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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
CHECK ONE:
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ______ TO _____.
COMMISSION FILE NUMBER 001-14397
NEW AMERICAN HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 62-1750169
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
109 WESTPARK DRIVE, SUITE 440
BRENTWOOD, TENNESSEE 37027
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (615) 221-5070
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
COMMON STOCK $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of registrant's voting stock held by
non-affiliates of the registrant on June 17, 1999 (based upon the closing
price of $2.313 on such date) was $16,487,184.
On June 17, 1999, 17,595,370 shares of the registrant's $0.01 par value
Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into Part III,
Items 10, 11, 12 and 13 of this Form 10-K: portions of the Registrant's
definitive proxy materials for its 1999 Annual Meeting of Stockholders.
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PART I
ITEM 1. BUSINESS
OVERVIEW
New American Healthcare Corporation (the "Company") operates acute care
hospitals throughout the United States. The Company was formed to capitalize on
opportunities to be the principal provider of health care services in the
communities in which it operates with a focus on non-urban communities. Since
acquiring its first hospital in August 1996, a non-urban facility in Wentzville,
Missouri, the Company has acquired ten additional hospitals, including four that
were purchased from a single party in January 1998. The Company's eleven acute
care hospitals are located in nine states and have a total of 1,347 licensed
beds.
The Company's hospitals offer a wide range of inpatient and outpatient
medical and surgical services and also provide other health care services,
including general and geriatric psychiatry, rehabilitation and occupational
medicine. All, except one hospital acquired in the third quarter of fiscal year
1999, of the Company's hospitals are accredited by either the Joint Commission
on Accreditation of Health Care Organizations (JCAHO), the American Osteopathic
Association (AOA) or both.
The Company has developed and implemented an action plan for each of
its hospitals. Key elements of the Company's action plan include: (i) improving
operating efficiencies; (ii) recruiting additional physicians; (iii) expanding
the number of services offered; (iv) joining health care networks; and (v)
installing a standardized management information system.
INDUSTRY BACKGROUND
Hospital Management Industry. According to the Health Care Financing
Administration ("HCFA"), in 1996 health care expenditures comprised
approximately 13.6% of the United States Gross Domestic Product, or in excess of
$1 trillion. During 1996, health care expenditures at hospitals accounted for
approximately 34.6% or $358.5 billion, of total health care spending. In recent
years, the hospital industry has experienced (i) advances in medical treatments
and technologies that permit shorter inpatient stays, and (ii) cost containment
pressures by Medicare, Medicaid, HMOs, PPOs and insurers to reduce hospital
stays and provide services, where possible, on a less expensive outpatient
basis. As a result, the average length of stay in the acute care hospital has
dropped from approximately 7.6 days in 1981 to approximately 6.5 days in 1995.
At the same time, occupancy has decreased from 77.9% in 1981 to 65.7% in 1995.
In addition, cost containment pressures have led to the development of
alternative delivery sites, including skilled nursing facilities, home health
programs, outpatient surgery and emergency and diagnostic centers. To remain
competitive, many hospitals have become more vertically integrated through the
introduction of various ancillary and outpatient services. As a result, average
hospital outpatient visits have grown at an increasing rate. In 1981, hospital
outpatient visits increased over the prior year by 0.9% and in 1995 increased
over the prior year by 6.5%.
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Non-Urban Health Care Market. According to the American Hospital
Association, in 1996 there were approximately 2,226 non-urban hospitals in the
United States, over 2,035 of which were controlled by not-for-profit or
governmental entities. The Company believes non-urban hospitals are attractive
for several reasons. Non-urban service areas have smaller populations and are
generally served by only one or two hospitals, resulting in less competition.
The relative dominance of acute care hospitals in these smaller markets may also
limit the entry of competitive alternate site providers such as outpatient
surgery, rehabilitation or diagnostic imaging. The Company believes, in general,
the demographic characteristics and the relative negotiating leverage of the
local hospital also make such markets less attractive to HMOs and other managed
care payors. In addition, the Company believes non-urban communities are often
characterized by high levels of patient, physician and community loyalty that
fosters cooperative relationships among the local hospital, physicians, patients
and employers. Although the Company focuses primarily on non-urban hospitals,
the Company has acquired and may in the future acquire hospitals that are not
located in non-urban communities, but which nevertheless provide purchase
opportunities that are attractive to the Company.
Although the characteristics of the non-urban health care market
present a number of opportunities, hospitals in such markets have been under
considerable pressure. In recent years, hospitals have been required to operate
within the reimbursement limitations imposed by the Medicare and Medicaid
programs and private insurance companies, while the cost of health care has
increased significantly. Non-urban hospitals have often experienced this
pressure more intensely. Frequently, non-urban hospitals are owned and operated
by not-for-profit and governmental entities that may have limited access to the
capital required to keep pace with advances in medical technology and to make
needed capital improvements. Such hospitals also may lack certain specialized
management resources to enable the hospital to control its operating expenses,
recruit and retain physicians and expand health care services. Collectively,
these factors frequently lead to poor operating performance, a decline in the
number of services offered, dissatisfaction by the community and physicians and
concerns about quality of care. As a result, patients migrate to, or are
referred by local physicians to, hospitals in larger urban markets. Patient
out-migration further increases the financial pressure on physicians and
hospitals within these markets, thereby limiting their ability to address the
issues which have led to these pressures.
BUSINESS STRATEGY
The Company's objective is to be a leading provider of quality,
cost-effective health care in the communities it serves through the following
strategies:
Improve Operating Efficiencies. The local management team, with support
from the corporate office, seeks to improve financial performance by:
(i) implementing expense controls; (ii) proactively managing staffing
levels based on patient volume and acuity; (iii) reducing supply costs
by leveraging the Company's supply arrangements and renegotiating or
terminating vendor contracts; and (iv) improving admissions, billing
and collection procedures.
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Recruit Additional Physicians. The Company believes recruiting
physicians is a key to expanding services offered and improving quality
of care. As the primary decision maker in the delivery of health care,
the physician is an important resource in directing patients to the
Company's hospitals, providing high quality health care and building
relationships between the community and the Company's hospitals. The
Company continually evaluates the needs of the community for additional
primary care and specialty physicians. The Company then works with the
local hospital board, management and medical staff to define further
the physicians needed and assists the local management team in
identifying and recruiting specific physicians to meet those needs.
Expand Services Offered. By expanding its service capabilities, the
Company seeks to limit out-migration, increase local market share and
generally capture a greater proportion of health care expenditures made
by the communities. In addition, by providing a broader range of
services, the Company believes it can treat higher acuity patients,
thereby further increasing hospital revenues and profitability. These
services may include specialty inpatient services, outpatient services,
occupational medicine and rehabilitation. As part of developing a
community health care delivery system, the Company's hospitals also
operate satellite clinics. The Company also utilizes various mobile
technologies to provide, on a cost-effective basis, services otherwise
available only at larger, urban facilities.
Join Health Care Networks. In markets where appropriate, the Company
seeks to join networks of providers with an emphasis on primary care
physicians. Such networks are increasingly important for directing
patients to particular health care providers. Further, these networks
help to position the Company's hospitals as the focal points of their
respective community's health care delivery system. Additionally, the
Company seeks affiliations with regional tertiary care providers in
order to access services not provided by the Company's hospitals.
Implement Standardized Information System. The delivery of high quality
and cost-effective health care depends to an increasing extent on an
effective clinical, financial and administrative information system.
The Company has recently installed an integrated management information
system designed for small and mid-size hospitals. The conversion of
each hospital provides the Company's corporate office and hospital
management teams with standardized and integrated clinical, financial
and administrative information. Management believes this new system
allows the Company to manage better all aspects of its business. The
Company has completed the conversion of nine of its hospitals to this
system as of March 1999 and expects the remaining two conversions to be
completed by October 1999.
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HOSPITAL OPERATIONS
The Company completes a comprehensive analysis at each of its hospitals
to identify strategic opportunities. The Company works in concert with hospital
management to formulate a "strategic blueprint" designed to capitalize on these
opportunities. Hospital management is responsible for the implementation of the
blueprint. The Company's senior management meets with local managers monthly to
review the hospital's performance. Management meets annually to reassess
opportunities and reformulate strategic blueprints.
Each hospital management team is comprised of a chief executive
officer, chief financial officer and chief nursing officer. The quality of the
local hospital management team is critical to the hospital's success. The
Company has implemented a hospital management compensation program based upon
the achievement of the financial and clinical goals set forth in the operating
plan. The Company also generally grants stock options to members of each local
management team as an additional incentive.
While the hospital management team is responsible for the day-to-day
operations of the hospitals, the Company's corporate staff provides support
services to each hospital, including purchasing, corporate compliance,
reimbursement, standardized information systems, human resources, business
office, cash management, tax and insurance support. Financial controls are
maintained through utilization of standardized policies and procedures which are
supported by a company-wide management information system. The Company promotes
communication among its hospitals and with the corporate office through a wide
area network and video conferencing so that local expertise and improvements can
be readily shared, additional training can be performed, and new policies and
procedures can be implemented.
As part of the Company's efforts to improve access to quality health
care, the Company evaluates the needs of the community and adds appropriate
services at its hospitals. Services added may include specialty inpatient
services, such as cardiology, geriatric psychiatry, rehabilitation and subacute
care, and outpatient services such as same-day surgery, imaging, occupational
medicine and physical therapy. Management believes quality emergency services
and OB/GYN services are particularly important because they are typically the
most visible services provided to the community. The Company also makes capital
investments in technology and facilities, where appropriate, in order to
increase the quality and breadth of services available to the community. These
capital investments are undertaken on a project-by-project basis and must meet
financial benchmarks. The Company believes these added services improve access
to health care and the hospitals' reputation in each community and will in turn
increase patient volume and revenue.
In order to add new services which meet the needs of the community, the
Company's corporate staff assists the hospital management team in identifying
and recruiting physicians to the hospital's medical staff. The Company
supplements these efforts with independent recruiting firms. When recruiting a
physician who is new to the community, the Company generally enters into a
contract to guarantee the physician a minimum level of income during a limited
initial period and assists the physician with his or her transition to the
community. The Company generally requires the physician to repay some or all of
the amounts expended for such assistance
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in the event the physician leaves the community prior to the expiration of the
contract. The Company generally does not employ physicians.
In markets where appropriate, the Company seeks to develop or join
networks of providers with an emphasis on primary care physicians in order to be
attractive to managed care payors, self insured employers and various government
sponsored programs. Further, these networks help to position the Company's
hospitals as the focal point of their respective community's health care
delivery system. Regardless of other network development activity, the Company
seeks affiliations with regional tertiary care providers to access services not
offered by the Company's hospitals. Further, these alliances help enhance the
image of the Company's hospitals. The Company currently has two affiliation
agreements with tertiary provider hospitals for the purposes of accessing
tertiary services, managed care, departmental consultants, physician
specialists, and continuing medical education and enhancing physician
recruitment. One agreement is with East Texas Medical Center Regional Healthcare
System in Tyler, Texas and has a term of five years from January 1998, but
either party can terminate upon ninety days written notice. The second agreement
is with BJC Health System in St. Louis, Missouri and has a term of three years
from July 1998, but either party can terminate at any time upon ninety days
written notice.
HOSPITALS
General
The Company currently operates eleven acute care hospitals with 1,347
licensed beds located in Georgia, Iowa, Mississippi, Missouri, Oregon,
Tennessee, Texas, Washington and Wyoming.
The Company's hospitals offer a wide range of inpatient medical
services, such as surgical procedures, intensive care, laboratory, imaging and
emergency services, as well as outpatient services, such as same-day surgery,
laboratory, imaging, occupational medicine and physical therapy. Some of the
Company's hospitals provide, where cost effective, certain other services,
including adolescent and geriatric psychiatry, rehabilitation, OB/GYN,
orthopedics, chemical dependency, skilled nursing and home health services. The
Company's hospitals do not provide highly specialized surgical services, such as
organ transplants and open heart surgery, and are not engaged in extensive
medical research or educational programs, although two of the hospitals have
family practice residency programs. The Company's hospitals are generally
involved in the local community through various activities such as participation
in health fairs and sponsorship of educational programs.
Hospital Descriptions
Doctors Hospital is a 94-bed acute care hospital located in Wentzville,
Missouri, approximately 40 miles west of St. Louis, which serves a population
base of approximately
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150,000. The hospital's 43-acre campus includes a medical office building and is
located approximately five miles from the nearest hospital. The hospital offers
a range of services that includes acute inpatient and outpatient care, surgery,
intensive care, emergency, OB/GYN, imaging, laboratory, geriatric psychiatry,
skilled nursing and occupational medicine. The medical staff of over 140
physicians provides primary care services and specialty services such as
cardiology, neurology, urology and orthopedics.
Memorial Hospital of Center is a 54-bed acute care hospital located in
eastern Texas, 60 miles southwest of Shreveport, Louisiana, and is the only
hospital located in Shelby County and serves a population base of approximately
23,000. The hospital is situated on a 20-acre campus, approximately 20 miles
from the nearest hospital. Memorial Hospital offers a range of services, that
includes acute inpatient and outpatient care, surgery, emergency, OB/GYN,
imaging, cardiac and physical rehabilitation, laboratory and home health
services. The medical staff of over 30 physicians provides primary care services
and consulting services for oncology, urology, orthopedics, podiatry and
ophthalmology. The hospital was the first in an eight county area to be
trauma-level designated by the State of Texas.
Delta Medical Center -- Memphis is a 243-bed acute care hospital
located in southeast Memphis, serves a population base of approximately 300,000,
and draws patients from rural Mississippi and Arkansas. The hospital is on a
20-acre campus that includes a 110,000 square foot medical office building and
is located approximately five miles from the nearest hospital. The hospital
offers a range of services that includes acute inpatient and outpatient care,
surgery, intensive care, emergency, imaging, laboratory, geriatric and
adolescent psychiatry, and chemical dependency. The medical staff of over 116
physicians provides primary care services and specialty services such as
cardiology, neurology, urology and orthopedics. Delta Medical Center -- Memphis
operates Total Care, a hospital-based PPO that enhances the ability of the
hospital to access managed care patients.
Dolly Vinsant Memorial Hospital is an 81-bed acute care hospital in San
Benito, Texas serving a population base of approximately 50,000. The hospital is
located in the southernmost county of Texas on a seven-acre campus and is six
miles from the nearest hospital. Dolly Vinsant offers a range of services that
includes acute inpatient and outpatient care, surgery, emergency, imaging,
laboratory and progressive care services. The medical staff of over 160
physicians provides primary care services and specialty services such as
urology, orthopedics, ophthalmology, and general surgery.
Davenport Medical Center is a 149-bed acute care facility located in
Davenport, Iowa, one of the Quad cities and serves a population base of
approximately 150,000. The hospital and its medical office building are located
on an 18-acre campus and is approximately two miles from the nearest hospital.
The hospital offers a range of services that includes acute inpatient and
outpatient care, surgery, intensive care, emergency, OB/GYN, imaging,
laboratory, and skilled nursing services. The medical staff of approximately 220
physicians provides primary care services and specialty services such as
urology, orthopedics and pulmonology. The hospital
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participates in a residency program for osteopathic physicians and opened an
eleven-bed skilled nursing unit in January 1998.
