THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN
APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
THE TRANSFER OF THIS NOTE IS RESTRICTED BY A NOTE
PURCHASE AGREEMENT BY AND BETWEEN THE 1818 FUND
II, L.P. AND THE ISSUER OF THIS NOTE, A COPY OF
WHICH IS ON FILE AT THE OFFICE OF THE ISSUER OF
THIS NOTE.
THE WELLCARE MANAGEMENT GROUP, INC.
8.0% SUBORDINATED CONVERTIBLE NOTE
DUE DECEMBER 31, 2002
New York, New York
January 19, 1996
FOR VALUE RECEIVED, the undersigned, The WellCare Management Group,
Inc., a New York corporation (the "Company"), hereby promises to pay to The 1818
Fund II, L.P. or registered assigns, at such place as the holder of this Note
shall from time to time designate to the Company in writing, on December 31,
2002, or, if such date is not a Business Day, on the next day that is a Business
Day, a total of Fifteen Million Dollars ($15,000,000) with daily interest from
the date hereof to and including the maturity hereof at the rate set forth in
Section 2 hereof, said interest being payable in quarterly installments in
arrears on the Business Day immediately preceding the last Business Day of
March, June, September and December in each year, com mencing March 31, 1996, to
the Person in whose name this Note is registered at the close of business on the
fifteenth day of the month in which the payment date occurs, and at the stated
or any accelerated maturity hereof or, if the date of any such stated or
accelerated maturity is not a Business Day, on the next day that is a Business
Day. In case an Event of Default (as defined in Section 11) shall occur and be
continuing, the entire principal amount of this Note may become or be declared
to be due and payable in the manner and
2
with the effect provided herein. Certain capitalized terms used herein are
defined in Section 12. Capitalized terms not defined herein have the meanings
ascribed to them in the Note Purchase Agreement, dated as of the date hereof, by
and between the Company and The 1818 Fund II, L.P. (the "Fund"), as amended by
amendment No.1 contained in a letter agreement, dated February 28, 1997 between
the Company and the Fund ("Amendment No. 1"), and as further amended by
amendment No.2 contained in a letter agreement, dated January 14, 1998 between
the Company and the Fund ("Amendment No. 2"), and as further amended,
supplemented or modified in accordance with the terms thereof, the "Note
Purchase Agreement". This Note was originally issued on January 19, 1996 (the
"Original Note") and has been amended and restated to reflect the changes set
forth in Amendment No. 1 and Amendment No. 2 and to reflect the conversion of
$5,000,000 principal amount of the Original Note on May 15, 1998 pursuant to
Amendment No. 2.
Section 1. The Notes.
This 8.0% Subordinated Convertible Note is issued pursuant to the Note
Purchase Agreement and the holder of this Note is entitled to the benefits of
this Note, the Note Purchase Agreement and the Registration Rights Agreement and
may enforce the agreements of the Company contained herein and therein and
exercise the remedies provided for hereby and thereby or otherwise available in
respect hereto and thereto. All of the 8.0% Subordinated Convertible Notes
issued pursuant to the Note Purchase Agreement are referred to herein as the
"Notes."
Section 2. Interest.
The Company will pay interest on the principal amount hereof, until the
principal amount hereof is paid in full, at a rate of 8.0% per annum. Interest
on this Note will accrue from and including the most recent date to which
interest has been paid (or, if no interest has been paid, from and including the
date of issuance of this Note) to but excluding the date of payment. Interest
will be computed on the basis of a 360-day year consisting of twelve 30-day
months. The Company shall pay interest on overdue principal and on overdue
interest (including without limitation, Special Interest (as defined in Section
4)) to the full extent permitted by law at a rate equal to 10.0% per annum.
Section 3. Method of Payment.
The registered holder of this Note at the close of business on the
fifteenth day of the month in which the interest payment date occurs, or, if
such date is not a Business Day, on the next succeeding Business Day shall be
entitled to receive interest on this Note, even if this Note is converted or
cancelled after the record date and on or before the interest payment date. The
holder of this Note must surrender it to the Company to collect the principal
payment; provided, however, that, if upon surrender of this Note the holder does
not receive the full principal amount of this Note plus accrued but unpaid
interest thereon (including without
3
limitation, Special Interest), then the holder shall be issued a new Note equal
in principal amount to the outstanding principal balance on this Note. The
Company will pay principal and interest in money of the United States of America
that at the time of payment is legal tender for payment of public and private
debts. The Company shall pay principal, interest and all other amounts due
hereunder in immediately available funds.
Section 4. Special Interest.
In the event that the Company shall declare a dividend or make any
other distribution (including, without limitation, in capital stock (which shall
include, without limitation, any options, warrants or other rights to acquire
capital stock) of the Company, whether or not pursuant to a shareholder rights
plan, "poison pill" or similar arrangement, or other property or assets) on or
with respect to the Common Stock other than (x) a Regular Distribution (as
defined in Section 7.4(f)) or (y) a dividend or distribution paid solely in
shares of Common Stock, then the Board of Directors of the Company shall
declare, and the holder of this Note shall be entitled to receive, interest
("Special Interest") in an amount equal to the amount of such dividend or
distribution received by a holder of the number of shares of Common Stock for
which this Note is convertible on the record date for such dividend or
distribution. Any such amount shall be paid to the holder of this Note at the
same time such dividend or distribution is made to holders of shares of Common
Stock.
Section 5. Mandatory Redemption at the Option of the Holder.
5.1 Change of Control. If one or more events constituting a Change of
Control shall occur, the holder of this Note shall have the right, on the date
specified in Section 5.2 (the "Mandatory Redemption Date"), to require the
Company to redeem (a "Mandatory Redemption") all (but not less than all) of the
Notes then held by such holder at a price (the "Mandatory Redemption Price")
equal to (i) 150% of the principal amount of such Notes plus (ii) an amount
equal to all accrued and unpaid interest thereon (including, without limitation,
Special Interest), whether or not currently payable, to the applicable Mandatory
Redemption Date, in immediately available funds.
5.2 Notice. Notice of a Change of Control (the "Change of Control
Notice") shall be mailed no more than 15 Business Days after the occurrence of a
Change of Control to each holder of Notes, at such holder's address as it
appears on the transfer books of the Company. The date fixed for each Mandatory
Redemption shall be fixed by the Company and shall be no less than 20 days or
more than 40 days after the date of the Change of Control Notice.
Notwithstanding the foregoing and Section 5.1 hereof, in the event of the
occurrence of a Change of Control of the types set forth in any of clauses
(iii), (iv) or (vi) of the definition of "Change of Control," the Change of
Control Notice shall be mailed to each holder of Notes no later than 10 Business
Days prior to the consummation of the transaction contemplated by such clause
(iii), (iv) or (vi), as the case may be, and the Company shall not be required
to
4
purchase any Notes unless such transaction shall be consummated, in which case
the Company shall be required to purchase such Notes immediately prior to the
consummation of such transaction.
5.3 Provisions of Notice. The right of the holders of Notes to require
the Company to effect a Mandatory Redemption shall remain in effect from the
time of the mailing of, until the redemption date set forth in, the Change of
Control Notice. The Change of Control Notice shall be accompanied by a copy of
the information most recently required to be supplied under Sections 8.1(a) and
8.1(b) of the Note Purchase Agreement. The Change of Control Notice shall
contain all instruments and materials necessary to enable the holder of this
Note to tender this Note pursuant to the Change of Control Offer. The Change of
Control Notice, which shall govern the terms of the Mandatory Redemption, shall
state:
(i) that a Change of Control has occurred, that each holder of
Notes has the right to require the Company to effect a Mandatory
Redemption pursuant to this Section 5 and that tendered Notes will be
redeemed;
(ii) the redemption price and the date for redemption;
(iii) that each holder of Notes may require the Company to redeem
all (but not less than all) Notes held thereby;
(iv) that the Notes redeemed pursuant to the Mandatory Redemption
shall cease to accrue interest after the designated date for purchase
(unless the Company shall default in the payment of the Mandatory
Redemption Price, in which case the Notes shall not cease to accrue
interest after such date;
(v) such other information respecting the procedures for
effecting the Mandatory Redemption as the Company shall include and
such other information as may be required by law; and
(vi) that (unless otherwise required by law) any holder of Notes
will be entitled to withdraw his or her election if the Company
receives, not later than the close of business on the third Business
Day next preceding the date scheduled for redemption, facsimile
transmission or letter setting forth the name of such holder, the
principal amount of Notes such holder delivered for redemption and a
statement that such holder is withdrawing election to have such Notes
redeemed.
