by such first Person and one or more of its Subsidiaries; PROVIDED,
HOWEVER, that no Joint Venture (as such term is defined in the
Investment Agreement) shall be considered (i) a "Subsidiary" of the
Corporation or (ii) a "Subsidiary" of any Subsidiary of the
Corporation.
"PERSON" means any individual, corporation, company,
association, partnership, limited liability company, joint venture,
trust, unincorporated organization, or governmental entity.
IN WITNESS WHEREOF, this Certificate of Designations is
executed on behalf of the Corporation by its Chief Financial Officer and
attested by its Secretary this [ ] day of [_____], 1999.
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MAGELLAN HEALTH SERVICES, INC.
By:______________________________________
Name: Cliff Donnelly
Title: Chief Financial Officer
[Corporate Seal]
ATTEST:
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