Lander Valley Medical Center is a 102-bed acute care hospital located
in Lander, Wyoming, approximately 120 miles west of Casper and approximately 180
miles southeast of Jackson. The hospital serves a population base of
approximately 17,000 and is located on a 25-acre campus approximately 27 miles
from the nearest hospital. The hospital offers a range of services that includes
acute inpatient and outpatient care, surgery, intensive care, emergency, OB/GYN,
imaging, laboratory, geriatric and adolescent psychiatry, skilled nursing and
home health services. The medical staff of over 40 physicians provides primary
care services as well as specialty services such as orthopedics, urology,
ophthalmology, and general surgery.
Woodland Park Hospital is a 209-bed acute care neighborhood hospital
located in the northeastern Portland, Oregon area, serving a population base of
approximately 150,000. The hospital and its attached medical office building are
located on a six-acre campus approximately three miles from the nearest
hospital. The hospital offers a range of services that includes acute inpatient
and outpatient care, surgery, intensive care, emergency services, OB/GYN,
imaging, laboratory, geriatric and adolescent psychiatry and occupational
medicine services. Home health services are provided in partnership with
Eastmoreland Hospital. The medical staff of over 190 physicians provides primary
care services and specialty services such as orthopedics, plastic surgery,
ophthalmology, and general surgery.
Eastmoreland Hospital is a 100-bed acute care neighborhood hospital
located in the southeast Portland, Oregon area, serving a population base of
approximately 175,000. The hospital is located on a six-acre campus with five
medical office buildings on or adjacent to the campus and is approximately four
miles from the nearest hospital. The hospital offers a range of services that
includes acute inpatient and outpatient care, surgery, intensive care,
emergency, imaging, laboratory, rehabilitation, geriatric psychiatry and
occupational medicine services. The hospital also has a residency program for
osteopathic physicians. Home health services are provided in partnership with
Woodland Park Hospital. The medical staff of over 30 physicians provides primary
care services and specialty services such as orthopedic surgery, plastic
surgery, ophthalmology, otolaryngology, gynecology, and general surgery.
Puget Sound Hospital is a 160-bed acute care hospital located in
Tacoma, Washington that serves a population base of approximately 360,000. The
hospital is located on a five-acre campus approximately three miles from the
nearest hospital. The hospital provides a range of services that includes acute
inpatient and outpatient care, surgery, intensive care, emergency, imaging,
laboratory, geriatric psychiatry and chemical dependency treatment. The medical
staff of over 200 physicians provides primary care services and specialty
services such as orthopedics, ophthalmology, urology, podiatry, bariatrics,
general surgery and a transfusion free medicine/surgery program.
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Crosby Memorial Hospital is a 95-bed acute care hospital in Picayune,
Mississippi, approximately 50 miles north of New Orleans, Louisiana. The
hospital serves a population base of approximately 50,000 and is located on a
four-acre campus approximately 25 miles from the nearest hospital. The hospital
offers a range of services that includes emergency, inpatient and outpatient
services, OB/Nursery, cardiology, neurology, audiology, imaging, physical
therapy, respiratory, behavioral health, home health and community education.
The medical staff of over 80 physicians provides primary care services as well
as specialty services such as oncology, ophthalmology, neurology and cardiology.
Memorial Hospital of Adel consists of a 60-bed acute care hospital and
a 95-bed Memorial Convalescent Center all located in Adel, Georgia,
approximately 20 miles north of Valdosta, Georgia. The hospital serves a
population base of approximately 25,000 and is located on a four-acre campus
approximately ten miles from the nearest hospital. Memorial Hospital of Adel
provides a range of services including an intensive care unit, OB/GYN services,
a convalescent center, emergency services and home health. The medical staff of
ten physicians provides primary care services and specialty services such as
general surgery, obstetrics, and gynecology.
Operating Statistics
The following table sets forth certain operating statistics for the
Company's hospitals for each of the periods presented. The data for the periods
presented are not strictly comparable due to the significant effect that
acquisitions have had on the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Years Ended March 31,
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1999 1998 1997
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<S> <C> <C> <C>
Hospitals owned or leased (at end of period) 11 8 1
Licensed beds (at end of period) 1,347 1,032 94
Beds in service (at end of period) 997 697 94
Occupancy rate (% of licensed beds)(1) 30.4% 54.0% 31.9%
Admissions 20,882 8,378 1,086
Average length of stay (days)(2) 5.4 6.1 4.5
Patient days 112,833 50,961 4,854
Gross inpatient revenue 164,027 75,137 8,406
Gross outpatient revenue 116,059 47,102 9,631
</TABLE>
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(1) Percentages are calculated by dividing average daily census by average
licensed beds.
(2) Average length of stay is calculated as the number of patient days divided
by the number of admissions.
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Sources of Revenue
The Company receives payments for patient care from private insurance
carriers, federal Medicare programs for elderly and disabled patients, state
Medicaid programs, Indian Health Services ("IHS"), HMOs, the Civilian Health and
Medical Program of the Uniformed Services ("CHAMPUS"), employers and patients
directly.
The following table sets forth the percentage of gross patient revenue
of the Company's hospitals from various payors for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------
1999(1) 1998(1) 1997(1)
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<S> <C> <C> <C>
Medicare............................... 39.8% 51.5% 49.0%
Medicaid............................... 16.7 18.4 20.0
Private and other sources.............. 43.5 30.1 31.0
</TABLE>
- ---------------------------------
(1) The data for the periods presented are not strictly comparable due to
the significant effect that acquisitions have had on the Company. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Quality Assurance
The Company's hospitals implement quality assurance procedures to help
ensure quality care. Each hospital has clinical department review committees
comprised of medical staff members that supervise individuals and are
responsible for the quality of medical care provided in their respective
department. In addition, each hospital has a medical staff executive committee
comprised of physicians which review the professional credentials of physicians
applying for medical staff privileges at the hospital. The medical staff
executive committees also review and monitor surgical outcomes along with
procedures performed. Further, the board of trustees of the hospital reviews the
actions and patient outcomes of the medical staff. The Company periodically
surveys patients either during their stay at the hospital or subsequently by
mail or telephone to identify potential areas for improvement. All, except one
hospital acquired in the third quarter of fiscal year 1999, of the Company's
hospitals are accredited by either JCAHO, AOA or both.
Regulatory Compliance Program
With the help of a consulting firm, the Company has developed and
implemented a company-wide compliance program. The Company's compliance program
focuses on various areas of regulatory compliance, including physician
recruitment, reimbursement and cost reporting practices, overall billing
practices and laboratory and home health care operations. Dana C. McLendon, Jr.,
Senior Vice President and Chief Administrative Officer, currently serves as the
Corporate Compliance Officer and, together with an Executive Compliance
Committee, monitors adherence to the compliance program. The consulting firm has
conducted training
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programs on the Company's corporate compliance program at all of the Company's
hospitals and has been retained to provide ongoing training. The compliance
program includes a 24-hour reporting hotline to encourage employees and others
to report any potential compliance issues. The Company has a Board Committee
with specific responsibility for compliance matters and has compliance
committees at the hospital level.
Management Information System
The Company relies on the functionality, accuracy, reliability and
proper use of its management information system. Historically, each of the
Company's hospitals has operated under its own stand-alone systems. The Company
has entered into an agreement with HMS to license its HMS Monitor System, which
the Company believes, based on representations and warranties made by HMS, is a
Year 2000 compliant, fully-integrated financial, clinical and administrative
management information system. The Company believes this system will enable it
to monitor, on a cost-effective basis, the operations of its hospitals and allow
it to generate consistent data at each of its hospitals. The Company has
completed the conversion of nine of its hospitals to this management information
system as of March 1999 and expects the remaining two conversions to be
completed by October 1999.
The new system provides a full platform of software, including patient
accounting, billing and collection, materials management, payroll/personnel
system, accounts payable, general ledger, DRG/case mix management and medical
records. The license agreement allows for additional hospitals to be added onto
the network and provides that in the event HMS discontinues the maintenance and
support of the software (and certain other events), the Company will be entitled
to a perpetual license to the source code for the software including all updates
and modifications.
In addition, the Company has linked all of its hospitals, except the
two most recently acquired hospitals, to each other and to corporate
headquarters through a wide area network and video conferencing equipment. These
tools promote communication among its hospitals so that local expertise and
improvements can be readily shared, additional training can be performed and new
policies and procedures can be implemented.
GOVERNMENT REIMBURSEMENT
Medicare payments for general hospital inpatient care are based on a
prospective payment system ("PPS"). Under the PPS, a hospital receives a fixed
amount for operating costs based on the established fixed payment amount per
discharge for categories of hospital treatment, commonly known as a diagnosis
related group ("DRG"), for each Medicare inpatient. DRG payments do not consider
a specific hospital's costs, but are adjusted for area wage differentials.
For several years, the percentage increases to the DRG rates have been
lower than the percentage increases in the cost of goods and services purchased
by general acute care hospitals. The index used to adjust the DRG rates is based
on the cost of goods and services purchased by
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hospitals as well as those purchased by nonhospitals (the "Market Basket"). The
historical Market Basket rates of increase were 2.0% and 2.4% for federal fiscal
years 1997 and 1998, respectively, and the Market Basket may be subject to
further adjustment from year to year. The Company anticipates that future
legislation may decrease the future rate of increase for DRG payments, but is
unable to predict the amount of any such reduction.
PPS and the Balanced Budget Act of 1997
Psychiatric services, long-term care, rehabilitation, pediatric
services and certain designated research hospitals, and distinct parts of
rehabilitation and psychiatric units within hospitals, are currently exempt from
PPS and are reimbursed on a cost-based system, subject to specific reimbursement
caps. However, Congress recently enacted the Balanced Budget Act of 1997 (the
"Budget Act"), which establishes a plan to balance the federal budget by fiscal
year 2002, and which includes significant additional reductions in spending
levels for the Medicare and Medicaid programs. For example, while skilled
nursing facilities and units are currently exempt from PPS, for cost report
periods beginning on or after July 1, 1998, a new system of PPS will be
implemented for such facilities and units. For the year ended March 31, 1999,
the Company had only 18 units, four of which are skilled nursing units, that
were exempt from PPS.
The Budget Act also requires Medicare to implement outpatient PPS
effective January 1, 1999, and to transition to PPS for hospital-based home
health agencies beginning October 1, 1999. As of the year ended March 31, 1999,
the Company owned eight facilities that operate hospital-based home health
agencies. However, the implementation of PPS for outpatient and home health
services has been delayed indefinitely, to allow the Health Care Financing
Administration ("HCFA") to focus on Year 2000 compliance efforts. The Company is
currently unable to predict the timing or effect of PPS on the Company's
business, financial condition and results of operations when the changes are
ultimately implemented.
Medicaid
Each state has its own Medicaid program that is funded jointly by the
state and federal government. Federal law governs how each state manages its
Medicaid program, but there is wide latitude for states to customize Medicaid
programs to fit the needs and resources of their citizens. As a result, each
state Medicaid plan has its own payment formula and recipient eligibility
criteria.
Cost Reports
The Medicare, Medicaid, CHAMPUS and other governmental programs are
subject to statutory and regulatory changes, administrative rulings,
interpretations and determinations, requirements for utilization review and new
governmental funding restrictions, all of which may materially increase or
decrease program payments as well as affect the cost of providing services and
the timing of payment to facilities. The final determination of amounts earned
under the
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programs often requires many years, because of audits by the program
representatives, providers' rights of appeal and the application of numerous
technical reimbursement provisions. Management believes adequate provision has
been made for such adjustments. Until final adjustment, however, significant
issues remain unresolved and previously determined allowances could become
either inadequate or more than ultimately required.
Billing Compliance
As part of its ongoing compliance program, the Company performs
self-audits of billing and reimbursement. The Company's compliance policy is to
refund overpayments revealed by these audits, and the Company may elect to
participate in voluntary disclosure programs. The Company does not have any
assurance that disclosure or repayment to a third party payor in any particular
instance will not result in further investigation of the Company.
HEALTH CARE REFORM, REGULATION AND LICENSING
Certain Background Information
Health care, as one of the largest service sectors in the United
States, continues to attract much legislative interest and public attention.
Medicare, Medicaid, and other hospital cost-containment programs, proposals to
limit health care spending, proposals to limit prices, and industry competitive
factors are among the many factors which are highly significant to the health
care industry. In addition, the health care industry is governed by a framework
of federal and state laws, rules and regulations that are extremely complex and
for which the industry has the benefit of only limited regulatory guidance or
judicial interpretation. Although the Company believes it is in compliance in
all material respects with such laws, rules and regulations, if a determination
is made that the Company was in violation of such laws, rules or regulations,
its business, financial condition and results of operations could be materially
adversely affected.
There continues to be federal and state proposals that would, and
actions that do, impose more limitations on government and private payments to
providers such as the Company and proposals to increase co-payments and
deductibles required to be paid by patients. The Company's facilities also are
affected by controls imposed by government and private payors designed to reduce
admissions and lengths of stay. Such controls, including what is commonly
referred to as "utilization review," have resulted in fewer of certain
treatments and procedures being performed. Utilization review entails the review
of the admission and course of treatment of a patient by a third party.
Utilization review by third-party peer review organizations ("PROs") is required
in connection with the provision of care paid for by Medicare and Medicaid.
Utilization review by third parties is also required under many managed care
arrangements.
Many states have enacted, or are considering enacting, measures that
are designed to reduce their Medicaid expenditures and to make certain changes
to private health care insurance. Various states have applied, or are
considering applying, for a federal waiver from current Medicaid regulations to
allow them to serve some of their Medicaid participants through
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<PAGE> 14
managed care providers. These proposals also may attempt to include coverage for
some people who presently are uninsured, and generally could have the effect of
reducing payments to hospitals, physicians and other providers for the same
level of service provided under Medicaid.
Certificate of Need Requirements
Some states require approval under certificate of need laws for the
purchase, construction, renovation and expansion of health care facilities and
services. Certificates of Need ("CON"), which are issued by state governmental
agencies with jurisdiction over health care facilities, are at times required
for capital expenditures exceeding a prescribed amount, changes in bed capacity
for services, and certain other matters. A CON may also require a provider to
commit to provide a certain level of uncompensated care. However Texas, where
the Company operates two of its eleven hospitals, and Wyoming, where the Company
operates one hospital, do not currently require CONs for hospital construction
or changes in the mix of services. Georgia's law covers all types of health care
facilities, and requires a CON before a health care facility can proceed with a
construction or renovation project or any other capital expenditure exceeding
$900,000; purchase or lease of major medical equipment costing more
than $500,000; offer a health care service not previously provided; or add new
beds. In Mississippi, a CON is required for the construction, development or
establishment of a new health care facility; relocation of all or any part of a
healthcare facility, health service, or item of major medical equipment; or a
change in services or bed capacity. Tennessee requires a CON before the
construction, development or establishment of any type of health care
institution or where modifications require capital expenditure greater than $2.0
million, except in the case of a hospital. Tennessee also requires a CON when
redistributing or increasing the number of licensed beds. Missouri requires a
CON before offering or developing a new institutional health service within the
state. Oregon requires CONs for new hospital, skilled nursing facility, or
intermediate care service and substance abuse programs only. Iowa requires CON
review when offering a new institutional health service. The state of Washington
requires CON review for any construction, development or establishment of a new
healthcare facility; the sale, purchase or lease of a hospital; change or
redistribution in the bed capacity of a health care facility; and initiation of
certain tertiary care, home health or hospice services. Although to date the
Company has been successful in obtaining CONs for needed projects, the Company
is unable to predict whether it will be able to obtain any CON that may be
necessary to accomplish its business objectives in any jurisdiction where such
CONs are required.