5.4 Redemption Procedure. The holder of this Note may elect to require
the Company to redeem all (but not less than all) of the Notes held by such
holder pursuant to a Mandatory Redemption by delivery of written notice thereof
to
5
the Company prior to the date fixed for such Mandatory Redemption. If the holder
of this Note so elects, on the date fixed for any Mandatory Redemption, such
holder shall surrender all of the Notes held thereby to the Company at the place
designated in the Change of Control Notice. From and after the Mandatory
Redemption Date (i) such Notes shall no longer be deemed outstanding, (ii) the
right to receive interest thereon shall cease to accrue and (iii) all rights of
the holders of such Notes shall cease and terminate, excepting only the right to
receive the Mandatory Redemption Price therefor; provided, however, that if the
Company shall default in the payment of the Mandatory Redemption Price, the
Notes shall thereafter be deemed to be outstanding and the holders thereof shall
have all of the rights of a holder of Notes until such time as such default
shall no longer be continuing or shall have been waived by holders of at least
66-2/3% of the then outstanding principal amount of the Notes.
Section 6. Optional Redemption.
6.1 Redemption by Company. Except as otherwise provided herein, the
Company shall not have any right to prepay or redeem this Note. On and after
January 19, 2000 the Company shall have the right, at any time and from time to
time at its sole option and election, to redeem (the "Optional Redemption") the
Notes, in whole but not in part, on not less than 30 days notice of the date of
redemption, which must be a Business Day (any such date an "Optional Redemption
Date") at a price (the "Optional Redemption Price") equal to (i) 100% of the
outstanding principal amount of the Notes plus (ii) an amount equal to all
accrued and unpaid interest thereon (including without limitation, Special
Interest), whether or not currently payable, to the Optional Redemption Date, in
cash or other immediately available funds. Notwithstanding the forgoing, the
Company may redeem the Notes only if the approval of the Commissioner of Health
of the State of New York (the "Approval") has been obtained and has not been
withdrawn (in each case, in the reasonable judgment of the holder), and if the
Approval has not been obtained or if obtained and has been withdrawn (in each
case, in the reasonable judgment of the holder) then the Company shall have no
right to redeem the Notes until Approval has been obtained and has not been
withdrawn (in each case, in the reasonable judgment of the holder). Both parties
will seek to obtain the Approval as soon as practicable after February 28, 1997.
If the Company shall commence a voluntary case under any Bankruptcy Law or
consent to the entry of an order for relief in an involuntary case under any
Bankruptcy Law or to the appointment of a Custodian of the corporation or of any
substantial part of its property, or make an assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts generally as they
become due, the Company shall be deemed to have elected to redeem the Notes as
provided in this Section 6.1 and shall so redeem the Notes as provided in this
Section 6.
6.2 Change of Control. Notwithstanding the foregoing, any Notes
redeemed pursuant to this Section 6 at a time when the Corporation would be
required to deliver a Change of Control Notice in accordance with Section 5 in
anticipation of, in connection with or as a result of a potential Change of
Control shall be redeemed
6
at a price equal to the Mandatory Redemption Price. In the event a Change of
Control occurs within 24 months after the redemption of any Notes pursuant to
this Section 6 and the funds utilized to effect such redemption were derived in
whole or part from sources other than (i) cash generated from operations of the
business or (ii) borrowings of the Company not guaranteed by third parties, the
Company shall pay to the Persons from whom such Notes were redeemed, on the date
of such Change of Control, an amount equal to 50% of the principal amount of the
Notes so redeemed from such Person.
6.3 Notice. Notice of the Optional Redemption (the "Optional Redemption
Notice") shall be mailed at least 30, but not more than 60, days prior to the
date fixed for redemption to each holder of the Notes, at such holder's address
as it appears on the transfer books of the Company. In order to facilitate the
redemption of the Notes, the Board of Directors of the Company may fix a record
date for the determination of the Notes to be redeemed, or may cause the
transfer books of the Company for the Notes to be closed, not more than 60 days
or less than 30 days prior to the date fixed for such redemption.
6.4 Deposit of Funds. On the Optional Redemption Date, the Company
shall, and at any time after the Optional Redemption Notice shall have been
mailed and before the date of Optional Redemption the Company may, deposit for
the benefit of the holders of the Notes the funds necessary for the Optional
Redemption with a bank or trust company in the Borough of Manhattan, The City of
New York, having a capital and surplus of at least $100,000,000. Any moneys so
deposited by the Company and unclaimed at the end of two years from the date
designated for the Optional Redemption shall revert to the general funds of the
Company or as otherwise required by law. After such reversion, any such bank or
trust company shall, upon demand, pay over to the Company such unclaimed amounts
and thereupon such bank or trust company shall be relieved of all responsibility
in respect thereof and any holder of Notes shall look only to the Company for
the payment of the Optional Redemption Price. In the event that moneys are
deposited pursuant to this Section 6.4 in respect of Notes that are converted in
accordance with the provisions of Section 7, such moneys shall, upon such
conversion, revert to the general funds of the Company and, upon demand, such
bank or trust company shall pay over to the Company such moneys and shall be
relieved of all responsibilities to the holders of such converted Notes in
respect thereof. Any interest accrued on funds deposited pursuant to this
Section 6.4 shall be paid from time to time to the Company for its own account.
6.5 Termination of Rights. The Optional Redemption Notice having been
given as aforesaid, upon the deposit of funds pursuant to Section 6.4 in respect
of the Notes to be redeemed pursuant to Section 6.1, notwithstanding that any
such Notes themselves shall not have been surrendered for cancellation, from and
after the Optional Redemption Date (i) the Notes shall no longer be deemed
outstanding, (ii) the rights to receive interest thereon shall cease to accrue
and (iii) all rights of the holders of the Notes shall cease and terminate,
excepting only the right to receive the
7
Optional Redemption Price therefor and the right to convert such Notes into
shares of Common Stock until the close of business on the Optional Redemption
Date, in accordance with Section 7; provided, however, that if the Company shall
default in the payment of the Optional Redemption Price, the Notes shall
thereafter be deemed to be outstanding and the holders thereof shall have all of
the rights of a holder of Notes until such time as such default shall no longer
be continuing or shall have been waived by holders of at least 66-2/3% of the
then outstanding principal amount of the Notes.
Section 7. Conversion.
7.1 Right to Convert. Following the expiration or termination of
applicable waiting periods under the HSR Act, including any extensions thereof,
the holder of this Note shall have the right, at its option, at any time and
from time to time, to convert, subject to the terms and provisions of this
Section 7, all or any integral multiple of $100,000 of the then outstanding
principal amount of this Note into such number of fully paid and non-assessable
shares of Common Stock as is equal, subject to Section 7.7, to the quotient of
the principal of this Note being so converted divided by the Conversion Price
then in effect. Notwithstanding the foregoing, if the holder of this Note shall
have purchased this Note in a public offering or subsequent to such a public
offering thereof, then the holder of this Note may convert all or any integral
multiple of $1,000 of the outstanding principal amount of this Note. Such
conversion right shall be exercised by the surrender of this Note to the Company
at any time during usual business hours at its principal place of business to be
maintained by it, accompanied by written notice that the holder elects to
convert this Note (or a specified portion of the outstanding principal amount
thereof) and specifying the name or names (with address) in which a certificate
or certificates for shares of Common Stock are to be issued and (if so required
by the Company) by a written instrument or instruments of transfer in form
reasonably satisfactory to the Company duly executed by the holder or its duly
authorized legal representative and transfer tax stamps or funds therefor, if
required pursuant to Section 7.11. If less than all of the then outstanding
principal amount of this Note is to be converted, the Company will promptly
issue and deliver to the holder a new Note in the principal amount of the
unconverted portion of the Note submitted for conversion; provided, however,
that the principal amount of such Note shall not be less than $1,000.00;
provided further, that if the principal amount of the unconverted portion of
this Note is less than $1,000.00, then such amount shall be paid to the holder
of this Note in cash or other immediately available funds upon such conversion.