Anti-Kickback Regulations
Sections of the Anti-Fraud and Abuse Amendments to the Social Security
Act, commonly known as the "anti-kickback" statute (the "Anti-Kickback
Amendments"), prohibit certain business practices and relationships that might
affect the provision and cost of health care services reimbursable under
Medicare and Medicaid, including the payment or receipt of remuneration for the
referral of patients whose care will be paid for by Medicare or other government
programs. Sanctions for violating the Anti-Kickback Amendments include criminal
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<PAGE> 15
penalties and civil sanctions, including fines and possible exclusion from
government programs such as the Medicare and Medicaid programs. Pursuant to the
Medicare and Medicaid Patient and Program Protection Act of 1987, the U.S.
Department of Health and Human Services has issued regulations that create Safe
Harbors under the Anti-Kickback Amendments. A given business arrangement which
does not fall within a Safe Harbor is not per se illegal; however, business
arrangements of health care service providers that fail to satisfy the
applicable Safe Harbor criteria risk increased scrutiny by enforcement
authorities. The "Health Insurance Portability and Accountability Act of 1996,"
which became effective January 1, 1997 broadened the scope of certain fraud and
abuse laws, such as the Anti-Kickback Amendments and certain related enforcement
activities.
The Company provides financial assistance to recruit physicians into
the communities served by its hospitals. No Safe Harbor for physician
recruitment is currently in force. Although the Company is not subject to the
Internal Revenue Service Revenue Rulings and related authority addressing
recruitment activities by taxexempt facilities, management believes such IRS
authority tends to set the industry standard for acceptable recruitment
activities. The Company believes its recruitment policies are being conducted in
accordance with the IRS authority and industry practice, and otherwise comply
with the provisions of the Anti-Kickback Amendments. The Company also enters
into certain professional services agreements and leases with physicians, is a
party to certain joint ventures with physicians, and participates in a group
purchasing joint venture. The Company believes these arrangements do not violate
the Anti-Kickback Amendments. There can be no assurance the regulatory
authorities that enforce the Anti-Kickback Amendments will not determine that
the Company's physician recruiting activities, other physician compensation
arrangements, or group purchasing activities violate the Anti-Kickback
Amendments or other federal laws. Such a determination could subject the Company
to liabilities under the Social Security Act, including exclusion of the Company
from participation in Medicare and Medicaid.
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<PAGE> 16
There is increasing scrutiny by law enforcement authorities, the
Office of Inspector General ("OIG") of the Department of Health and Human
Services ("HHS"), the courts, and Congress of arrangements between health care
providers and potential referral sources to ensure that the arrangements are not
designed as a mechanism to exchange remuneration for patient care referrals and
opportunities. Investigators have also demonstrated a willingness to look behind
the formalities of a business transaction to determine the underlying purpose of
payments between health care providers and potential referral sources.
Enforcement actions have increased, as evidenced by recent highly publicized
investigations of certain hospital activities.
In addition to investigations and enforcement actions initiated by
governmental agencies, health care companies may also be the subject of qui tam
(or "whistleblower") actions brought under the False Claims Act by private
individuals on behalf of the government. Whistleblowers receive a portion of any
amounts collected by the government in such actions as a reward for bringing the
action to the government's attention. Actions under the False Claims Act are
generally filed under seal to allow the government adequate time to investigate
and determine whether it will intervene in the lawsuit, and defendant health
care providers are often without knowledge of such actions until the government
has completed its investigation and the seal is lifted. This process can take
several years.
Although, to its knowledge, the Company is not currently the subject of
any investigation which is likely to have a material adverse effect on its
business, financial condition or results of operations, there can be no
assurance that the Company and its hospitals will not be the subject of
investigations or inquiries in the future.
Limitations on Certain Physician Referrals
In addition to the Anti-Kickback Amendments, other provisions of the
Social Security Act restrict referrals by physicians of Medicare and other
government-program patients to providers of a broad range of designated health
services with which they have ownership or certain other financial arrangements
(the "Stark Law"). A person making a referral, or seeking payment for services
referred, in violation of Stark would be subject to the following sanctions: (i)
civil money penalties of up to $15,000 for each service; (ii) assessments equal
to twice the dollar value for each service; and/or (iii) exclusion from
participation in the Medicare Program and any other government healthcare
reimbursement program. Further, if any physician or entity enters into an
arrangement or scheme that the physician or entity knows or should know has the
principal purpose of assuring referrals by the physician to a particular entity,
and the physician directly made referrals to such entity, then such physician or
entity could be subject to a civil monetary penalty of up to $100,000. Many
states have adopted or are considering similar legislative proposals, some of
which extend beyond government programs to prohibit the payment or receipt of
remuneration for the referral of patients and physician selfreferrals regardless
of the source of the payment for the care. The Company's contracts with
physicians on the medical staff of its hospitals and its participation in and
development of joint ventures and other financial relationships with physicians
could be adversely affected by these amendments and similar state enactments.
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<PAGE> 17
The Company is unable to predict the future course of federal, state
and local regulation or legislation, including Medicare and Medicaid statutes
and regulations. Further changes in the regulatory framework or in the
interpretation of these laws, rules and regulations could have a material
adverse effect on the Company's business, financial condition and results of
operations.
ENVIRONMENTAL REGULATIONS
The Company's health care operations generate medical waste that must
be disposed of in compliance with federal, state and local environmental laws,
rules and regulations. The Company's operations, as well as the Company's
purchases and sales of facilities, are also subject to various other
environmental laws, rules and regulations.
The Company acquired Puget Sound Hospital in Tacoma, Washington in
September 1999. During its due diligence process, the Company discovered certain
environmental contamination involving underground storage tanks no longer in
use. Environmental consultants have developed a work plan to remediate such
existing contamination which must be approved by the Washington State Department
of Ecology. Once the work plan is approved, remediation may begin. The prior
owner has agreed to fund all costs of such remediation.
Although the Company is not currently aware of any other material
environmental claims pending or threatened against it or any of its hospitals,
no assurances can be given that a material environmental claim will not be
asserted against the Company or against any of its hospitals. The costs of
defending against claims of liability, or of remediating a contaminated
property, could have a material adverse effect on the Company's business,
financial condition and results of operations.
HEALTH CARE FACILITY LICENSING AND CERTIFICATION REQUIREMENTS
The Company's health care facilities are subject to extensive federal,
state and local legislation and regulation. In order to maintain their operating
licenses and continue to be eligible for participation in the Medicare, Medicaid
and other governmental programs, health care facilities must comply with strict
standards concerning a variety of areas, including, but not limited to, medical
care, written policies and procedures, record-keeping, equipment and hygiene.
Various licenses and permits also are required in order to dispense narcotics,
operate pharmacies, handle radioactive materials and operate certain equipment.
The Company believes its health care facilities hold all material governmental
approvals, licenses and permits. All licenses, provider numbers and other
permits, certifications or approvals required to perform the Company's business
operations are held by subsidiaries of the Company. All, except one hospital
acquired in the third quarter of fiscal year 1999, of the Company's hospitals
are accredited by either JCAHO, AOA or both.
UTILIZATION REVIEW COMPLIANCE AND HOSPITAL GOVERNANCE
The Company's health care facilities are subject to and comply with
various forms of utilization review. In addition, under the Medicare prospective
payment system, each state must
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have a PRO to carry out a federally mandated system of review of Medicare
patient admissions, treatments and discharges in hospitals. Medical and
surgical services and practices are extensively supervised by committees of
staff doctors at each health care facility, are overseen by each health care
facility's local governing board, the primary voting members of which are
physicians and community members, and are reviewed by the Company's quality
assurance personnel. The local governing boards also help maintain standards for
quality care, develop long-range plans, establish, review and enforce practices
and procedures and approve the credentials and disciplining of medical staff
members.
COMPETITION
The primary bases of competition among hospitals are the quality and
scope of medical services, location, strength of referral network, appearance of
the facility and, to a lesser extent, price. The Company's hospitals compete
with other hospitals, some of which may be more established, better equipped,
offer a wider range of services or have financial resources greater than those
of the Company. In addition, certain of these competing hospitals are owned by
tax-supported government agencies or by tax-exempt, not-for-profit corporations
that may be supported by endowments and charitable contributions and can finance
capital expenditures on a tax-exempt basis. Those hospitals located in non-urban
areas generally face less competition in their immediate patient service areas
for the delivery of general acute care services than would be expected in larger
communities. However, even in areas where the Company's hospitals are the only
provider of health care services, such hospitals continue to face competition
from larger tertiary care centers that attract patients for certain services
either not offered or perceived to be inferior at the local hospital, thereby
contributing to out-migration.
EMPLOYEES AND MEDICAL STAFF
As of May 31, 1999, the Company had 2,350 "full-time equivalent"
employees, 33 of whom were corporate headquarters personnel. The remaining
employees, most of whom are nurses, other clinical, dietary, housekeeping and
office personnel, work at the Company's hospitals. A total of 445 of the
employees of Davenport Medical Center and Puget Sound Hospital are covered by
collective bargaining agreements and approximately 65 registered nurses at
Eastmoreland voted to be represented by a union. The Company considers relations
with its employees to be good.
The Company typically does not employ physicians and, as of May 31,
1999, the Company employed only 16 practicing physicians. Of these 16
physicians, ten were inherited pursuant to the Company's acquisitions and the
remaining were recruited by the Company. Certain of the Company's hospital
services, including emergency room coverage, radiology, pathology and
anesthesiology services, may be provided through independent contractor
arrangements with physicians or contracts with companies specializing in
providing such services.
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PROFESSIONAL LIABILITY
As part of its business, the Company is subject to claims of liability
for events occurring in the ordinary course of hospital operations. To cover
these claims, the Company maintains professional malpractice liability insurance
and general liability insurance in amounts which management believes to be
sufficient for its operations, although some claims may exceed the scope of the
coverage in effect. The Company also maintains umbrella coverage. At various
times in the past, the cost of malpractice and other liability insurance has
risen significantly. Therefore, there can be no assurance that adequate levels
of such insurance will continue to be available at a reasonable price.
RISK FACTORS
This section summarizes certain risks, among others, that should be
considered by stockholders and prospective investors in the Company. Many of
these risks are discussed in other sections of this Report.
Integration of Acquisitions. The Company acquired seven of its eleven
hospitals during the fiscal year ended March 31, 1998 and three during the
fiscal year ended March 31, 1999. These acquisitions have substantially
increased the number of persons employed by the Company, the number of
facilities operated by the Company and the geographic markets served by the
Company. Although the Company believes it can successfully integrate and operate
these hospitals, there can be no assurance that the newly acquired hospitals
will be integrated successfully into the Company's operations, that cost savings
or operating synergies will be realized to the extent anticipated by the Company
or that the hospital operations will achieve levels of profitability necessary
to justify the Company's investments therein. The operations of newly acquired
hospitals may result in adverse effects on the Company's reported operating
results, divert management's attention, create difficulties in attracting,
retaining and training key personnel, and introduce risks associated with
unanticipated problems or legal liabilities, some or all of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Assumption of Liabilities of Acquired Hospitals. The Company has
acquired hospitals with prior operating histories. The Company has from time to
time identified certain past practices of acquired hospitals that do not conform
to the Company's standards. Although the Company institutes certain policies and
procedures designed to conform such practices to its standards, there can be no
assurance that the Company will not become liable for the past operations,
including billing and reimbursement practices which may be later asserted to be
improper, of such hospitals. Although the Company has performed due diligence
investigations with respect to potential liabilities of its hospitals and
obtained indemnification with respect to certain liabilities from the sellers of
such hospitals, there can be no assurance that any liabilities for which the
Company becomes responsible will not be material or will not exceed either the
limitations of any applicable indemnification provisions or the financial
resources of the indemnifying parties.
Limited Operating History. The Company was organized in 1995, and seven
of the Company's eleven hospitals were acquired during the fiscal year ended
March 31, 1998 and three hospitals were acquired during the fiscal year ended
March 31, 1999. The
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largest single purchase, representing four of the Company's eleven hospitals,
was completed in January 1998. There is limited history of operation of the
hospitals by the Company. There can be no assurance that the Company will be
able to achieve satisfactory operating results.
Health Care Industry Investigations. Significant media and public
attention has recently focused on the hospital industry due to ongoing federal
and state investigations reportedly related to certain referral, cost reporting
and billing practices, laboratory and home health care services, physician
recruitment practices, and physician ownership of health care providers and
joint ventures involving, skilled nursing, rehabilitation and psychiatric
hospitals. As part of its hospital operations, the Company operates
laboratories, provides home health, skilled nursing, rehabilitation and
psychiatric services and engages in a variety of physician recruitment
activities. The Company also has significant Medicare, Medicaid and other
governmental billings. The Company monitors these aspects of its business and
believes its business practices are consistent with current industry standards.
However, applicable laws are complex and constantly evolving, and there can be
no assurance that government investigations will not result in interpretations
that are inconsistent with industry practices, including the Company's
practices. In public statements surrounding current investigations, governmental
authorities have taken positions on a number of issues, including some for which
little official interpretation has previously been available. Certain of these
positions appear to be inconsistent with practices that have been common within
the industry and which have not previously been challenged in this manner.
Moreover, in certain instances, government investigations that have in the past
been conducted under the civil provisions of federal law are now being conducted
as criminal investigations.
The Company provides financial incentives to recruit physicians into
the communities served by its hospitals, including loans and minimum revenue
guarantees. The Company also enters into certain leases with physicians and is a
party to certain joint ventures with physicians. There can be no assurance that
regulatory authorities who enforce the anti-kickback law, the Stark law and
similar state and federal laws will not determine that the Company's physician
recruiting activities, other physician arrangements or group purchasing
activities violate the anti-kickback law or other federal laws. Such a
determination could subject the Company to liability. DHHS has the authority to
exclude from participation in the Medicare and Medicaid programs those
individuals and entities that engage in defined prohibited activities,
including, but not limited to, violations of state or federal law. DHHS also has
the authority to impose substantial civil monetary penalties for certain
prohibited activities, including those activities prohibited by the
anti-kickback law and the Stark law.
Health Care Regulation. The health care industry is subject to
extensive federal, state and local laws and regulations relating to issues such
as licensure, conduct of operations, ownership of facilities, additional
facilities and services, and prices for services. Such laws and regulations are
extremely complex, and in many instances the industry has the benefit of little
or no regulatory or judicial interpretation. The laws, rules and regulations
governing the health care industry are subject to considerable interpretation
and considerable discretion on the part of regulators and courts. If a
determination is made that the Company is in violation of such laws, rules or
regulations, or if further changes in the regulatory framework occur, any such
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determination or changes could have a material adverse effect on the Company's
business, financial condition and results of operations.
Both federal and state government agencies have announced heightened
and coordinated civil and criminal enforcement efforts against health care
providers and other health care businesses. One federal initiative, Operation
Restore Trust, focused on investigating health care providers in the home health
and nursing home industries as well as medical suppliers to these providers in
17 states, including six states (Georgia, Mississippi, Missouri, Texas,
Tennessee and Washington) in which the Company operates and a form of this
initiative is still in place. The OIG and DOJ from time to time establish
enforcement initiatives that focus on specific billing practices or other
suspected areas of abuse. Current initiatives include a focus on hospital
billing for outpatient charges associated with inpatient services, as well as
hospital laboratory billing practices. Three of the Company's hospitals have
been the subject of enforcement efforts as discussed in Item 3.
Effect of Reimbursement and Payment Policies; Health Care Reform
Legislation. The Company's hospitals derive a substantial portion of their
revenue from governmental programs. Such programs are highly regulated and are
subject to frequent and substantial changes. In recent years, changes in
Medicare and Medicaid programs have resulted in limitations on, and reduced
levels of, payment and reimbursement for a substantial portion of hospital
procedures and costs. The Balanced Budget Act of 1997 includes significant
additional reductions in spending levels for the Medicare and Medicaid programs.
These include, among others, payment reductions directly affecting hospitals,
establishment of prospective payment systems under Medicare for skilled nursing
facilities, home health agencies and hospital outpatient procedures. This
legislation also repealed the federal payment standard (the "Boren Amendment")
for hospitals and nursing facilities under Medicaid, increasing states'
discretion over the administration of Medicaid programs.
Federal and state proposals are pending that would impose further
limitations on governmental payments to health care providers such as the
Company and increase patient co-payments and deductibles. A number of states are
considering legislation designed to reduce their Medicaid expenditures and to
provide universal coverage and additional care for certain populations and/or to
impose additional taxes on hospitals to help finance or expand the states'
Medicaid programs. An increasing number of related legislative proposals have
been introduced or proposed in Congress and in some state legislatures that
would effect major structural reforms in the health care system, either
nationally or at the state level. While the Company anticipates that payments to
hospitals will be reduced as a result of future federal and state legislation,
it is uncertain at this time what health care reform legislation may ultimately
be enacted, if any, or whether other changes in the administration or
interpretation of governmental health care programs will occur. There can be no
assurance that future health care legislation or other changes in the
administration or interpretation of governmental health care programs will not
have a material adverse effect on the Company's business, financial condition
and results of operations. Significant additional reductions in payment levels
could have a material adverse effect on the business, financial condition and
results of operations of the Company.
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Dependence on Physicians and Other Health Care Professionals. The
success of the Company's hospitals is largely dependent upon the number and
quality of the physicians representing various specialties on the hospitals'
medical staffs. The Company is also largely dependent on the maintenance of good
relations between the Company and such physicians. Hospital physicians are
generally not employees of the Company and most staff physicians have admitting
privileges at hospitals other than those of the Company. Only a limited number
of physicians are interested in practicing in the non-urban communities in which
some of the Company's hospitals are located, and the loss of physicians in these
communities, or the inability of the Company to recruit physicians to these
communities, could have a material adverse effect on the Company's business,
financial condition and results of operations. The operations of the Company's
hospitals may also be affected by difficulties in attracting and retaining
nurses and certain other health care professionals in these communities.
Year 2000 Compliant Information Systems. Many currently installed
computer systems and software products are coded to accept only two-digit
entries in the date code field. By the year 2000, these date code fields will
need to accept four-digit entries to distinguish 21st century dates from 20th
century dates. Computer systems that do not accept four-digit entries could fail
or produce erroneous results and cause disruptions of operations. As a result,
many software and computer systems may need to be upgraded or replaced in order
to comply with such "Year 2000" requirements. The Company has completed the
conversion of nine of its hospitals to a new management information system in
March 1999 and expects the remaining two hospitals to be converted by October
1999. The provider of the management information system has represented to the
Company that the new system is Year 2000 compliant and the Company has done some
initial testing of the system to verify its compliance. The failure of the
Company's management information system to be Year 2000 compliant could have a
material adverse effect on the Company's business, financial conditions and
results of operations.
Various clinical and non-clinical equipment currently in use at the
Company's hospitals are also subject to Year 2000 issues. The Company is
examining such equipment in conjunction with its suppliers. The failure of such
equipment to be Year 2000 compliant could have a material adverse effect on the
Company's business, financial condition and results of operations.
In addition, the Company has ongoing relationships with third-party
payors, suppliers, vendors, and others that may have computer systems with Year
2000 problems that the Company does not control. There can be no assurance that
the fiscal intermediaries and governmental agencies with which the Company
transacts business and which are responsible for payment to the Company under
the Medicare and Medicaid programs, as well as other payors, will not experience
significant problems with Year 2000 compliance. According to testimony before a
U.S. House of Representatives subcommittee, the DHHS is far behind in remedying
Year 2000 problems, which could delay payment of claims to providers. The
failure of third parties to remedy Year 2000 problems could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Competition. Competition among hospitals and other health care
providers in the United States has intensified in recent years due to cost
containment pressures, changing technology,
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changes in government regulation and reimbursement, changes in practice patterns
(such as shifting from inpatient to outpatient treatments), the impact of
managed care organizations and other factors. The Company's hospitals face
competition for patients from larger tertiary care centers, outpatient service
providers and other local non-urban hospitals that provide similar services to
those offered by the Company's hospitals. Some of the hospitals that compete
with the Company have greater financial resources and/or are owned by
governmental agencies or not-for-profit corporations supported by endowments and
charitable contributions, and can finance capital expenditures on tax-exempt
basis.
Need for Additional Capital. The operations of the Company's hospitals
require ongoing capital expenditures for renovation, expansion and addition of
costly medical equipment and technology. The Company may incur indebtedness and
may issue, from time to time, debt or equity securities to fund any such
expenditures. There can be no assurance that sufficient financing will be
available on terms satisfactory to the Company, if at all.
Risks Related to Intangible Assets. The Company's acquisitions have
resulted in the recording of a significant amount of goodwill. As of March 31,
1999, the Company had goodwill of approximately $41.9 million, which is being
amortized over 40 years. There can be no assurance that the value of goodwill or
other intangible assets will ever be realized by the Company. The Company
periodically reviews the recoverability of its intangible assets. Recoverability
of intangibles is determined based on the undiscounted future operating cash
flows from the related hospital. The amount of impairment, if any, that may
require an additional change to earnings, is measured based on discounted future
operating cash flows using a discount rate reflecting the Company's average cost
of funds or based on the fair value of the related hospital. The write-off of a
significant portion of unamortized intangible assets could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Professional Liability. In recent years, physicians, hospitals and
other health care providers have become subject to an increasing number of
lawsuits alleging malpractice, product liability or related legal theories, many
of which involve large claims and significant defense costs. To cover certain
claims arising out of the operations of its hospitals, the Company maintains
professional malpractice liability insurance and general liability insurance in
amounts that management believes to be sufficient for its operations. However,
some claims may exceed, or may not be covered by the policy in effect. The cost
of malpractice and other liability insurance has risen significantly during the
past few years. While the Company's professional and other liability insurance
has been adequate in the past to provide for liability claims, there can be no
assurance that adequate levels of such insurance will continue to be available
at reasonable cost to the Company.
Labor Unions; Potential Work Stoppage. Approximately 235 employees at
the Company's hospital located at Davenport, Iowa are represented by a labor
union. In addition, approximately 210 employees at Puget Sound Hospital are
represented by labor unions. In April 1999, approximately 65 registered nurses
at Eastmoreland voted to be represented by a union. The company and the union
have not entered into any negotiations. There can be no assurance that the
Company will be able to renew existing labor union contracts on acceptable
terms. In
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addition, employees could exercise their rights under labor union
contracts, which could include a strike or walk-out. In such cases, there are no
assurances that the Company would be able to staff sufficient employees for its
short-term needs. Any such labor strike or the inability of the Company to
negotiate a satisfactory contract upon expiration of the current agreements
could have a material adverse effect on the Company's business, financial
condition or results of operations.
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ITEM 2. PROPERTIES
The Company's corporate headquarters occupy approximately 13,940 square
feet leased at 109 Westpark Drive, Suite 440, Brentwood, Tennessee. The lease
has a remaining term of two years with base monthly rent of $20,227.
The following table sets forth certain information with respect to each
of the Company's hospitals:
<TABLE>
<CAPTION>
Date of Licensed Hospital
Acquisition Beds Owned/leased
----------- -------- ------------
<S> <C> <C> <C>
Doctors Hospital 8/1/96 94 owned
Wentzville, MO
Memorial Hospital of Center 5/1/97 54 owned
Center, TX
Delta Medical Center -- Memphis 5/16/97 243 owned
Memphis, TN
Dolly Vinsant Memorial Hospital 8/1/97 81 owned
San Benito, TX
Davenport Medical Center 2/1/98 149 owned
Davenport, IA
Lander Valley Medical Center(1) 2/1/98 102 leased
Lander, WY
Woodland Park Hospital(2) 2/1/98 209 leased
Portland, OR
Eastmoreland Hospital 2/1/98 100 owned
Portland, OR
Puget Sound Hospital 9/1/98 160 owned
Tacoma, WA
Memorial Hospital of Adel 11/1/98 60 owned
Adel, GA
Crosby Memorial Hospital(3) 11/1/98 95 leased
Picayune, MS
</TABLE>
- -------------------------------
(1) The Lander Valley Medical Center is subject to a ground lease from the
City of Lander, Wyoming, which expires December 31, 2073, with no
option to renew. The current annual rent is $4,208. The Company is
responsible for paying real estate taxes assessed against the
buildings, personal property taxes and license taxes.
(2) Woodland Park Hospital is leased pursuant to a lease, which expires
December 31, 2029 with no option to renew. The current rental is
$28,114 per month with a 3% annual increase each January 1. The Company
is responsible for paying all operating expenses including all real and
personal property taxes and assessments, insurance utilities and repair
costs.
(3) Crosby Memorial Hospital is leased pursuant to a long-term lease, which
expires upon completion of a replacement hospital. At the time of
purchase, a prepaid lease payment was made for the entire term of the
lease.
24
<PAGE> 26
ITEM 3. LEGAL PROCEEDINGS
The Company is, from time to time, subject to claims and suits arising
in the ordinary course of business, including claims for damages for personal
injuries, breach of contracts or for wrongful restriction of or interference
with physician's staff privileges. In certain of these actions, plaintiffs
request punitive or other damages that may not be covered by insurance. The
Company is currently not a party to any proceeding which, in management's
opinion, would have a material adverse effect on the Company's business,
financial condition or results of operations.
RECENT INVESTIGATIONS
In April 1997, the DOJ, Eastern District of Texas, sent a demand letter
to the Company's hospital in Center, Texas, alleging improper laboratory billing
practices during periods prior to the Company's ownership of the hospital. The
Company settled this claim for approximately $18,000, and recovered its
settlement costs for this claim form the prior owner of the hospital pursuant to
an indemnification agreement.
In September 1997, the DOJ, Southern District of Texas, sent a demand
letter to the Company's hospital in San Benito, Texas alleging improper
laboratory billing for periods prior to the Company's ownership. The DOJ has
offered to settle the claim for approximately $20,000. The Company will seek
indemnification from prior owners for any liabilities with respect to this
matter and such prior owners have acknowledged their responsibility. The prior
owners are in the process of appealing the proposed settlement.
In November 1997, DOJ, Eastern District of Missouri, sent a demand
letter to the Company's hospital in Wentzville, Missouri alleging improper
laboratory billing practices from 1991 to 1997. On April 29, 1999, the Company
entered into a settlement agreement with the Department of Health and Human
Services whereby the Company paid $178,998, of which $158,580 was paid by the
previous owner pursuant to an indemnification agreement entered into as part of
its purchase of the hospital.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
25
<PAGE> 27
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The common stock of the Company is traded on the New York Stock
Exchange ("NYSE") under the designation "NAH." The following table sets forth
the high and low sales price of the common stock for each quarter since the
Company began trading on the NYSE in August 1998.
<TABLE>
<CAPTION>
SALES PRICE
-----------
FISCAL PERIOD HIGH LOW
------------- ------- ------
<S> <C> <C>
Quarter ended September 30, 1998 $13.063 $9.813
Quarter ended December 31, 1998 $11.625 $8.813
Quarter ended March 31, 1999 $11.188 $1.813
</TABLE>
On June 15, 1999, there were approximately 59 holders of record of the
common stock and the closing bid quotation for the common stock was $2.50 per
share, as reported by the NYSE.
The Company has not paid cash dividends on its common stock and
anticipates that, for the foreseeable future, any earnings will be retained for
use in its business and no cash dividends will be paid. The Company is
prohibited from issuing dividends under its Bank Credit Facility. See -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data have been derived
from the audited consolidated financial statements of the Company and its
subsidiaries as of March 31, 1996 and the period from August 16, 1995
(inception) through March 31, 1996 and as of and for the years ended March 31,
1997, 1998 and 1999. The data set forth below should be read in conjunction with
the Consolidated Financial Statements and related Notes and "Management's
Discussion and Analysis of Financial condition and Results of Operations"
included herein.