7.2 Issuance of Common Stock. As promptly as practicable after the
surrender, as herein provided, of this Note for conversion pursuant to Section
7.1, the Company shall deliver to or upon the written order of the holder of
this Note so surrendered a certificate or certificates representing the number
of fully paid and nonassessable shares of Common Stock into which this Note may
be or has been converted in accordance with the provisions of this Section 7.
Subject to the
8
following provisions of this paragraph and of Section 7.4, such conversion shall
be deemed to have been made immediately prior to the close of business on the
date that this Note shall have been surrendered in satisfactory form for
conversion, and the Person or Persons entitled to receive the shares of Common
Stock deliverable upon conversion of this Note shall be treated for all purposes
as having become the record holder or holders of such shares of Common Stock at
such appropriate time, and such conversion shall be at the Conversion Price in
effect at such time; provided, however, that no surrender shall be effective to
constitute the Person or Persons entitled to receive the shares of Common Stock
deliverable upon such conversion as the record holder or holders of such shares
of Common Stock while the transfer books of the Company for shares of Common
Stock shall be closed (but not for any period in excess of five days), but such
surrender shall be effective to constitute the Person or Persons entitled to
receive such shares of Common Stock as the record holder or holders thereof for
all purposes immediately prior to the close of business on the next succeeding
day on which such transfer books are open, and such conversion shall be deemed
to have been made at, and shall be made at the Conversion Price in effect at,
such time on such next succeeding day. In case of the redemption of this Note
pursuant to Section 6, the right of conversion shall cease and terminate at the
close of business on the date fixed for redemption, unless the Company shall
default in the payment of the applicable redemption price for this Note. If the
last day for the exercise of the conversion right shall not be a Business Day,
then such conversion right may be exercised on the next succeeding Business Day.
7.3 Payment of Interest. When this Note is converted, all interest
(including, without limitation, Special Interest) accrued and unpaid (whether or
not cur rently payable) on this Note to the date of conversion shall be
immediately due and payable, in cash or other immediately available funds, and
must accompany the shares of Common Stock issued upon such conversion.
7.4 Adjustment of Conversion Price. The Conversion Price shall be
subject to adjustment as follows:
(a) In case the Company shall at any time or from time to time (i)
pay a dividend or make a distribution (other than a dividend or distribution
paid or made to the holder of this Note in the manner provided in Section 4) on
the outstanding shares of Common Stock in shares of Common Stock or other equity
interests (which, for purposes of this Section 7.4 shall include, without
limitation, any dividends or distributions in the form of options, warrants or
other rights to acquire shares of Common Stock or other equity interests) of the
Company, (ii) subdivide the outstanding shares of Common Stock into a larger
number of shares of Common Stock, (iii) combine the outstanding shares of Common
Stock into a smaller number of shares of Common Stock, (iv) issue any equity
interest in a reclassification of the shares of Common Stock or (v) pay a
dividend or make a distribution on the outstanding shares of Common Stock in
shares of Common Stock or other equity interests pursuant to a rights plan,
"poison pill" or similar arrangement, then, and in each such case, the
Conversion Price in effect immediately prior to such event shall
9
be adjusted (and any other appropriate actions shall be taken by the Company) so
that the holder of this Note thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock or other securities of
the Company that such holder would have owned or would have been entitled to
receive upon or by reason of any of the events described above, had this Note
been converted immediately prior to the occurrence of such event. An adjustment
made pursuant to this Section 7.4(a) shall become effective retroactively (i) in
the case of any such dividend or distribution, to a date immediately following
the close of business on the record date for the determination of holders of
shares of Common Stock entitled to receive such dividend or distribution or (ii)
in the case of any such subdivision, combination or reclassification, to the
close of business on the day upon which such corporate action becomes effective.
(b) In case the Company shall at any time or from time to time
issue or sell shares of Common Stock (or securities convertible into or
exchangeable for shares of Common Stock, or any options, warrants or other
rights to acquire shares of Common Stock) (other than (i) options to acquire
shares of Common Stock granted on or prior to January 14, 1998 to any officer,
director, employee or consultant of the Company or any Subsidiary of the Company
or (ii) up to 100,000 shares of Common Stock (subject to adjustment) issued upon
the exercise of those certain Stock Purchase Warrants issued by the Company to
X.X. Xxxxxxx Associates, Inc. on July 7, 1994), at a price per share less than
either the Current Market Price per share or the Conversion Price per share then
in effect at the record date referred to in the following sentence (treating (A)
the price per share of any security convertible or exchangeable or exercisable
into shares of Common Stock as equal to (i) the sum of the price for such
security convertible, exchangeable or exercisable into shares of Common Stock
plus any additional consideration payable (without regard to any anti-dilution
adjustments) upon the conversion, exchange or exercise of such security into
shares of Common Stock divided by (ii) the number of shares of Common Stock
initially underlying such convertible, exchangeable or exercisable security and
(B) the price per share of any security issued in connection with the settlement
or compromise any claim, action, suit, proceeding or dispute or in connection
with the satisfaction of any judgment relating to the foregoing as equal to
$.01), then, and in each such case, the Conversion Price then in effect shall be
adjusted by dividing the Conversion Price in effect on the day immediately prior
to such record date by a fraction (x) the numerator of which shall be the sum of
the number of shares of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock issued or to be issued (or the
maximum number into which such convertible or exchangeable securities initially
may convert or exchange or for which such options, warrants or other rights
initially may be exercised) and (y) the denominator of which shall be the sum of
the number of shares of Common Stock outstanding on such record date plus the
number of shares of Common Stock that the aggregate consideration for the total
number of such additional shares of Common Stock so issued (or into which such
convertible or exchangeable securities may convert or exchange or for which such
options, warrants or other rights may be exercised, plus the aggregate amount of
any additional
10
consideration initially payable upon conversion, exchange or exercise of such
security) would purchase at the greater of the Current Market Price per share or
the Conversion Price per share on such record date. Such adjustment shall be
made whenever such shares of Common Stock, securities, options, warrants or
other rights are issued, and shall become effective retroactively to a date
immediately following the close of business on the record date for the
determination of holders of shares of Common Stock entitled to receive such
shares of Common Stock, securities, options, warrants or other rights; provided,
however, that the determination as to whether an adjustment is required to be
made pursuant to this Section 7.4(b) shall only be made upon the issuance of
such shares of Common Stock or such convertible or exchangeable securities,
options, warrants or other rights, and not upon the issuance of the security
into which such convertible or exchangeable security converts or exchanges, or
the security underlying such option, warrants or other right; provided further,
that if any convertible or exchangeable securities, options, warrants or other
rights (or any portions thereof) that shall have given rise to an adjustment
pursuant to this Section 7.4(b) shall have expired or terminated without the
exercise thereof and/or if by reason of the terms of such convertible or
exchangeable securities, options, warrants or other rights there shall have been
an increase or increases, with the passage of time or otherwise, in the price
payable upon the exercise or conversion thereof, then the Conversion Price
hereunder shall be readjusted (but to no greater extent than originally adjusted
with respect to the related event) on the basis of (x) eliminating from the
computation any additional shares of Common Stock corresponding to such
convertible or exchangeable securities, options, warrants or other rights as
shall have expired or terminated, (y) treating the additional shares of Common
Stock, if any, actually issued or issuable pursuant to the previous exercise of
such convertible or exchangeable securities, options, warrants or other rights
as having been issued for the consideration actually received and receivable
therefor and (z) treating any of such convertible or exchangeable securities,
options, warrants or other rights that remain outstanding as being subject to
exercise or conversion on the basis of such exercise or conversion price as
shall be in effect at the time.