26
<PAGE> 28
<TABLE>
<CAPTION>
YEARS ENDED PERIOD
MARCH 31, AUGUST 16, 1995
------------------------------------ (INCEPTION) TO
1999 1998 1997 MARCH 31, 1996
---------- --------- ------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Net patient service revenue $ 167,509 $ 73,725 $ 10,737 $ --
Other revenue 4,331 1,924 350 17
--------- -------- -------- ----------
Net operating revenues 171,840 75,649 11,087 17
Expenses:
Salaries and benefits 78,020 31,276 4,117 --
Professional fees 23,375 8,608 620 --
Supplies 19,536 8,314 1,439 --
Provision for doubtful accounts 13,878 7,837 534 --
General and administrative 4,132 3,484 1,871 385
Transition and other related costs 906 -- -- --
Other 17,475 9,286 2,377 --
Depreciation and amortization 6,677 2,836 783 5
Interest 6,716 2,637 363 1
--------- -------- -------- ----------
170,715 74,278 12,104 391
--------- -------- -------- ----------
Income (loss) before income taxes
and extraordinary item 1,125 1,371 (1,017) (374)
Income taxes 463 579 67 --
--------- -------- -------- ----------
Income (loss) before extraordinary item 662 792 (1,084) (374)
Extraordinary item - loss on early extinguishment
of debt (net of tax of $89,000) 134 -- -- --
--------- -------- -------- ----------
Net income (loss) 528 792 (1,084) (374)
Cumulative preferred dividend 710 617 -- --
--------- -------- -------- ----------
Net income (loss) attributable to common
stockholders $ (182) $ 175 $ (1,084) $ (374)
========= ======== ======== ==========
Net income (loss) per share:
Basic:
Continuing operations $ (0.00) $ 0.02 $ (0.13) $ (0.08)
Extraordinary item (0.01) -- -- --
--------- -------- -------- ----------
$ (0.01) $ 0.02 $ (0.13) $ (0.08)
========= ======== ======== ==========
Diluted:
Continuing operations $ (0.00) $ 0.01 $ (0.13) $ (0.08)
Extraordinary item (0.01) -- -- --
--------- -------- -------- ----------
$ (0.01) $ 0.01 $ (0.13) $ (0.08)
========= ======== ======== ==========
Weighted average number of shares and
dilutive share equivalents outstanding:
Basic 14,026 8,406 8,406 4,983
Diluted 14,026 13,212 8,406 4,983
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
AS OF MARCH 31,
1999 1998 1997 1996
-------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working capital 26,638 15,306 522 1,043
Total assets 219,764 134,193 19,220 1,164
Long-term obligations, excluding
current portion 108,799 67,184 975 24
Redeemable preferred stock -- 25,617 -- --
Total stockholders' equity 81,843 23,915 15,005 1,088
</TABLE>
28
<PAGE> 30
Quarterly financial information for the years ended March 31, 1999 and
1998 is summarized below:
<TABLE>
<CAPTION>
Quarters
----------------------------------------------
1st 2nd 3rd 4th
------- ------- ------- --------
(In thousands except per share data)
<S> <C> <C> <C> <C>
1999
Net operating revenue 35,898 37,962 48,155 49,825
Income (loss) before income taxes and
extraordinary item 523 1,481 1,988 (2,867)
Net income (loss) attributable to common
stockholders (123) 481 1,193 (1,733)
Net income (loss) per share:
Basic:
Continuing operations $ (0.02) $ 0.05 $ 0.07 $ (0.10)
Extraordinary item -- (0.01) -- --
------- ------- ------- --------
$ (0.02) $ 0.04 $ 0.07 $ (0.10)
======= ======= ======= ========
Diluted:
Continuing operations $ (0.02) $ 0.04 $ 0.07 $ (0.10)
Extraordinary item -- (0.01) -- --
------- ------- ------- --------
$ (0.02) $ 0.03 $ 0.07 $ (0.10)
======= ======= ======= ========
1998
Net operating revenue 9,862 16,775 18,859 30,153
Income (loss) before income taxes (221) 540 661 391
Net income (loss) attributable to common
stockholders (263) 355 334 (251)
Net income (loss) per share:
Basic (0.03) 0.04 0.04 (0.03)
Diluted (0.03) 0.03 0.03 (0.03)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
Certain statements in this Report constitute forward-looking
statements. Such forward-looking statements (which may be identified by words
such as "anticipate," "believe," "estimate," "expect," "intend" and similar
expressions) involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance or achievements of the Company or
industry results to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others: general economic and business conditions, both
nationally and in regions where the Company operates; demographic changes; the
effect of existing or future governmental regulation and federal and state
legislative and enforcement initiatives affecting the Company's business,
29
<PAGE> 31
including the Balanced Budget Act of 1997; changes in Medicare and Medicaid
reimbursement levels; the Company's ability to implement successfully its
business strategy and changes in such strategy; the availability and terms of
financing to fund the operation of the Company's business; the Company's ability
to attract and retain qualified management personnel and to recruit and retain
physicians and other health care personnel to the non-urban markets it serves;
the effect of managed care initiatives on the non-urban markets served by the
Company's hospitals and the Company's ability to enter into managed care
provider arrangements on acceptable terms; the effect of liability and other
claims asserted against the Company; the effect of competition in the markets
served by the Company's hospitals; and other factors referenced in this Report.
Certain of these factors are discussed in more detail elsewhere in this Report.
There can be no assurance that the forward-looking statements included in this
Report will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.
OVERVIEW
New American acquires and operates acute care hospitals throughout the
United States. The Company was formed to capitalize on opportunities to be the
principal provider of health care services in those non-urban communities which
it targets.
The Company acquired its first hospital in August 1996 and through
March 1999 has acquired ten additional hospitals. These eleven acute care
hospitals are located in nine states and have a total of 1,347 licensed beds.
IMPACT OF ACQUISITIONS
Because of the financial impact of the Company's recent acquisitions,
it is difficult to make meaningful comparisons between the Company's financial
statements for the fiscal periods presented. In addition, due to the relatively
small number of hospitals currently operated, each hospital can materially
affect the overall operating margins of the Company. Upon the acquisition of a
hospital, the Company typically takes a number of steps intended to lower
operating costs. The impact of such actions may be offset by the cost of revenue
enhancing initiatives such as expanding services, strengthening medical staff,
and improving market position. The benefits of these investments and of other
activities to improve operating margins generally do not occur immediately.
Consequently, the financial performance of a newly acquired hospital may
initially have an adverse effect on the Company's overall operating margins.
In August 1996, the Company acquired Doctors Hospital in Wentzville,
Missouri in an asset purchase transaction for $14.0 million. In May 1997, the
Company acquired Memorial Hospital of Center, Center, Texas in a stock purchase
transaction for $11.5 million. Also in May 1997, the Company purchased Eastwood
Hospital, Memphis, Tennessee (later renamed Delta Medical Center - Memphis) in
an asset purchase transaction for $13.3 million. In August 1997, the Company
acquired Dolly Vinsant Memorial Hospital, San Benito, Texas in an asset purchase
30
<PAGE> 32
for $8.1 million. In January 1998, the Company acquired in a single transaction
the assets of Lander Valley Medical Center, Lander, Wyoming; Davenport Medical
Center, Davenport, Iowa; Woodland Park Hospital, Portland, Oregon; and
Eastmoreland Hospital, Portland, Oregon for an aggregate purchase price of
approximately $57.0 million. Lander Valley Medical Center is built on property
subject to a ground lease from the City of Lander, which expires December 31,
2073. Woodland Park Hospital is leased pursuant to a long-term lease, which
expires December 31, 2029.
Effective September 1, 1998, the Company acquired Puget Sound Hospital,
Tacoma, Washington, for approximately $27.9 million. The acquisition of Puget
Sound Hospital was accounted for as a purchase business combination and included
the acquisition of certain net assets and the assumption of certain liabilities.
To finance the Puget Sound Hospital acquisition, the Company borrowed $28.5
million under its revolving credit facility.
Effective November 1, 1998, the Company acquired the assets of Crosby
Memorial Hospital, in Picayune, Mississippi, for approximately $18.5 million.
Crosby Memorial Hospital is leased pursuant to a long-term lease, which expires
upon completion of a replacement hospital. To finance the Crosby Memorial
Hospital acquisition, the Company borrowed $18.8 million under its revolving
credit facility.
Effective November 1, 1998, the Company acquired Memorial Hospital of
Adel, in Adel, Georgia, for approximately $16.5 million. The acquisition of
Memorial Hospital of Adel was accounted for as a purchase business combination.
To finance the Memorial Hospital of Adel acquisition, the Company borrowed $18.0
million under its revolving credit facility.
The operating results of each of the above acquisitions are included in
the Company's results of operations from the respective dates of purchase.
RESULTS OF OPERATIONS
Net operating revenue is comprised of net patient service revenue and
other revenue. Net patient service revenue is reported net of contractual
adjustments and policy discounts. The adjustments principally result from
differences between the hospitals' customary charges and payment rates under the
Medicare and Medicaid programs and other third-party payors. Customary charges
have generally increased at a faster rate than the rate of increase for Medicare
and Medicaid payments. Other revenue includes cafeteria sales, medical office
building rental income and other miscellaneous revenue. Operating expenses
primarily consist of hospital related costs of operation and include salaries
and benefits, professional fees (includes medical professionals and consulting
services), supplies, provision for doubtful accounts, and other operating
expenses (principally consisting of utilities, insurance, property taxes,
travel, freight, postage, telephone, advertising, repairs and maintenance).
General and administrative expenses primarily relate to corporate overhead.
31
<PAGE> 33
The following table presents, for the periods indicated, information
expressed as a percentage of net operating revenue. Such information has been
derived from the Consolidated Statements of Operations of the Company included
elsewhere in the report.
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net operating revenue 100.0% 100.0% 100.0%
Operating expenses before depreciation
and amortization and interest 91.6% 91.0% 98.2%
------------------------------
EBITDA(1) 8.4% 9.0% 1.8%
Depreciation and amortization 3.9% 3.7% 7.2%
Interest 3.9% 3.4% 3.6%
------------------------------
Income (loss) before income taxes and
extraordinary item 0.6% 1.9% (9.0%)
Income taxes 0.2% 0.8% 0.9%
------------------------------
Income (loss) before extraordinary item 0.4% 1.1% (9.9%)
Extraordinary item 0.1% 0.0% 0.0%
------------------------------
Net income (loss) 0.3% 1.1% (9.9%)
Cumulative preferred dividend 0.4% 0.8% 0.0%
------------------------------
Net income (loss) attributable to common
stockholders (0.1%) 0.3% (9.9%)
==============================
</TABLE>
- ------------
(1) EBITDA represents the sum of income before income tax expense,
interest, and depreciation and amortization. Management understands
that industry analysts generally consider EBITDA to be one measure of
the financial performance of a company that is presented to assist
investors in analyzing the operating performance of the company and its
ability to service debt. Management believes that an increase in EBITDA
level is an indicator of the Company's improved ability to service
existing debt, to sustain potential future increases in debt and to
satisfy capital requirements. However, EBITDA is not a measure of
financial performance under generally accepted accounting principles
and should not be considered an alternative (i) to net income as a
measure of operating performance or (ii) to cash flows from operating,
investing, or financing activities as a measure of liquidity. Given
that EBITDA is not a measurement determined in accordance with
generally accepted accounting principles and is thus susceptible to
varying calculation, EBITDA, as presented, may not be comparable to
other similarly titled measures of other companies.
32
<PAGE> 34
Year ended March 31, 1999 compared to year ended March 31, 1998
Net operating revenue was $171.8 million for the year ended March 31,
1999, compared to $75.6 million for the comparable period of 1998, an increase
of $96.2 million or 127.2%. Net operating revenue for the hospitals owned during
both years ended March 31, 1999 and 1998, for the same months owned in each
period, was $71.9 and $75.6 million, respectively. This decrease is primarily
due to managed care pricing pressures in three markets, lower-than-expected
volume growth and a slow down in physician recruitment.
Operating expenses less depreciation and amortization and interest were
$157.3 million, or 91.6% of net operating revenue, for the year ended March 31,
1999 compared to $68.8 million, or 91.0% of net operating revenue, for the
comparable period of 1998. Operating expenses less depreciation and amortization
and interest for the hospitals owned during both years ended March 31, 1999 and
1998, for the same months owned in each period, was $70.0 and $68.8 million,
respectively. This increase is primarily due to $0.9 million of transition and
other related costs during the year ended March 31, 1999 relating to one-time
charges for transitioning a new Chief Executive Officer. The Company expects to
incur approximately $0.5 of severance and other related costs during the quarter
ended June 30, 1999 related primarily to personnel changes in connection with
restructuring the corporate office.
Depreciation and amortization expense was $6.7 million for the year
ended March 31, 1999, compared to $2.8 million for the comparable period of
1998, an increase of $3.9 million or 139.3%. The increase is primarily due to an
increase in depreciation expense relating to acquisitions and a $10.1 million
increase in capital expenditures, excluding acquisitions, for the year ended
March 31, 1999.
Interest expense was $6.7 million for the year ended December 31, 1999,
compared to $2.6 million for the comparable period of 1998, an increase of $4.1
million or 157.7%. The increase was due to the increase in average outstanding
indebtedness associated with the eight hospitals owned during the entire year
ended March 31, 1999 versus only one of the Company's hospitals having been
owned for the entire comparable period of 1998. The average debt outstanding for
the year ended March 31, 1999 and 1998 was $54.9 and $20.7 million,
respectively, bearing interest at a rate of 7.1% and 6.9% at the end of each
respective period.
The $0.1 million extraordinary item for the year ended March 31, 1999
related to the early retirement of the subordinated debt in August 1998.
Year ended March 31, 1998 compared to year ended March 31, 1997
Net operating revenue was $75.6 million for the year ended March 31,
1998 compared to $11.1 million for the comparable period of 1997, an increase of
$64.5 million or 581.1%. The majority of the increase was due to an increase in
net patient service revenue to $73.7 million for the year ended March 31, 1998,
compared to $10.7 million for the year ended March 31, 1997, an increase of
$63.0 million. Other revenue was $1.9 million for the year ended March 31, 1997,
33
<PAGE> 35
compared to $0.4 million for the comparable period of 1997, an increase of $1.5
million. The increase primarily reflects the acquisition of seven hospitals
during the year ended March 31, 1998 and the fact that Doctors Hospital was
owned for the entire year ended March 31, 1998 versus eight months for the
comparable period of 1997.
Operating expenses less depreciation and amortization and interest were
$68.8 million, or 91.0% of net operating revenue, for the year ended March 31,
1998 compared to $11.0 million or 98.2% of net operating revenue for the
comparable period of 1997. The increase primarily reflects the acquisition of
seven hospitals during the year ended March 31, 1998 and the fact that Doctors
Hospital was owned for the entire year ended March 31, 1998 versus eight months
for the comparable period of 1997.
Depreciation and amortization expense was $2.8 million for the year
ended March 31, 1998 compared to $0.8 million for the comparable period of 1997,
an increase of $2.0 million or 250.0%. The increase is due to the additional
depreciation and amortization expense associated with the seven hospitals
acquired during the year ended March 31, 1998.
Interest expense was $2.6 million for the year ended March 31, 1998,
compared to $0.4 million for the comparable period of 1997, an increase of $2.2
million or 550.0%. The increase was due to the increase in average outstanding
indebtedness associated with the acquisition of seven hospitals during the year
ended March 31, 1998.
Income taxes were $0.6 million for the year ended March 31, 1998,
compared to $0.1 for the comparable period of 1997, an increase of $0.5 million
or 500.0%. Income tax expense in 1997 related to state taxes for the one owned
hospital. For 1998, taxes relate to both federal and state taxes at a combined
rate of 42%.
During the year ended March 31, 1998, the company issued the Series A
Preferred Stock and accrued a cumulative preferred dividend of $0.6 million.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had working capital of $26.6 million
including cash and cash equivalents of $6.0 million. The ratio of current assets
to current liabilities was 2.0 to 1.0 at March 31, 1999 and 1.9 to 1.0 for the
comparable period of 1998.
On August 20, 1998, the Company completed its initial public offering
("IPO") of common stock, selling five million shares at $13.00 per share netting
the Company approximately $58.0 million. Net proceeds of the offering were used
to pay dividends on and to redeem all of the Series A preferred stock ($26.3
million), to pay interest on and prepay all of the subordinated debt ($26.4
million) and to reduce indebtedness under the Company's revolving credit
facility ($5.0 million). Concurrent with the IPO, the then outstanding Series B
convertible preferred stock was converted into 1.4 million and 2.8 million
shares of non-voting and voting common stock, respectively.