(c) In case the Company shall at any time or from time to time distribute on or
with respect to the shares of Common Stock (including any such distribution made
in connection with a consolidation or merger in which the Company is the
resulting or surviving corporation and the shares of Common Stock are not
changed or exchanged) cash, evidences of indebtedness of the Company or another
issuer, securities of the Company or another issuer or other assets (excluding
(i) Regular Distributions, (ii) dividends and distributions paid or made to the
holder of this Note in the manner provided in Section 4 and (iii) dividends
payable in shares of Common Stock for which adjustment is made under Section
7.4(a)) or rights or warrants to subscribe for or purchase securities of the
Company (excluding those referred to in Section 7.4(b)) then, and in each such
case, the Conversion Price then in effect shall be adjusted by dividing the
Conversion Price in effect immediately prior to the date of such distribution by
a fraction (x) the numerator of which shall be the Current Market Price of the
shares of Common Stock on the record date referred to below and (y) the
denominator of which shall be such Current Market Price of the
11
shares of Common Stock less the amount that a willing buyer would pay a willing
seller in an arm's-length transaction at such time (as determined in good faith
by the Board of Directors of the Company) for the portion of the cash, evidences
of indebtedness, securities or other assets so distributed or of such
subscription rights or warrants applicable to one Unit (but such denominator not
to be less than one); provided, however, that no adjustment shall be made with
respect to any distribution of rights to purchase securities of the Company if
the holder of this Note would otherwise be entitled to receive such rights upon
conversion at any time of this Note into shares of Common Stock unless such
rights are subsequently redeemed by the Company, in which case such redemption
shall be treated for purposes of this Section 7.4(c) as a distribution on the
shares of Common Stock. Such adjustment shall be made whenever any such
distribution is made; provided, however, that in the case of a Cash Distribution
(as defined in Section 7.4(f)) such adjustment shall be calculated not later
than 45 days following the last day of the Calculation Period (as defined in
Section 7.4(f)). The adjustment shall become effective retroactively to a date
immediately following the close of business on the record date for the
determination of holders of shares of Common Stock entitled to receive such
distribution.
(d) In case the Company at any time or from time to time shall
take any action affecting the shares of Common Stock or its other equity
interests, if any, other than an action described in any of Section 7.4(a)
through Section 7.4(c), inclusive, or Section 7.8, then, and in each such case,
the Conversion Price shall be adjusted in such manner and at such time as the
Board of Directors of the Company in good faith determines to be equitable in
the circumstances (such determination to be evidenced in a resolution, a
certified copy of which shall be mailed to the holders of the Notes).
(e) Notwithstanding anything herein to the contrary, no adjustment
under this Section 7.4 need be made to the Conversion Price unless such
adjustment would require an increase or decrease of at least 1% of the
Conversion Price then in effect. Any lesser adjustment shall be carried forward
and shall be made at the time of and together with the next subsequent
adjustment, which, together with any adjustment or adjustments so carried
forward, shall amount to an increase or decrease of at least 1% of such
Conversion Price. Any adjustment to the Conversion Price carried forward and not
theretofore made shall be made immediately prior to the conversion of this Note
pursuant hereto.
(f) For purposes of Section 7.4(c), a "Regular Distribution" shall
mean a distribution of cash or cash equivalents on or with respect to the Common
Stock (a "Cash Distribution") in an amount that, when added to the amount of all
other Cash Distributions made during the 12-month period ending on the last day
of the fiscal quarter of the Company in which such Cash Distribution is made
(or, if this Note has been outstanding for a period shorter than 12 months, the
period from the first day of the fiscal quarter in which this Note was issued to
the last day of such fiscal quarter) (the "Calculation Period"), does not
exceed, on the Business Day
12
immediately preceding the date of such distribution, either (i) 1% of the
Current Market Price of the Common Stock or (ii) 12.5% of the net income of the
Company (calculated in accordance with generally accepted accounting principles
consistently applied) for the 12-month period ending on the last day of the
immediately preceding fiscal quarter of the Company.
7.5 No Adjustment for Taking Record Only. If the Company shall take a
record of the holders of shares of Common Stock for the purpose of entitling
them to receive a dividend or other distribution, and shall thereafter and
before the distribution to holders thereof legally abandon its plan to pay or
deliver such dividend or distribution, then thereafter no adjustment in the
Conversion Price then in effect shall be required by reason of the taking of
such record.
7.6 Officers' Certificate. Upon any increase or decrease in the
Conversion Price, then, and in each such case, the Company promptly shall
deliver to the registered holder of this Note at least 10 Business Days prior to
effecting any of the foregoing transactions a certificate, signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Company, setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated and specifying the increased or decreased
Conversion Price then in effect following such adjustment. Within 10 days after
the end of each fiscal quarter of the Company, the Company will provide the
holder with a certificate signed by one of the aforesaid officers, setting forth
the Conversion Price as of the end of such quarter and any increases or
decreases in the Conversion Price (and the events giving rise thereto) during
such quarter, which certificate shall be accompanied by a certification from
Deloitte & Touche LLP (or any successor thereto or another nationally recognized
independent accounting firm) of the information set forth in the Company's
certificate.
7.7 No Fractional Shares Issued. No fractional Shares or scrip
representing fractional shares of Common Stock shall be issued upon the
conversion of this Note. If more than one Note shall be surrendered for
conversion at one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
aggregate outstanding principal amount of the Notes so surrendered. If the
conversion of any Note or Notes results in a fraction, an amount equal to such
fraction multiplied by the Current Market Price of the Common Stock on the
Business Day preceding the day of conversion shall be paid to such holder in
cash by the Company.
7.8 Subsequent Transactions. In case of any capital reorganization or
reclassification or other change of outstanding shares of Common Stock or other
equity interests, if any, or in case of any consolidation or merger of the
Company with or into another Person (other than a consolidation or merger in
which the Company is the resulting or surviving Person and which does not result
in any reclassification or change of shares of Common Stock or other outstanding
equity interests, if any), or in case of any sale or other disposition to
another Person of all or
13
substantially all of the assets of the Company (any of the foregoing, a
"Transaction"), the Company, or such successor or purchasing Person, as the case
may be, shall execute and deliver to each holder of Notes at least 10 Business
Days prior to effecting any of the foregoing Transactions a certificate stating
that the holder of each Note then outstanding shall have the right thereafter to
convert such Note into the kind and amount (estimating such amount to the extent
necessary) of equity securities or other securities (of the Company or another
issuer) or property or cash receivable upon such Transaction by a holder of the
number of shares of Common Stock into which such Note could have been converted
immediately prior to such Transaction. Such certificate shall provide for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 7. If, in the case of any such
Transaction, the equity securities, other securities, cash or property
receivable thereupon by a holder of shares of Common Stock includes equity or
other securities of a Person other the successor or purchasing Person and other
than the Company, that controls or is controlled by the successor or purchasing
Person or which, in connection with such Transaction, issues equity securities,
other securities, other property or cash to holders of shares of Common Stock,
then such certificate also shall be executed by such Person, and such Person
shall, in such certificate, specifically acknowledge the obligations of such
successor or purchasing Person and acknowledge its obligations to issue such
equity securities, other securities, other property or cash to the holders of
Notes upon conversion of the Notes as provided above. The provisions of this
Section 7.8 and any equivalent thereof in any such certificate similarly shall
apply to successive Transactions. The provisions of this Section 7.8 and any
equivalent thereof in any such certificate are and shall be in addition to, and
not in lieu of, the requirements of the Note Purchase Agreement with respect to
a Change of Control Offer.
7.9 Notice of Certain Events. In case at any time or from time to time:
(a) the Company shall declare a dividend (or any other
distribution) on the shares of Common Stock or other equity interests, if any,
of the Company;
(b) the Company shall authorize the granting to the holders of the
shares of Common Stock or other equity interests, if any, of the Company of
rights or warrants to subscribe for or purchase any equity interests of any
class or of any other rights or warrants;
(c) there shall be any reclassification of the shares of Common
Stock or other equity interests, if any, of the Company, or any consolidation or
merger to which the Company is a party and for which approval of any holders of
shares of Common Stock of the Company is required, or any sale or other
disposition of all or substantially all of the assets of the Company; or
14
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall mail to each holder of Notes at such holder's address as
it appears on the transfer books of the Company, as promptly as possible but in
any event at least ten days prior to the applicable date hereinafter specified,
a notice stating (x) the date on which a record is to be taken for the purpose
of such dividend, distribution or rights or warrants or, if a record is not to
be taken, the date as of which the holders of shares of Common Stock of record
to be entitled to such dividend, distribution or rights are to be determined, or
(y) the date on which such reclassification, consolidation, merger, sale,
conveyance, dissolution, liquidation or winding up is expected to become
effective; provided, however, that in the case of any event to which Section 7.8
applies, the Company shall give at least 10 days' prior written notice as
aforesaid. Such notice shall also specify the date as of which it is expected
that holders of shares of Common Stock of record shall be entitled to exchange
their shares of Common Stock for equity securities or other securities or
property or cash deliverable upon such reclassification, consolidation, merger,
sale, conveyance, dissolution, liquidation or winding up.