34
<PAGE> 36
On May 14, 1999, the Company amended and restated its revolving credit
agreement. The credit agreement has a revolving credit limit of $116.0 million.
Borrowings under the facility bear interest of (i) a base rate equal to the
greater of the Prime Rate or the Federal Funds rate, plus in either case, a
margin of up to 2.75% or (ii) London Interbank Offered Rate as of the date of
borrowing plus a margin of up to 4%. The applicable margin is determined by a
ratio of indebtedness to EBITDAR, as defined in the Credit Agreement, calculated
on a monthly basis. The facility is due and payable November 30, 2002, with a
required permanent reduction of $12.0 and $8.0 million by October 31, 1999 and
2000, respectively. Additionally, the Company is required to pay down
outstanding indebtedness upon the sale of any facilities and beginning with the
year ended March 31, 2000, by the amount of any excess cash flow for the year,
as defined within the agreement, less $4.0 million of cash and cash equivalents
to be maintained by the Company. At March 31, 1999, $103.3 million of the Credit
Facility was drawn, an increase of $65.7 million from March 31, 1998. The
increase was related to the acquisition of Puget Sound Hospital, Crosby Memorial
Hospital, and Memorial Hospital of Adel, offset in part by a reduction in debt
from the application of IPO proceeds. At March 31, 1999, the average borrowing
rate on the Credit Facility was 7.1%.
Cash flows provided by operating activities were $0.4 million for the
year ended March 31, 1999 compared to cash flows provided by operating
activities of $3.8 million for the comparable period of 1998. Cash used by
investing activities was $72.0 million for the year ended March 31, 1999,
primarily related to the acquisition of Puget Sound Hospital, Crosby Memorial
Hospital, and Memorial Hospital of Adel. Cash used by investing activities was
$92.5 million for the year ended March 31, 1998, primarily related to the
acquisitions of Memorial Hospital of Center, Delta Medical Center - Memphis,
Dolly Vinsant Memorial Hospital, Lander Valley Medical Center, Davenport Medical
Center, Woodland Park Hospital and Eastmoreland Hospital. Net cash provided by
financing activities was $71.4 million for the year ended March 31, 1999,
primarily from the IPO and borrowings related to the acquisition of Puget Sound
Hospital, Crosby Memorial Hospital, and Memorial Hospital of Adel, net of
repayment of subordinated debt and redemption of preferred stock. Net cash
provided by financing activities was $94.2 million for the year ended March 31,
1998, primarily from bank borrowings related to the acquisitions of Memorial
Hospital of Center, Delta Medical Center - Memphis, Dolly Vinsant Memorial
Hospital, Lander Valley Medical Center, Davenport Medical Center, Woodland Park
Hospital and Eastmoreland Hospital as well as the issuance of preferred stock.
The Company continually reviews its capital needs and financing
opportunities and may seek additional equity or debt financing for these or
other needs. There can be no assurance that the Company will not require
additional debt or equity financing or that such financing will be available on
acceptable terms for any particular acquisition. The Company is exploring the
sale of up to three hospitals during fiscal year 2000 and may incur losses on
the sale of the hospitals. The funds provided by any dispositions will be used
to pay down outstanding indebtedness on the revolving credit facility.
Capital expenditures, excluding acquisitions, for the year ended March
31, 1999 and 1998 were $13.0 million and $2.9 million, respectively. Capital
expenditures related to management information systems ("MIS") (both financial
and clinical) were approximately $4.8 million for
35
<PAGE> 37
the year ended March 31, 1999. Capital expenditures for the Company's hospitals
will vary from year to year depending on facility improvements and service
enhancements undertaken. The Company expects to fund fiscal year 2000 capital
needs with excess operating cash flows and borrowings from the revolving credit
facility.
The Company is obligated to build a new, replacement facility for
Crosby Memorial Hospital within 36 months of the November 1, 1998 acquisition
date. If the Company fails to meet this commitment, the Company must purchase
the existing facility for $15.0 million.
YEAR 2000 ISSUES
Many currently installed computer systems and software products are
coded to accept only two-digit entries in the date code field. By the year 2000,
these date code fields will need to accept four-digit entries to distinguish
21st century dates from 20th century dates. These products include software
applications running on desktop computers and network servers as well as in
microchips and microcontrollers incorporated into equipment. Certain of the
Company's computer hardware and software, building infrastructure components
(e.g. alarm systems and HVAC systems) and medical devices that are date
sensitive, may contain programs with the Year 2000 problem. Computer systems,
which do not include four-digit entries, could fail or produce erroneous results
causing disruptions of operations or affect patient diagnosis and treatment. As
a result, many software and computer systems may need to be upgraded or replaced
in order to comply with such Year 2000 requirements.
Status of the Company's Year 2000 Compliance
MIS. The Company is in the process of converting all of its hospitals
to a new management information system (MIS), which it believes is Year 2000
compliant. As of March 31, 1999, nine of the Company's eleven hospitals had been
converted to the new system. The Company expects the remaining two hospitals to
be converted by October 1999. The provider of the MIS has represented to the
Company that the new system is Year 2000 compliant and the Company's testing of
the system has not indicated any material Year 2000 noncompliance.
Non-MIS Equipment. Various clinical and nonclinical equipment currently
in use at the Company's hospitals incorporate time/date elements. The Company
has substantially completed an itemized inventory of all of its hospitals and
identified substantially all equipment with potential Year 2000 problems. The
Company believes it will have completed this process and established a time
frame for repairing or replacing any non-compliant equipment by September 30,
1999. The Company is also in the process of contracting its group purchasing
agent to determine any Year 2000 compliance problems with respect to its sources
of supplies. The Company has not received sufficient information from its group
purchasing agent to determine any Year 2000 compliance problems with respect to
its sources of supplies or to establish an estimated date for completing
subsequent phases with respect to its supplies. In addition, the Company has
established a plan to inventory the infrastructure in each of its hospitals to
36
<PAGE> 38
determine any Year 2000 compliance problems. The Company expects to complete its
Year 2000 compliance plan with respect to the hospital's infrastructure by
December 31, 1999.
Third Party Relationships. In addition, the Company has ongoing
relationships with thirdparty suppliers, vendors, payors and others, which may
have computer systems with Year 2000 compliance problems that the Company does
not control. Medicare is a significant source of revenues to the Company.
According to the Health Care Financing Administration ("HCFA") web page, the
Medicare program will be ready to process acceptable claims in the Year 2000.
However, there can be no assurance that the fiscal intermediaries and
governmental agencies with which the Company transacts business and which are
responsible for payment to the Company under Medicare and Medicaid programs, as
well as other payors, will not experience problems with Year 2000 compliance. In
addition, the Company depends upon other vendors such as utilities, which
provide electricity, water, natural gas and telephone services and vendors of
medical supplies and pharmaceuticals used in patient care. As a part of its Year
2000 strategy, the Company intends to seek assurances from these parties that
their services and products will not be interrupted or malfunction due to the
Year 2000 problem and expects to complete the initial contacting of these
parties by September 30, 1999. The failure of such third parties to remedy Year
2000 problems could have a material adverse effect on the Company's business,
financial condition and results of operations and ability to provide health care
services.
Costs of Year 2000 Compliance
The Company expects to make capital expenditures of approximately $7.5
million which includes (i) approximately $6.3 million for the new MIS software
and hardware, of which $4.8 million was expended in fiscal year 1999, and (ii)
certain non-MIS costs associated with Year 2000 compliance. The Company does not
expect to incur any other additional material Year 2000 compliance costs. The
failure of the Company's MIS to be Year 2000 compliant could have a material
adverse effect on the Company's business, financial conditions and results of
operations.
Risks Related to Year 2000 Issues
The Company believes that it will be able to resolve its Year 2000
compliance problems before December 31, 1999; however, the Company has not yet
completed all of the phases of its Year 2000 compliance program. The failure of
the new MIS program, the non-MIS equipment or the hospital infrastructure to be
Year 2000 compliant could have a material adverse effect on the Company's
business, financial condition and results of operations. The failure of any of
the foregoing could result in the Company's inability to diagnose or treat
patients, bill for patient services, or collect payment from patients or
third-party payors. Finally, if there are such disruptions generally in the
economy as a result of Year 2000 compliance problems, such disruptions could
have a material adverse effect on the Company. The Company is unable to estimate
the amount of the potential liability or lost revenue at this time.
37
<PAGE> 39
The Company believes that the most likely worst case scenario of Year
2000 compliance problems is that some third-party payors will not be Year 2000
compliant. The failure of such third-party payors to be Year 2000 compliant
could result in delays and difficulties in receiving payments from such payors
for services provided by the Company. These problems could result from the
inability to file claims with certain payors by electronic filings as well as
such payors inability to process either electronic or paper filings. These
problems could seriously impact the Company's cash flows. The Company intends to
develop a contingency plan to address this scenario. It is expected that such a
plan would involve establishing procedures whereby the Company would revert to
manual billing processes and ensuring access to additional capital in case of
cash flow problems.
Contingency Plans for Year 2000 Issues
The Company intends to complete an initial contingency plan by August
31, 1999. However, in some instances (e.g. loss of water supply), the Company
may not be able to develop contingency plans which allow the affected hospital
to continue to operate. Each of the Company's hospitals has a disaster plan,
which will be reviewed as a part of the Company's contingency planning process.
The foregoing is based on information currently available to the
Company. The Company will revise its strategy as it completes its assessment of
Year 2000 issues. The Company can provide no assurances that applications and
equipment the Company believes to be Year 2000 compliant will not experience
difficulties or that the Company will not experience difficulties obtaining
resources needed to make modifications to or replace the Company's affected
systems and equipment. Failure by the Company or third parties on which it
relies to resolve Year 2000 issues could have a material adverse effect on the
Company's results of operations and its ability to provide health care services.
Consequently, the Company can give no assurances that issues related to Year
2000 will not have a material adverse effect on the Company's financial
condition or results of operations.
ENVIRONMENTAL MATTERS
The Company acquired Puget Sound Hospital in Tacoma, Washington in
September 1999. During its due diligence process, the Company discovered certain
environmental contamination involving underground storage tanks no longer in
use. Environmental consultants have developed a work plan to remediate such
existing contamination which must be approved by the Washington State Department
of Ecology. Once the work plan is approved, remediation may begin. The prior
owner has agreed to fund all costs of such remediation.
Although the Company is not currently aware of any other material
environmental claims pending or threatened against it or any of its hospitals,
no assurances can be given that a material environmental claim will not be
asserted against the Company or against any of its hospitals. The costs of
defending against claims of liability, or of remediating a contaminated
property, could
38
<PAGE> 40
have a material adverse effect on the Company's business, financial condition
and results of operations.
INFLATION
The health care industry is labor intensive. Wages and other expenses
increase, especially during periods of inflation and labor shortages. In
addition, suppliers pass along rising costs to the Company in the form of higher
prices. The Company has generally been able to offset such increases in
operating costs by its cost containment activities and expanding services. In
light of reimbursement measures imposed by government agencies and private
insurance companies, the Company is unable to predict its ability to offset or
control future cost increases, or its ability to pass on the increased costs
associated with providing health care services to patients with government or
managed care payors, unless such payors correspondingly increase reimbursement
rates.
GENERAL
Hospital revenue is received primarily from Medicare, Medicaid and
commercial insurance. The federal Medicare program accounted for approximately
52.4% and 65.7% of hospital patient days for the year ended March 31, 1999 and
1998, respectively. The state Medicaid programs accounted for approximately
16.7% and 16.1% of hospital patient days for the year ended December 31, 1999
and 1998, respectively. The Company's percentage of revenue received from the
Medicare program is expected to increase due to the general aging of the
population. The payment rates under the Medicare program for inpatients are
prospective, based upon the diagnosis of a patient. The Medicare payment rate
increases have historically been less than actual inflation. In addition,
numerous states, insurance companies and employers are actively negotiating
discounts to the Company's standard rates. The trend towards increased managed
care, including a shift in payor mix toward health maintenance organizations,
preferred provider organizations and other managed care payors, may also
adversely affect payment rates for the Company's services and the Company's
ability to achieve targeted growth rates in net patient service revenue.
Both federal and state legislators are continuing to scrutinize the
health care industry for the purpose of reducing health care costs. While the
Company is unable to predict what, if any, future health reform legislation may
be enacted at the federal or state level, the Company expects continuing
pressure to limit expenditures by governmental health care programs. Payments
for Medicare outpatient services provided at acute care hospitals and home
health services historically have been paid based on costs, subject to certain
limits. The Balanced Budget Act of 1997 requires that the payment for those
services be converted to a prospective payment system, which will be phased in
over time. The 1997 Act also includes a managed care option, which could direct
Medicare patients to managed care organizations. Further changes in the Medicare
or Medicaid programs and other proposals to limit health care spending could
have a material adverse impact upon the health care industry and the Company.
39
<PAGE> 41
The Company's acute care hospitals, like most acute care hospitals in
the United States, have significant unused capacity. The result is substantial
competition for patients and physicians. Inpatient utilization continues to be
negatively affected by payor-required pre-admission authorization and by payor
pressure to maximize outpatient and alternative health care delivery services
for less acutely ill patients. The Company expects increased competition and
admission constraints to continue in the future. The ability to respond
successfully to these trends, as well as spending reductions in governmental
health care programs, will play a significant role in determining the hospitals'
ability to maintain their current rate of net revenue growth and operating
margins.
The Company expects the industry trend from inpatient to outpatient
services to continue due to the increased focus on managed care and advances in
technology. Outpatient revenue of the Company's hospitals was approximately
41.4% and 38.5% of gross patient service revenue for the year ended March 31,
1999 and 1998, respectively.
The complexity of the Medicare and Medicaid regulations, increases in
managed care, hospital personnel turnover, the dependence of hospitals on
physician documentation of medical records and the subjective judgment involved
complicates the billing and collections of accounts receivable by hospitals.
There can be no assurance that this complexity will not negatively impact the
Company's future cash flow or results of operations.
The federal government and a number of states are rapidly increasing
the resources devoted to investigating allegations of fraud and abuse in the
Medicare and Medicaid programs. At the same time, regulatory and law enforcement
authorities are taking an increasingly strict view of the requirements imposed
on providers by the Social Security Act and Medicare and Medicaid regulations.
Although the Company believes that it is in material compliance with such laws,
a determination that the Company has violated such laws, or even the public
announcement that the Company was being investigated concerning possible
violations, could have a material adverse effect on the Company.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
133, Accounting for Derivative Instruments and Hedging Activities, which is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
This statement establishes accounting and reporting standards for derivative
instruments, including derivative instruments imbedded in other contracts and
for hedging activities. It requires that entities recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company does not presently have any
derivative financial instruments and does not believe that this statement will
have a material impact on its financial position or results of operations.
40
<PAGE> 42
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates.
At March 31, 1999, the Company has $103.3 million of long-term debt subject to
variable rates of interest. Based on a hypothetical 1% increase in interest
rates, the potential annualized losses in future pretax earnings would be
approximately $1.0 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item is submitted in a separate section
beginning with page F-1.