7.10 Reservation of Shares. The Company shall at all times reserve and
keep available for issuance upon the conversion of the Notes, 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 the then outstanding principal amount
of the Notes and shall take all action required to increase the authorized
number of shares of Common Stock if at any time there shall be insufficient
authorized but unissued shares of Common Stock to permit such reservation or to
permit the conversion of all the then outstanding principal amount of the Notes.
7.11 Issue Taxes. The issuance or delivery of certificates for shares
of Common Stock upon the conversion of Notes shall be made without charge to the
converting holder of Notes for such certificates or for any tax in respect of
the issuance or delivery of such certificates or the securities represented
thereby, and such certificates shall be issued or delivered in the respective
names of, or in such names as may be directed by, the holders of the Notes
converted; provided, however, that the Company shall not be required to pay any
tax that may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate in a name other than that of the holder of the
Notes, and the Company shall not be required to issue or deliver such
certificate unless or until the Person or Persons requesting the issuance or
delivery thereof shall have paid to the Company the amount of such tax or shall
have established to the reasonable satisfaction of the Company that such tax has
been paid.
Section 8. Board Representation.
8.1 Designation of Directors. If on any date (i) the Company shall have
defaulted in the payment of interest (including, without limitation, Special
15
Interest) on the Notes when the same becomes due and payable and such default
continues for a period of 180 days, whether or not such payment shall be
prohibited by Section 9 hereof, or (ii) a breach of any of the Company's
agreements contained in the Notes, the Note Purchase Agreement or the
Registration Rights Agreement shall have occurred and such breach shall have
continued unremedied for 180 days, then the Company shall cause the number of
members of its Board of Directors to be increased by one and shall cause one
person designated by the holders of a majority of the out standing principal
amount of the Notes to be elected to its Board of Directors as a member of such
class of the Board of Directors the term of which shall have the longest
unexpired portion. Such designee shall serve until the next annual meeting of
stockholders of the Company following the election of such person to the Board
of Directors at which directors of such class are to be elected.
8.2 Election at Annual Meetings. Commencing with the next annual
meeting of stockholders of the Company following the election of such person to
the Board of Directors at which directors of such class are to be elected, and
at each annual meeting of stockholders thereafter at which directors of such
class are to be elected, until such time as (i) all interest (including, without
limitation, Special Interest) shall have been paid in full and (ii) there shall
exist no breach of any of the Company's agreements contained in the Notes, the
Note Purchase Agreement or the Registration Rights Agreement, the holders of a
majority of the outstanding principal amount of the Notes shall be entitled to
nominate one director to the Company's Board of Directors. The Company shall
cause such nominee to be included in the slate of nominees recommended by the
Board to the Company's stockholders for election as directors, and the Company
shall use its best efforts to cause the election of such nominee, including
voting all shares for which the Company holds proxies (unless otherwise directed
by the stockholder submitting such proxy) or is otherwise entitled to vote, in
favor of the election of such person.
8.3 Vacancies. In the event any such nominee of the holders of a
majority of the outstanding principal amount of the Notes shall cease to serve
as a director for any reason, other than by reason of the holders of a majority
of the outstanding principal amount to the Notes not being entitled to nominate
a nominee as provided in Section 8.2, the Company shall use its best efforts to
cause the vacancy resulting thereby to be filled by a nominee of the holders of
a majority of the outstanding principal amount of the Notes.
8.4 Resignation of Director. If at any time (i) all interest
(including, without limitation, Special Interest) shall have been paid in full
and (ii) there shall exist no breach of any of the Company's agreements
contained in the Notes, the Note Purchase Agreement or the Registration Rights
Agreement, the right of the holders of a majority of the outstanding principal
amount of the Notes to designate one director shall cease (subject to revesting
in the event of each and every subsequent event of the character giving rise to
such right) and such director shall promptly tender his resignation.
16
Section 9. Subordination.
9.1 Agreement of Subordination. The Company covenants and agrees, and
the holder of this Note (whether upon original issue or upon transfer,
assignment or exchange thereof), by his acceptance hereof, likewise covenants
and agrees, that the payment of the principal of, premium, if any, and interest
on this Note, together with any other payments payable in respect of this Note,
including, without limitation, any amount payable in connection with the
redemption or repurchase of this Note ("Subordinated Amounts") shall, to the
extent and in the manner hereinafter set forth, be subordinated and subject in
right of payment to the prior payment in full of all Senior Indebtedness,
whether outstanding at the date of this Note or hereafter incurred.
The term "Senior Indebtedness" shall mean the principal of, premium, if
any, and interest on, and any other payment due pursuant to any of the
following, whether outstanding at the date hereof or hereafter incurred or
created:
(a) all indebtedness of the Company for money borrowed arising
under or in connection with the Loan Agreement, as it may be further amended or
modified from time to time, and all renewals, extensions, refundings or
refinancings of such indebtedness incurred with financial institutions,
insurance companies or other institutional lenders (any such indebtedness and
renewals, extensions, refundings or refinancings thereof, "Senior Institutional
Indebtedness");
(b) all indebtedness of the Company for money borrowed other than
Senior Institutional Indebtedness (including, without limitation, any
indebtedness secured by a mortgage, conditional sales contract or other Lien
which is (i) given to secure all or part of the purchase price of property
subject thereto, whether given to the vendor of such property or to another, or
(ii) existing on property at the time of acquisition thereof);
(c) all indebtedness of the Company evidenced by notes,
debentures, bonds or other securities sold by the Company for money;
(d) all lease obligations of the Company which are capitalized on
the books of the Company in accordance with generally accepted accounting
principles;
(e) all indebtedness of others of the kinds described in either of
the preceding clauses (b) or (c) and all lease obligations of others of the kind
described in the preceding clause (d) assumed by or guaranteed in any manner by
the Company or in effect guaranteed by the Company through an agreement to
purchase, contingent or otherwise.
(f) all indebtedness of any Subsidiary of the Company for which
the Company is liable as a guarantor;
17
(g) all renewals, extensions, refundings or refinancings of
indebtedness of the kinds described in any of the preceding clauses (b), (c),
(e) and (f) and all renewals or extensions of lease obligations of the kinds
described in either of the preceding clauses (d) and (e);
(h) interest accruing subsequent to the filing of a petition
initiating any bankruptcy, insolvency or similar proceeding with respect to any
indebtedness or lease obligation of the Company;
(i) all obligations of the Company in respect of any interest rate
or currency swap or similar agreements entered into with any holder of any
Senior Indebtedness; and
(j) all fees, expenses, reimbursements and other amounts payable
to holders of Senior Indebtedness under the terms of the instrument or lease
creating or evidencing the same,
unless, in the case of any particular indebtedness, lease, renewal, extension,
refunding or refinancing, the instrument or lease creating or evidencing the
same or the assumption or guarantee of the same expressly provides that such
indebtedness, lease, renewal, extension, refunding or refinancing is not senior
in right of payment to the Notes or is expressly subordinate by its terms in
right of payment to all other indebtedness of the Company.
This Section 9 shall constitute a continuing offer to all persons who,
in reliance upon such provisions, become holders of, or continue to hold, Senior
Indebtedness, and such provisions are made for the benefit of the holders of
Senior Indebtedness, and such holders are made obligees hereunder and they
and/or each of them may enforce such provisions in accordance with the
provisions of this Note.
No provision of this Section 9 shall prevent the occurrence of any
default or Event of Default hereunder.