41
<PAGE> 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors and executive officers of the Company
is incorporated by reference to the Company's definitive proxy statement ("Proxy
Statement") for the annual meeting of stockholders to be held on August 19,
1999.
ITEM 11. EXECUTIVE COMPENSATION
Executive compensation information is incorporated by reference to the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security ownership of certain beneficial owners and management
information is incorporated by reference to the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
of the Company is incorporated by reference to the Proxy Statement.
42
<PAGE> 44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial statements and schedules of the Company and its subsidiaries
required to be included in Part II, Item 8 are listed below.
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
FORM 10-K PAGES
---------------
<S> <C>
Report of Independent Public Accountants [F-1]
Consolidated Balance Sheets, March 31, 1999 and 1998 [F-2]
Consolidated Statements of Operations for the Years [F-3]
Ended March 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the [F-4]
Years Ended March 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended [F-5]
March 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements, March 31, 1999 [F-6]
</TABLE>
The following financial statement schedule is included as a
separate section of this report.
Schedule II - Valuation and Qualifying Accounts [S-1]
EXHIBITS
The Exhibits filed as part of the Report on Form 10-K are listed in the
Index to Exhibits immediately following the financial statement schedules.
REPORTS ON FORM 8-K DURING THE LAST QUARTER OF THE YEAR ENDED MARCH 31, 1999.
The Company filed an 8-K on March 2, 1999, to report two press releases
issued by the Company. One press release issued on February 22, 1999 announced
Robert M. Martin's resignation as Chief Executive Officer and Tom Singleton's
joining the Company as Chief Executive Officer. The second press release issued
on February 23, 1999 announced a reduction in earnings projections for the
fourth quarter and year ended March 31, 1999.
On January 19, 1999, the Company filed Amendment No. 1 to its Current
Report on Form 8-K/A, containing the financial statements of Memorial Hospital
of Adel and certain pro forma financial information with respect to the Form 8-K
dated November 18, 1998, in connection with the Company's acquisition on October
31, 1998 of the stock of Memorial Hospital of Adel in Adel, Georgia.
On January 14, 1999, the Company filed an Amendment No. 1 to its
Current Report on Form 8-K/A, containing the financial statements of Crosby
Memorial Hospital and certain pro forma financial information with respect to
the Form 8-K dated November 16, 1998, in connection with the Company's agreement
on October 29, 1998 to lease and purchase Crosby Memorial Hospital in Picayune,
Mississippi.
43
<PAGE> 45
INDEPENDENT AUDITORS' REPORT
The Board of Directors
New American Healthcare Corporation:
We have audited the accompanying consolidated balance sheets of New American
Healthcare Corporation and subsidiaries (the Company), as of March 31, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended March
31, 1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of New American
Healthcare Corporation and subsidiaries as of March 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 1999 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Nashville, TN
May 14, 1999
F-1
<PAGE> 46
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1999 and 1998
(In thousands, except per share information)
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,971 6,119
Patient accounts receivable, net of allowance for doubtful accounts
of $10,005 and $9,172 39,986 21,496
Other receivables 2,113 1,290
Inventory 3,824 2,720
Prepaid expenses and other current assets 2,393 1,409
--------- --------
Total current assets 54,287 33,034
Property and equipment, net 122,199 84,404
Goodwill, net of accumulated amortization of $927 and $298 41,919 16,672
Other assets 1,359 1,673
--------- --------
Total assets $ 219,764 135,783
========= ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses 20,014 14,522
Estimated third party payor settlements 7,188 2,681
Current portion of capital lease obligations 447 525
--------- --------
Total current liabilities 27,649 17,728
Capital lease obligations, excluding current portion 5,499 4,865
Long-term debt 103,300 37,550
Subordinated notes payable to affiliates -- 24,769
Deferred income taxes 1,473 1,339
Redeemable preferred stock - Series A, $.01 par value,
250 shares authorized and outstanding at March 31, 1998 -- 25,617
Stockholders' equity:
Preferred stock, Series B, $.01 par value, 235 shares authorized
and outstanding at March 31, 1998 -- 2
Common stock, $.01 par value, 50,000 shares authorized;
16,172 and 8,406 shares issued and outstanding 162 84
Non-voting common stock, $.01 par value: 1,500 shares authorized at
March 31, 1999, 1,423 and no shares issued and outstanding 14 --
Treasury stock, 92 shares of common stock at cost (5) --
Additional paid-in capital 82,082 24,260
Common stock warrants 235 235
Deferred compensation (507) --
Accumulated deficit (138) (666)
--------- --------
Total stockholders' equity 81,843 23,915
--------- --------
Commitments, contingencies and subsequent events
Total liabilities, redeemable preferred stock and
stockholders' equity $ 219,764 135,783
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 47
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended March 31, 1999, 1998 and 1997
(In thousands, except per share information)
<TABLE>
<CAPTION>
1999 1998 1997
--------- ------- -------
<S> <C> <C> <C>
Revenues:
Net patient service revenue $ 167,509 73,725 10,737
Other revenue 4,331 1,924 350
--------- ------- -------
Net operating revenues 171,840 75,649 11,087
Expenses:
Salaries and benefits 78,020 31,276 4,117
Professional fees 23,375 8,608 620
Supplies 19,536 8,314 1,439
Provision for doubtful accounts 13,878 7,837 534
General and administrative 4,132 3,484 1,871
Transition and other related costs 906 -- --
Other 17,475 9,286 2,377
Depreciation and amortization 6,677 2,836 783
Interest 6,716 2,637 363
--------- ------- -------
170,715 74,278 12,104
--------- ------- -------
Income (loss) before income taxes and extraordinary item 1,125 1,371 (1,017)
Income taxes 463 579 67
--------- ------- -------
Income (loss) before extraordinary item 662 792 (1,084)
Extraordinary item - loss on early extinguishment of debt
(net of tax of $89,000) 134 -- --
--------- ------- -------
Net income (loss) 528 792 (1,084)
Cumulative preferred dividend 710 617 --
--------- ------- -------
Net income (loss) attributable to common stockholders $ (182) 175 (1,084)
========= ======= =======
Net income (loss) per share:
Basic:
Continuing operations $ (0.00 $ 0.02 $ (0.13)
Extraordinary item (0.01) -- --
--------- ------- -------
$ (0.01) $ 0.02 $ (0.13)
========= ======= =======
Diluted:
Continuing operations $ (0.00) $ 0.01 $ (0.13)
Extraordinary item (0.01) -- --
--------- ------- -------
$ (0.01) $ 0.01 $ (0.13)
========= ======= =======
Weighted average number of shares and dilutive share
equivalents outstanding:
Basic 14,026 8,406 8,406
Diluted 14,026 13,210 8,406
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 48
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended March 31, 1999, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
Preferred Non-Voting Additional
Stock Common Common Treasury Paid-in
Series B Stock Stock Stock Capital
-------- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C>
Balances as of March 31, 1996 $ -- 84 -- -- 1,379
Issuance of 150 shares of
preferred stock, Series B 1 -- -- -- 14,999
Net loss -- -- -- -- --
---- ---- ---- ------- -------
Balance as of March 31, 1997 1 84 -- -- 16,378
Issuance of 85 shares of
preferred stock, Series B 1 -- -- -- 8,499
Cumulative dividends on
Series A preferred stock -- -- -- -- (617)
Issuance of common
stock warrants -- -- -- -- --
Net income -- -- -- -- --
---- ---- ---- ------- -------
Balances as of March 31, 1998 2 84 -- -- 24,260
Conversion of preferred stock, Series B,
to common stock (2) 42 -- -- (40)
Conversion of common stock
to non-voting common stock -- (14) 14 -- --
Initial public offering of common stock -- 50 -- -- 57,963
Treasury stock -- -- -- (5) --
Cumulative dividends on
Series A preferred stock -- -- -- -- (710)
Deferred compensation associated
with issuance of stock options, net -- -- -- -- 609
Amortization of deferred compensation -- -- -- -- --
Net income -- -- -- -- --
---- ---- ---- ------- -------
Balances as of March 31, 1999 $ -- 162 14 (5) 82,082
==== ==== ==== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Common Total
Stock Deferred Accumulated Stockholders'
Warrant Compensation Deficit Equity
------- ------------ ------- ------
<S> <C> <C> <C> <C> <C>
Balances as of March 31, 1996 -- -- (374) 1,089
Issuance of 150 shares of
preferred stock, Series B -- -- -- 15,000
Net loss -- -- (1,084) (1,084)
---- ---- ------- -------
Balance as of March 31, 1997 -- -- (1,458) 15,005
Issuance of 85 shares of
preferred stock, Series B -- -- -- 8,500
Cumulative dividends on
Series A preferred stock -- -- -- (617)
Issuance of common
stock warrants 235 -- -- 235
Net income -- -- 792 792
---- ---- ------- -------
Balances as of March 31, 1998 235 -- (666) 23,915
Conversion of preferred stock, Series B,
to common stock -- -- -- --
Conversion of common stock
to non-voting common stock -- -- -- --
Initial public offering of common stock -- -- -- 58,013
Treasury stock -- -- -- (5)
Cumulative dividends on
Series A preferred stock -- -- -- (710)
Deferred compensation associated
with issuance of stock options, net -- (609) -- --
Amortization of deferred compensation -- 102 -- 102
Net income -- -- 528 528
---- ---- ------- -------
Balances as of March 31, 1999 235 (507) (138) 81,843
==== ==== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 49
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31, 1999, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 528 792 (1,084)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,677 2,836 783
Amortization of deferred financing costs 207 164 75
Amortization of deferred compensation 102 -- --
Provision for doubtful accounts 13,878 7,837 534
Deferred tax expense 253 241 --
Amortization of debt discount 8 4 --
Extraordinary loss on early extinguishment of debt 223 -- --
Changes in operating assets and liabilities, net
of acquisitions:
Patient accounts receivable (24,956) (13,715) (1,593)
Other receivables (309) (626) (234)
Inventory (480) (185) 96
Prepaid expenses and other current assets (74) 2 (102)
Other assets 91 (303) (62)
Accounts payable and accrued expenses (377) 5,159 (513)
Estimated third party payor settlements 4,640 1,544 1,351
-------- ------- -------
Net cash provided by (used in) operating
activities 411 3,750 (749)
-------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment (13,010) (2,945) (261)
Sale of property 273 167 --
Cash paid for acquisitions (59,204) (89,744) (14,004)
Deferred acquisition costs (57) -- (242)
-------- ------- -------
Net cash used in investing activities (71,998) (92,522) (14,507)
-------- ------- -------
Cash flows from financing activities:
Proceeds from the issuance of long-term debt 80,250 64,069 750
Repayment of long-term debt (14,500) (2,500) --
Repayment of notes payable to affiliates (25,000) -- --
Repayment of capital lease obligations (605) (680) (197)
Issuance of common stock warrant -- 235 --
Issuance of common stock 58,013 -- --
Issuance (repayment) of redeemable preferred stock (26,327) 25,000 --
Issuance of preferred stock -- 8,500 15,000
Purchase of treasury stock (5) -- --
Deferred financing costs (387) (430) (686)
-------- ------- -------
Net cash provided by financing activities 71,439 94,194 14,867
-------- ------- -------
Net increase (decrease) in cash (148) 5,422 (389)
Cash and cash equivalents at beginning of period 6,119 697 1,086
-------- ------- -------
Cash and cash equivalents at end of period $ 5,971 6,119 697
======== ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 5,693 1,891 79
Cash paid during the period for income taxes 408 204 --
======== ======= =======
Noncash investing and financing activities:
Assets and liabilities assumed in hospital acquisitions:
Receivables $ 11,715 13,788 1,200
Inventory 566 2,186 443
Prepaid expense and other assets 964 1,137 114
Accounts payable and accrued expenses (4,568) (8,067) (2,080)
Estimated third-party payor settlements (108) 213 --
Capital lease obligations (1,161) (5,275) (669)
Capital lease obligations incurred to acquire equipment -- 275 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 50
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended March 31, 1999, 1998 and 1997
(Dollars and shares in thousands, except per share information)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
New American Healthcare Corporation (the Company) acquires and
operates acute care hospitals throughout the United States. The
Company was formed to capitalize on opportunities to be the
principal provider of quality, cost-effective health care services
in the non-urban communities in which it operates. The Company
operates eleven acute care hospitals located in nine states. The
Company's hospitals offer a wide range of inpatient and outpatient
medical and surgical services and also provide other health care
services, including general and geriatric psychiatry,
rehabilitation, and occupational medicine. As part of developing a
community health care delivery system, the Company's hospitals
also operate satellite clinics. All of the Company's hospitals are
accredited by either the Joint Commission on Accreditation of
Healthcare Organizations (JCAHO), the American Osteopathic
Association (AOA) or both.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial
statements of New American Healthcare Corporation and all
wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in the
consolidation.
(C) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities and the
reported amounts of revenues and expenses to prepare these
consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates.
(D) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with
maturities of three months or less when purchased to be cash
equivalents. The Company generally invests its excess cash in U.S.
Government securities and U.S. Government agency instruments.
(E) PATIENT ACCOUNTS RECEIVABLE
Patient accounts receivable consists of amounts owed by various
governmental agencies, insurance companies and patients. The
Company regularly reviews its accounts receivable to provide an
appropriate allowance for uncollectable accounts.
(Continued)
F-6
<PAGE> 51
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended March 31, 1999, 1998 and 1997
(Dollars and shares in thousands, except per share information)
(F) INVENTORY
Inventory is composed primarily of drugs and medical supplies and
is stated at the lower of cost, determined on a first-in,
first-out basis, or market.
(G) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Routine maintenance
and repairs are charged to expense as incurred. Expenditures for
major improvements that extend useful lives or increase values are
capitalized. Equipment under capital leases is stated at the
present value of the minimum lease payments. Depreciation is
computed on a straight-line basis over the estimated useful life
of each class of depreciable assets as follows: land improvements
- 10 years; buildings and improvements - 20 to 40 years; equipment
and fixtures - 4 to 20 years. Equipment under capital leases is
amortized using the straight-line method over the shorter of the
lease term or the estimated useful life of the equipment. Such
amortization is included in depreciation and amortization in the
accompanying consolidated financial statements.
(H) GOODWILL AND OTHER ASSETS
Goodwill represents the excess of purchase price over the fair
value of net assets acquired. Amortization is provided on a
straight-line basis over the estimated useful life of 40 years.
Other assets consist primarily of deferred financing costs and
non-compete agreements. Deferred financing costs incurred in
conjunction with the revolving credit agreement are being
amortized on a straight-line basis over the life of the agreement.
The non-compete agreements are amortized over the two-year life of
the related contracts.
The Company periodically reviews the recoverability of its
intangible assets. Recoverability of intangibles is determined
based on the undiscounted future operating cash flows from the
related hospital. The amount of impairment, if any, is measured
based on discounted future operating cash flows using a discount
rate reflecting the Company's average cost of funds or based on
the fair value of the related hospital.
(I) IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held
and used is measured by comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the
(Continued)
F-7
<PAGE> 52
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended March 31, 1999, 1998 and 1997
(Dollars and shares in thousands, except per share information)
impairment to be recognized is measured as the amount by which the
carrying amount of the assets exceeds the fair value of the
assets.