9.2 Payments to Note Holders. No payment shall be made by the Company
of any Subordinated Amounts: (a) in the event and during the continuation of any
default in the payment (a "Payment Default") of principal, premium, if any,
interest or any other payment due on any Senior Indebtedness under or in
connection with the instrument, agreement or lease evidencing such Senior
Indebtedness and the holders of the requisite principal amounts of such Senior
Indebtedness or their agents shall not have delivered to the holder of this Note
a notice of waiver of the benefits of this clause (a) and a consent to the
making of scheduled payments on or on account of this Note or taking any other
prohibited action until further notice from such holders or such agents; or (b)
in the event of receipt of written notice by the holder of this Note from the
holders of any Senior Institutional Indebtedness or their representatives of a
default (other than a Payment Default) permitting acceleration of any Senior
Institutional Indebtedness for a period (the "Blockage Period") terminating on
the
18
earlier to occur of (i) the cure, waiver or cessation of such default or
(ii) 180 days from the date of receipt of written notice thereof by the holder
of this Note. At the expiration of such Blockage Period, and so long as there
does not exist a Payment Default, the Company shall promptly pay to the holder
of this Note all sums not paid during such Blockage Period as a result of this
paragraph. For all purposes of this paragraph, no event of default that existed
or was continuing with respect to the Senior Institutional Indebtedness to which
the Blockage Period relates on the date such Blockage Period commenced shall be
or be made the basis for the commencement of any subsequent Blockage Period by
the holder or holders of such Senior Institutional Indebtedness (or their
respective agents) unless such event of default is cured or waived for a period
of not less than 90 consecutive days. There shall be no more than one Blockage
Period initiated in any 360-day period.
Upon any payment by the Company, or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution or winding-up or liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due upon all
Senior Indebtedness shall first be paid in full, or payment thereof provided for
in money in accordance with its terms, before any payment (other than equity
securities or other securities of the Company or any other entity, the payment
of which is subordinated at least to the extent provided in this Section 9 to
the payment of all Senior Indebtedness that may at the time be outstanding) is
made on account of the principal, premium, if any, or interest on, or other
amounts payable in respect of, this Note including, without limitation, any
amount payable in connection with the redemption of this Note; and upon any such
dissolution, winding-up or liquidation or reorganization any payment by the
Company, or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which the holder of this Note would
be entitled, except for the provisions of this Section 9, shall be paid by the
Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or
other Person making such payment or distribution, or by the holder of this Note
if received by them or it, directly to the holders of Senior Indebtedness (pro
rata to such holders on the basis of the respective amounts of Senior
Indebtedness held by such holders) or their representative or representatives,
or to the trustee or trustees under any indenture pursuant to which any
instruments evidencing any Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay all Senior
Indebtedness in full, in money or money's worth, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Indebtedness,
before any payment or distribution is made to the holder of this Note.
In the event that, notwithstanding the foregoing, any payment
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, prohibited by the foregoing, shall be received by
the holder of this Note before all Senior Indebtedness is paid in full, or
provision is made for such payment in money in accordance with its terms, such
payment or distribution shall be
19
held in trust for the benefit of and shall be paid over or delivered to the
holders of Senior Indebtedness or their representative or representatives, or to
the trustee or trustees under any indenture pursuant to which any instrument
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in full
in money in accordance with its terms, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Indebtedness.
9.3 Subrogation of Note. Subject to the payment in full of all Senior
Indebtedness, the rights of the holder of this Note shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company applicable to the
Senior Indebtedness until the principal of (and premium, if any) and interest on
this Note (including, without limitation, Special Interest) shall be paid in
full; and, for the purposes of such subrogation, no payments or distributions to
the holders of the Senior Indebtedness of any cash, property or securities to
which the holder of this Note would be entitled except for the provisions of
this Section 9, and no payment over pursuant to the provi sions of this Section
9, to or for the benefit of the holders of Senior Indebtedness by the holder of
this Note, shall, as between the Company, its creditors other than holders of
Senior Indebtedness, and the holder of this Note, be deemed to be a payment by
the Company to or on account of the Senior Indebtedness. It is understood that
the provi sions of this Section 9 are and are intended solely for the purpose of
defining the relative rights of the holder of this Note, on the one hand, and
the holders of the Senior Indebtedness, on the other hand.
If any payment or distribution to which the holder of this Note would
otherwise have been entitled but for the provisions of this Section 9 shall have
been applied, pursuant to the provisions of this Section 9 to the payment of
amounts payable under Senior Indebtedness of the Company, then, and in such
case, the holder of this Note shall be entitled to receive from the holders of
Senior Indebtedness the full amount of any such payments or distributions
received by holders of Senior Indebtedness in excess of the amount sufficient to
pay in full all amounts payable under, or in respect of, the Senior Indebtedness
of the Company.
Nothing contained in this Section 9 or elsewhere in this Note is
intended to or shall impair or affect, as between the Company, its creditors
other than the holders of Senior Indebtedness, and the holder of this Note, the
obligation of the Company, which is absolute and unconditional, to pay to the
holder of this Note the principal of (and premium, if any) and interest
(including without limitation, Special Interest) on this Note as and when the
same shall become due and payable in accordance with its terms, or is intended
to or shall affect the relative rights of the holder of this Note and creditors
of the Company other than the holders of the Senior Indebtedness, nor shall
anything herein or therein prevent the holder of this Note from exercising all
remedies otherwise permitted by applicable law upon default under this Note,
subject to the rights, if any, under this Section 9 of the holders of Senior
20
Indebtedness in respect of cash, property or securities of the Company received
upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to
in this Section 9, the holder of this Note shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which such
dissolution, winding-up, liquidation or reorganization proceedings are pending,
or a certificate of the receiver, trustee in bankruptcy, liquidation trustee,
agent or other Persons making such payment or distribution, delivered to the
holder of this Note, for the purpose of ascertaining the Persons entitled to
participate in such distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto and to this Section 9.
9.4 Notice to Note Holders. The Company shall give prompt written
notice to the holder of this Note of any fact known to the Company that would
prohibit the making of any payment to the holder of this Note.
9.5 Note Holder's Relation to Senior Indebtedness. The holder of this
Note shall be entitled to all the rights set forth in this Section 9 in respect
of any Senior Indebtedness at any time held by it, to the extent as any other
holder of Senior Indebtedness, and nothing in this Note shall deprive the holder
of this Note of any of its rights as such holder.
With respect to the holders of Senior Indebtedness, the holder of this
Note undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Note, and no implied covenants
or obligations with respect to the holders of Senior Indebtedness shall be read
into this Note against the holder of this Note. The holder of this Note shall
not be deemed to owe any fiduciary duty to the holders of Senior Indebt edness
and the holder of this Note shall not be liable to any holder of Senior
Indebtedness if it shall mistakenly pay over or deliver to the Company or any
other Person money or assets to which any holder of Senior Indebtedness shall be
entitled by virtue of this Section 9 or otherwise.
Section 10. Covenants.
10.1 Notice of Defaults. The Company will give notice in writing to the
holder of this Note immediately upon becoming aware of the occurrence of any
Default or Event of Default under this Note.
10.2 Consolidations and Mergers. The Company shall not merge,
consolidate with or into, or convey, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially
all of its assets (whenever acquired), except that the Company may consolidate
or merge with or into, or sell all or substantially all of its assets to, any
Person if:
21
(a) the corporation formed by such consolidation or surviving such
merger or the Person that acquires all or substantially all of the assets of the
Company shall be (after giving effect to such transaction) a Solvent corporation
organized and existing under, the laws of the United States, any state thereof,
or the District of Columbia and, in the case of the acquisition of all or
substantially all of the assets of the Corporation, shall expressly assume in
writing all of the obligations of the Company under the Note Purchase Agreement,
this Note (including, without limitation, the obligation to issue shares of
common stock upon the conversion of any portion of this Note) and the
Registration Rights Agreement;
(b) immediately after giving effect to such transaction, no
default under, or breach of, the provisions of this Note, exists;
(c) the corporation formed by or surviving any such transaction or
the Person that acquires all or substantially all of the assets of the Com pany
shall have a Consolidated Net Worth at least equal to the Consolidated Net Worth
of the Company immediately prior to such transaction; and
(d) the Company shall have furnished to the holder of this Note
(i) an opinion of counsel satisfactory to the holders of a majority of the
outstanding principal amount of the Notes, addressing the matters (other than
solvency) set forth in clause (a) above and (ii) the certificate of the Chief
Financial Officer of the Company to the effect that such transaction has been
consummated in compliance with the foregoing requirements; provided, however,
that nothing in this Section 10.2 shall affect the rights of the holder of this
Note under the Note Purchase Agreement, this Note or the Registration Rights
Agreement.
10.3 Limitation on Transactions with Affiliates. Neither the Borrower
nor any Subsidiary of the Borrower will enter into or permit to exist any
transactions with (a) any Person who is a holder of 5% or more of any class of
equity or debt securities of the Borrower or an Affiliate of any such holder, or
(b) a director or officer of the Borrower or a Subsidiary of the Borrower, (the
Persons referred to in clauses (a) and (b) being referred to herein as
"Affiliated Persons") other than on terms and conditions as favorable to the
Borrower or such Subsidiary as would be obtainable at the time in a comparable
arm's length transaction with any Person who is not such an Affiliated Person.
10.4 CUSIP Numbers; PORTAL and DTC. The Borrower will use commercially
reasonable efforts to obtain CUSIP numbers for the Notes and, if requested by
the holder of this Note, to arrange for the Notes to be eligible for transfer
through the Depositary Trust Company and through the PortalSM Market of the
National Association of Securities Dealers, Inc.
10.5 [Intentionally left blank]
22
10.6 Quarterly Calculation of Conversion Price. For each quarterly
period of the Company, beginning with the quarterly period ending December 31,
1996, the Company shall prepare and deliver a written statement to the holder of
this Note within ten (10) days following the end of such quarterly period that
sets forth a calculation of the Conversion Price of this Note then in effect;
provided, further, that such written statement shall be accompanied by a
statement of the Company's independent accountants indicating that they have
reviewed and are in agreement with the calculation set forth in the
aforementioned statement.
10.7 [Intentionally left blank]
10.8 [Intentionally left blank]
10.9 [Intentionally left blank]
10.10 Additional Information. The Company will deliver to the holder of
this Note, as soon as available but no later than the 15th day of each month, a
notice specifying or attaching the following information as to the Company, all
certified by the Company's Chief Financial Officer:
(a) statement of cash receipts and disbursements for the preceding
month;
(b) statement of cash balances at preceding month end for the Company
and each of its Subsidiaries;
(c) itemized statement of selling, general and administrative
expenses of the Company and its Subsidiaries for the preceding
month;
(d) enrollment changes by category and region for the preceding
month;
(e) updated month-by-month projection of sources and uses of cash for
the next six months;
(f) copies of all correspondence with regulators in the preceding
month; and
(g) schedule of in-patient days per thousand by category of business
and region for the preceding month.
23
Section 11. Defaults and Remedies.
11.1 Event of Default. An "Event of Default" shall occur if:
(a) the Company defaults in the payment of interest (including,
without limitation, Special Interest) on this Note when the same becomes due and
payable and such default continues for a period of 15 Business Days, whether or
not such payment shall be prohibited by the provisions of Section 9 hereof;
(b) the Company defaults in the payment of principal of this Note
when the same becomes due and payable at maturity, upon redemption or otherwise,
whether or not such payment shall be prohibited by the provisions of Section 9
hereof;
(c) the Company fails to comply with any provision of Section 10
hereof or Article 9 of the Note Purchase Agreement;
(d) the Company fails to comply with any agreements (other than
those referred to in clauses (a), (b) or (c) above) in the Note Purchase
Agreement, this Note or the Registration Rights Agreement and, if such failure
is capable of being remedied, such failure continues unremedied for 30 days
after notice thereof by the holders of a majority of the then outstanding
principal amount of the Notes;
(e) the Company or any of its Subsidiaries pursuant to or within
the meaning of any Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it
in an involuntary case,
(iii) consents to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or other similar
official (a "Custodian") of it or for all or substantially all of
its property, or
(iv) makes a general assignment for the benefit of its
creditors;
(f) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company or any of its
Subsidiaries in an involuntary case,
24
(ii) appoints a Custodian of the Company or any of its
Subsidiaries or for all or substantially all of its property, or
(iii) orders the winding up or liquidation of the Company or
any of its Subsidiaries and the order or decree remains unstayed
and in effect for 60 days;
(g) the Company or any of its Subsidiaries defaults in the payment
of Indebtedness aggregating in excess of $1,000,000 when due, after any grace
periods with respect thereto shall have expired and upon non-waiver by the
holders of any such Indebtedness and such default continues unremedied for 30
days, or there has been an acceleration of in excess of $1,000,000 aggregate
principal amount of Indebtedness of the Company by the holder thereof following
an event of default as defined in any mortgage, indenture, agreement or
instrument under which there may be issued or by which there may be secured or
evidenced such Indebtedness of the Company, whether such Indebtedness now exists
or shall hereafter be created;
(h) a judgment for the payment of money the uninsured portion of
which exceeds $10,000,000 shall be rendered against the Company or any of its
Subsidiaries and shall remain undischarged for a period (during which execution
shall not be effectively stayed) of 60 days after the date on which the judgment
has been rendered, unless (i) no proceeding for execution of such judgment has
been commenced or (ii) any such proceeding has been stayed;
(i) the Company or any Subsidiary of the Company shall default in
the payment of any indebtedness for money borrowed having an aggregate principal
amount of $250,000 or more, or any lease obligation having aggregate rental
payments of $250,000 or more beyond any grace period provided with respect
thereto or any other event or condition shall exist under any agreement or
instrument under which such indebtedness for money borrowed or lease obligation
is created or evidenced beyond any applicable grace period, if the effect of
such event or condition is to cause the holder of such indebtedness for money
borrowed or lessor (or a trustee on behalf of any such holder or lessor) to (i)
cause such indebtedness for money borrowed or lease obligation to become due
prior to its date of maturity or (ii) require the borrower or any Person that is
a subsidiary of the borrower to purchase such indebtedness for money borrowed or
assume such lease obligation; or
(j) any action is taken by a federal, state or local regulatory
authority with respect to the Company and results in (i) the revocation of any
license necessary for the Company to conduct its business, (ii) the Company
being put into rehabilitation or receivership or (iii) the appointment of a
Custodian for the Company or for all or substantially all of its business or the
taking of similar action.
11.2 Acceleration. If an Event of Default occurs under clauses (e) or
(f) of Section 11.1, then the principal of and the accrued interest on all Notes
shall
25
become due and payable immediately, whether or not notice of such Event of
Default shall have been given by any holder of Notes. If any Event of Default
occurs and is continuing for a period of fifteen (15) days, holders holding a
majority of the then outstanding principal amount of the Notes by notice to the
Company may declare the principal of and accrued interest on all the Notes to be
due and payable immediately. Upon such declaration such principal and interest
shall be due and payable immediately. The holders of a majority of the then
outstanding principal amount of the Notes may rescind an acceleration and its
consequences if all existing Events of Default (other than nonpayment of
principal or interest that has become due solely because of the acceleration)
have been cured or waived and if the rescission would not conflict with any
judgment or decree. Nothing in this Section 11.2 shall limit or modify the
provisions of Section 9.
11.3 Other Remedies. If an Event of Default occurs and is continuing,
the holder of this Note may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal of or interest on this Note or to
enforce the performance of any provision of this Note, the Note Purchase
Agreement or the Registration Rights Agreement.
The holder of this Note may maintain a proceeding even if it does not
possess the Note or does not produce it in the proceeding. Except as otherwise
provided by law, a delay or omission by the holder of this Note in exercising
any right or remedy accruing upon an Event of Default shall not impair the right
or remedy or constitute a waiver of or acquiescence in the Event of Default. No
remedy is exclusive of any other remedy. All available remedies are cumulative.
11.4 Waiver of Defaults. Holders of a majority of the then outstanding
principal amount of the Notes may waive in writing a default and its
consequences (other than a default in the payment of principal of or interest on
this Note). When a default is waived, it is deemed cured, but no such waiver
shall extend to any subsequent or other default or Event of Default or impair
any consequent right.
11.5 Control by Majority. Holders of a majority in outstanding
principal amount of the Notes may direct the time, method and place of
conducting any proceeding for any legal remedy available to the holders;
provided, however, that if an "Event of Default" occurs under clause (a) or (b)
of Section 11.1, the holder of this Note, if it exercises its right to
accelerate the maturity of this Note, may proceed, subject to the penultimate
sentence of Section 11.2, to enforce its remedies with or without the holders of
any other Notes at the time and place and in the manner determined by such
holder in its sole discretion.
Section 12. Definitions.
For the purposes of this Note, the following terms shall have the
meanings indicated:
26
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2
of the General Rules and Regulations under the Securities Exchange Act of 1934,
as amended.
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in the State of New York are authorized or
required by law to close.
"Change of Control" of the Company shall mean such time as:
(i) Any Person or "group" (within the meaning of Section
13(d)(3) of the Exchange Act) other than the Principal
Shareholders or the Purchaser is or becomes the beneficial owner,
directly or indirectly, of outstanding shares of capital stock of
the Company, entitling such Person or Persons to exercise 50% or
more of the total votes entitled to be cast at a regular or
special meeting, or by action by written consent, of shareholders
of the Company (the term "beneficial owner" shall be determined
in accordance with Rule 13d-3, promulgated by the Commission
under the Exchange Act);
(ii) A majority of the Board of Directors of the Company
shall consist of Persons other than Continuing Directors. The
term "Continuing Director" shall mean any member of the Board of
Directors of the Company on the Closing Date and any other member
of the Board of Directors who shall be recommended or elected to
succeed or become a Continuing Director by a majority of
Continuing Directors who are then members of the Board of
Directors of the Company;
(iii) The shareholders of the Company shall have approved a
recapitalization, reorganization, merger, consolidation or
similar transaction, in each case, with respect to which all or
substantially all the Persons who were the respective beneficial
owners of the outstanding shares of capital stock of the Company
immediately prior to such recapitalization, reorganization,
merger or consolidation, beneficially own, directly or
indirectly, less than 50% of the combined voting power of the
then outstanding shares of capital stock of the Company resulting
from such recapitalization, reorganization, merger, consolidation
or similar transaction;
(iv) The shareholders of the Company shall have approved of
the sale or other disposition of all or substantially all the
assets of the Company in one transaction or in a series of
related transactions;
27
(v) Immediately after any merger, consolidation,
recapitalization or similar transaction, the Principal
Shareholders (A) shall have increased the aggregate percentage of
the outstanding shares of capital stock of the Company they
beneficially own, directly or indirectly, by 10% of such
outstanding shares of capital stock or more (or if the entity
surviving such transaction is a corporation, the Principal
Shareholders' ownership in the new entity shall have increased by
10% or more of their aggregate percentage of ownership of the
Company immediately prior to the transaction) and (B) shall be
the beneficial owners directly or indirectly, of outstanding
shares of stock of the Company (or any Person surviving such
transaction) entitling them collectively to exercise 50% or more
of the total voting power of shares of capital stock of the
Company (or the surviving Person in such transaction) and, in
anticipation of, in connection with or as a result of, such
transaction, the Company (or such surviving Person) shall have
incurred or issued additional Indebtedness such that the total
Indebtedness so incurred or issued equals at least 50% of the
consideration payable in such transaction; provided, however,
that any such transaction shall not be considered a Change of
Control if the holders of Notes shall have participated therein
on no less than a pari passu basis (assuming conversion of all
such holders' Notes into Conversion Shares) with the Principal
Shareholders; or
(vi) The shareholders of the Company approve any transaction
(or if no such approval is required, upon the occurrence of any
transaction) the result of which is that the Common Shares shall
no longer be required to be registered under Section 12 of the
Exchange Act and that the holders of shares of Common Stock do
not receive common stock of the Person surviving such transaction
that is required to be registered under Section 12 of the
Exchange Act.
"Class A Common Stock" shall mean the Class A Common Stock, par value
$.01 per share, of the Company.
"Common Stock" shall mean the common stock, par value $.01 per share,
of the Company.
"Conversion Price" shall mean (i) $4.00 with respect to $5,000,000
aggregate principal amount of the Notes and (ii) $8.00 with respect to the
remainder of the Notes, in each case subject to adjustment (after the date of
Amendment No. 2) as set forth in Section 7.4(b).
"Current Market Price" per share of Common Stock shall mean, on any
date specified herein for the determination thereof, (a) the average daily
Market Price of the Common Stock for the twenty trading days immediately
preceding such date (if no Market Price is available for any given day, such
trading day shall not be
28
included in the determination of the Current Market Price), and (b) if the
Common Stock is not then listed or admitted to trading on any national
securities exchange or quoted in the over-the-counter market, a market price per
share determined in good faith by the Board of Directors of the Company or, if
the holders of a majority of the Notes so elect within twenty business days
after notice of the necessity of such calculation shall have been delivered by
the Company to the holders of the Notes, then at the Company's expense by an
appraiser chosen by the holders of a majority of the Notes with the consent of
the Company, which consent shall not be unreasonably withheld.
"Loan Agreement" shall mean the Loan Agreement among the Company,
WellCare of New York, Inc, WellCare Development, Inc., WellCare Administration,
Inc., Wellcare Medical Management, Inc. and Key Bank of New York, dated June 28,
1995.
"Market Price" shall mean, per share of Common Stock, on any date
specified herein: (a) the closing price per share of the Common Stock on such
date published in the Wall Street Journal or, if no such closing price on such
date is published in the Wall Street Journal, the closing price on such date, as
officially reported on the principal national securities exchange on which the
Common Stock is then listed or admitted to trading; or (b) if the Common Stock
is not then listed or admitted to trading on any national securities exchange
but is designated as a national market system security by the National
Association of Securities Dealers, Inc., the last trading price (the closing
sale price) of the Common Stock on such date; or (c) if there shall have been no
trading on such date or if the Common Stock is not so designated, the average of
the reported closing bid and asked prices of the Units, on such date as shown by
the National Market System of the Nasdaq Stock Market and reported by any member
firm of the New York Stock Exchange selected by the Company.
"Person" shall mean any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, Governmental Authority or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"Subsidiary" shall mean, with respect to any Person, a corporation or
other entity of which 50% or more of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such Person.
Section 13. Miscellaneous.
13.1 GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
29
13.2 Waiver of Notice. The Company, to the extent permitted by law,
hereby waives presentment, demand, notice, protest and all other demands and
notices in connection with delivery, acceptance, performance and enforcement of
this Note, except as specifically otherwise provided herein or in the Note
Purchase Agreement.
13.3 Amendment. The terms of this Note other than the principal amount,
the maturity date and the interest rate, may be amended only by the written
agreement of the holders of the majority of the then outstanding principal
amount of the Notes, and then only if identical amendments are made
simultaneously to all other then outstanding Notes. The principal amount,
maturity date and interest rate of this Note may be amended only by the written
agreement of the holder of this Note.
13.4 Reacquired Notes. Any Note converted, redeemed, purchased or
otherwise acquired by the Company or any of its Subsidiaries in full in any
manner whatsoever, shall be deemed canceled immediately upon such conversion,
redemption, purchase or other acquisition. None of the outstanding principal
amounts of any Notes held by the Company or any of its Subsidiaries or
Affiliates shall be deemed at any time to be outstanding for purposes of
determining whether the holders of any percentage of the outstanding principal
amount of the Notes have taken or desire to take any action as holders of the
Notes.
13.5 Exchange of Notes. At the option of the holder of this Note, this
Note may be exchanged for other Notes of like tenor and of a like aggregate
principal amount, upon surrender of this Note at the principal office of the
Company; provided, however, that the minimum denomination of any Note to be
issued in exchange for this Note shall be at least $100,000, unless the holder
of this Note shall have purchased this Note in a public offering or subsequent
to a public offering thereof, in which case the minimum denomination of any Note
to be issued in exchange for this Note shall be at least $1,000.
THE WELLCARE MANAGEMENT GROUP,
INC.
By: /s/ Xxxxxx X. Xxxx
---------------------------
Name: Xxxxxx X. Xxxx
Title: President/CEO