(J) NET PATIENT SERVICE REVENUE
Net patient service revenue is reported at the estimated net
realizable amounts from patients, third-party payors and others
for services rendered, including estimated retroactive adjustments
under reimbursement agreements with third-party payors.
Retroactive adjustments are accrued on an estimated basis in the
period the related services are rendered and adjusted in future
periods as final settlements are determined.
(K) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized as income in the period that includes the enactment
date.
(L) STOCK OPTION PLAN
The Company accounts for its compensation and stock option plan in
accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation. For options issued to employees, SFAS No. 123 allows
entities to apply the provision of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees.
As such, compensation expense would be recorded on the date of
grant only if the fair value of the underlying stock exceeded the
exercise price. The Company provides pro forma net income (loss)
and pro forma earnings (loss) per share disclosures for employee
stock option grants made in 1996 and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied.
(M) EARNINGS PER SHARE
Basic earnings per share is computed based on the weighted average
shares outstanding and excludes any potential dilution. Diluted
earnings per share reflects the potential dilution from the
exercise or conversion of all dilutive securities into common
stock based on the average market price of common stock
outstanding during the period.
(Continued)
F-8
<PAGE> 53
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended March 31, 1999, 1998 and 1997
(Dollars and shares in thousands, except per share information)
(N) ACCOUNTING PRONOUNCEMENTS
Effective April 1, 1998, the Company adopted SFAS No. 130,
Reporting Comprehensive Income. Comprehensive income generally
includes all changes to equity during a period excluding those
resulting from investments by stockholders and distributions to
stockholders. Net income was the same as comprehensive income for
all periods presented.
(O) FINANCIAL INSTRUMENTS
The Company has financial instruments consisting of cash and cash
equivalents, patient accounts receivable, accounts payable, and
long-term debt. The fair value of the Company's financial
instruments based on current market indicators approximates their
carrying amount.
(P) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to
the current year presentation.
(2) NET PATIENT SERVICE REVENUE
The Company has agreements with third-party payors that provide for
payments to the Company at amounts different from its established
rates. A summary of the payment arrangements with major third-party
payors follows:
(A) MEDICARE
Inpatient acute care services rendered to Medicare program
beneficiaries are paid at prospectively determined rates per
discharge. These rates vary according to a patient classification
system that is based on clinical, diagnostic, and other factors.
Inpatient nonacute services and certain outpatient services
related to Medicare beneficiaries are paid based on a cost
reimbursement methodology. The Company is reimbursed for cost
reimbursable items at a tentative rate with final settlement
determined after submission of an annual cost report by the
Company and audit thereof by the Medicare fiscal intermediary. The
Company's classification of patients under the Medicare program
and the appropriateness of their admission are subject to an
independent review by a peer review organization under contract
with the Company.
(Continued)
F-9
<PAGE> 54
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended March 31, 1999, 1998 and 1997
(Dollars and shares in thousands, except per share information)
(B) MEDICAID
The Company operates under Medicaid programs in nine states which
generally provide that inpatient services rendered to Medicaid
beneficiaries are paid at prospectively determined rates per day
for a covered period of days. Certain outpatient services are
reimbursed based upon a cost reimbursement methodology. Final
reimbursement rates and amounts for these services will be
determined after submission of annual cost reports by the Company
and audits by third-party intermediaries. Other outpatient
services are reimbursed based on a fee schedule.
(C) OTHER
The Company has also entered into payment agreements with certain
insurance carriers, health maintenance organizations, and
preferred provider organizations. The basis for payment to the
Company under these agreements includes prospectively determined
rates per discharge, discounts from established charges, and
prospectively determined daily rates.
Final determination of amounts earned under the Medicare and
Medicaid programs often occur in subsequent years because of
audits by the programs, rights of appeal and the application of
numerous technical provisions.
(D) BUSINESS AND CREDIT CONCENTRATIONS
In the course of providing health care services through its
inpatient and outpatient care facilities, the Company grants
credit to patients and generally does not require collateral or
other security in extending credit; however, it routinely obtains
assignment of (or is otherwise entitled to receive) patients'
benefits payable under their health insurance programs, plans or
policies (e.g., Medicare, Medicaid, Blue Cross, health maintenance
organizations, preferred provider organizations and commercial
insurance policies).
As of March 31, 1999 and 1998, the Company had net receivables
from Medicare of $13,102 and $8,641 and from Medicaid of $5,162
and $6,563, respectively. Approximately 52%, 63% and 47% of net
patient service revenues are from participation in the Medicare
and state sponsored Medicaid programs for the years ended March
31, 1999, 1998 and 1997, respectively.
(Continued)
F-10
<PAGE> 55
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended March 31, 1999, 1998 and 1997
(Dollars and shares in thousands, except per share information)
(3) ACQUISITIONS
During the years ended March 31, 1999 and 1998, the Company acquired
the following hospitals:
<TABLE>
<CAPTION>
Hospital Effective Date Location
-----------------------------------------------------------------------------------------
<S> <C> <C>
1999:
Puget Sound Hospital September 1, 1998 Tacoma, Washington
Crosby Memorial Hospital November 1, 1998 Picayune, Mississippi
Memorial Hospital of Adel November 1, 1998 Adel, Georgia
1998:
Memorial Hospital of Center May 1, 1997 Center, Texas
Delta Medical Center May 16, 1997 Memphis, Tennessee
Dolly Vinsant Hospital August 1, 1997 San Benito, Texas
Woodland Park Hospital(a) February 1, 1998 Portland, Oregon
Eastmoreland Hospital(a) February 1, 1998 Portland, Oregon
Lander Valley Medical Center(a) February 1, 1998 Lander, Wyoming
Davenport Medical Center(a) February 1, 1998 Davenport, Iowa
</TABLE>
------------
(a) Hospitals were acquired in a single transaction for a total
purchase price of $57,000.
The Company has acquired hospitals primarily in exchange for cash and
assumption of associated liabilities for the years ended March 31, as
follows:
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Purchase price $59,204 90,000
Add: liabilities assumed 5,837 13,342
Less: assets acquired 43,886 87,916
------- ------
Costs in excess of net assets acquired $21,155 15,426
======= ======
</TABLE>
The acquisitions were accounted for as purchases and the accompanying
consolidated financial statements include the results of their operations
from the respective dates of the acquisitions.
The following unaudited pro forma results of operations for the years
ended March 31, 1999 and 1998 give effect to the acquisitions as if the
respective transactions had occurred as of April 1, 1997. The unaudited
pro forma results are not necessarily indicative of what actually might
have occurred if the acquisitions had been completed as of April 1, 1997.
In addition, they are not intended to be a projection of future results
of operations and do not reflect any of the synergies that might be
achieved in hospital operations.
(Continued)
F-11
<PAGE> 56
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended March 31, 1999, 1998 and 1997
(Dollars and shares in thousands, except per share information)
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Net revenues $ 205,686 209,211
Net loss attributable to common stockholders (421) (505)
Pro forma net loss per share-basic and diluted (.03) (.06)
========= ========
</TABLE>
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment as of March 31, is as follows:
<TABLE>
<CAPTION>
1999 1998
-------- ------
<S> <C> <C>
Land $ 8,868 7,249
Land improvements 697 545
Buildings and improvements 81,970 60,919
Equipment and fixtures 33,866 18,314
Leasehold improvements 2,841 144
Construction in process 2,134 --
-------- ------
130,376 87,171
Less accumulated depreciation and amortization 8,177 2,767
-------- ------
$122,199 84,404
======== ======
</TABLE>
Included in buildings and improvements and equipment and fixtures are
buildings and equipment held under capital leases of $7,204 and $5,698
as of March 31, 1999 and 1998, respectively. Related accumulated
amortization was $1,654 and $630 as of March 31, 1999 and 1998,
respectively.
(5) LEASE OBLIGATIONS
The Company leases various equipment and one hospital under lease
agreements that have been capitalized and office space under a
noncancellable operating lease. A summary of future minimum lease
payments and the present value of future minimum lease payments for the
capitalized leases and payments due under the operating leases as of
March 31, 1999, is as follows:
(Continued)
F-12
<PAGE> 57
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended March 31, 1999, 1998 and 1997
(Dollars and shares in thousands, except per share information)
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
<S> <C> <C>
Year ending March 31,
2000 $ 890 2,884
2001 737 2,107
2002 602 1,814
2003 573 1,576
2004 573 1,271
Thereafter 14,990 787
------- ------
18,365 10,439
======
Less: Interest at rates ranging from 4.4% to 15.0% 12,419
------
Capital lease obligations 5,946
Less: Current portion 447
------
Capital lease obligations, excluding current portion $ 5,499
======
</TABLE>
Rent expense was approximately $3,133, $1,202 and $161 for the years
ended March 31, 1999, 1998 and 1997, respectively.
(6) LONG-TERM DEBT
On January 30, 1998, the Company amended and restated its revolving
credit agreement originally entered into on September 30, 1996 with a
consortium of banks to provide funding for acquisitions of health care
facility businesses and for general corporate purposes including
working capital. The credit agreement had a revolving credit limit of
$132,500. Borrowings under the facility bore interest of (i) a base
rate equal to the greater of the Prime Rate or the Federal Funds rate,
plus in either case, a margin of up to 1% or (ii) London Interbank
Offered Rate as of the date of borrowing plus a margin of up to 2.5%.
The applicable margin was determined by a ratio of indebtedness to
EBITDA, as defined in the Credit Agreement, calculated on a monthly
basis. On October 27, 1998, the Company amended and restated its
revolving credit agreement such that borrowings bear interest of (i) a
base rate equal to the greater of the Prime Rate or the Federal Funds
rate, plus in either case, a margin of up to .75% or (ii) London
Interbank Offered Rates as of the date of borrowing plus a margin of up
to 2%. The credit agreement requires interest only payments until
December 31, 2001, at which time the initial commitment is gradually
reduced until September 30, 2003 when the commitment is zero. As of
March 31, 1999 and 1998, the Company had outstanding borrowings under
the Credit Agreement totaling $103,300 and $37,550, bearing interest at
a rate of 7.07% at March 31, 1999. The revolving credit facility is
secured by substantially all of the Company's assets. The credit
agreement contains
(Continued)
F-13
<PAGE> 58
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended March 31, 1999, 1998 and 1997
(Dollars and shares in thousands, except per share information)
limitations on the Company's ability to incur additional indebtedness,
sell material assets, retire, redeem or otherwise reacquire its capital
stock, and pay dividends. The credit agreement also requires the
Company to maintain specified levels of net worth and meet certain
covenants and ratios.
Commitment fees between 0.25% and 0.38% were charged on the unused
portion of the revolving credit facility. Total commitment fees during
the years ended March 31, 1999, 1998 and 1997 were $264, $349 and $209,
respectively, and are included in interest expense in the accompanying
consolidated statements of operations.
On January 30, 1998, WCAS Capital Partners III, L.P., an affiliate of a
principal shareholder of the Company, issued subordinated debt to the
Company in the amount of $25,000. The subordinated debt bore interest
at a rate of 10.0% and was paid off in August 1998 in conjunction with
the Company's initial public offering. The debt was issued at a
discount of $235 related to the fair value of the associated common
stock warrant. Such discount was written off and is reflected as an
extraordinary loss on the early extinguishment of debt in the
accompanying consolidated statements of operations.
The aggregate maturities of long-term debt as of March 31, 1999 are as
follows:
<TABLE>
<S> <C>
2000 $ --
2001 --
2002 --
2003 45,800
2004 57,500
Thereafter --
--------
$103,300
========
</TABLE>
On May 14, 1999, the Company amended and restated its revolving credit
agreement. The credit agreement has a revolving credit limit of $116,000.
Borrowings under the facility bear interest of (i) a base rate equal to
the greater of the Prime Rate or the Federal Funds rate, plus in either
case, a margin of up to 2.75% or (ii) London Interbank Offered Rate as of
the date of borrowing plus a margin of up to 4%. The applicable margin is
determined by a ratio of indebtedness to EBITDAR, as defined in the
Credit Agreement, calculated on a monthly basis. The facility is due and
payable November 30, 2002, with a required permanent reduction of $12,000
and $8,000 by October 31, 1999 and 2000, respectively. Additionally, the
Company is required to pay down outstanding indebtedness upon the sale of
any facilities and beginning with the year ended March 31, 2000, by the
amount of any excess cash flow for the year, as defined within the
agreement, less $4,000 of cash and cash equivalents to be maintained by
the Company.
(Continued)
F-14
<PAGE> 59
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended March 31, 1999, 1998 and 1997
(Dollars and shares in thousands, except per share information)
(7) REDEEMABLE PREFERRED STOCK
Redeemable preferred stock consisted of 250 authorized shares of Series
A non-convertible cumulative preferred, $.01 par value (Series A
preferred stock). The Company issued the 250 shares of Series A
preferred stock in 1998 for $25,000. The proceeds were used to finance
hospital acquisitions. The Series A preferred stock was entitled to
dividends equaling $7.00 per share per annum. The Company redeemed for
cash the Series A preferred stock at its face value of $100 per share
plus unpaid dividends in August 1998 in conjunction with the Company's
initial public offering.
(8) STOCKHOLDERS' EQUITY
(A) REINCORPORATION
On August 20, 1998, the Company reincorporated as a Delaware
corporation pursuant to a merger of New American Healthcare
Corporation, a Tennessee corporation, with and into a newly
created Delaware corporation. The name of the surviving entity is
New American Healthcare Corporation. As a result of the merger,
the Company increased the authorized number of shares of Common
Stock from 20,000 to 50,000 and created a class of Non-Voting
Common Stock with 1,500 authorized shares, caused all outstanding
Series B Preferred Stock to be exchanged for Common Stock and
Non-Voting Common Stock, and caused all outstanding shares of
Series A Preferred Stock and accrued dividends to be redeemed for
cash. As a result of the Reincorporation, each share of common
stock in the Tennessee corporation was converted into 1.0473
shares of common stock. All prior periods have been restated.
(B) INITIAL PUBLIC OFFERING OF COMMON STOCK
On August 20, 1998, the Company completed its initial public
offering of common stock. In connection with the offering, the
Series B preferred stock was converted into 1,423 and 2,766 shares
of non-voting and voting common stock, respectively. The net
proceeds from the offering were used to redeem the outstanding
balance of the Series A redeemable preferred stock plus accrued
dividends, repay the Subordinated notes payable to affiliates, and
reduce the balance of the revolving credit agreement.
(C) PREFERRED STOCK
Preferred stock consisted of Series B convertible preferred
(Series B preferred stock). The Series B preferred stock was not
entitled to a dividend unless a dividend was declared for the
common stock. The Series B preferred stock was converted to common
stock in connection with the Company's initial public offering as
discussed above.
(Continued)
F-15
<PAGE> 60
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended March 31, 1999, 1998 and 1997
(Dollars and shares in thousands, except per share information)
The Company issued 85 and 150 shares of Series B Preferred stock
for $8,500 and $15,000 in 1998 and 1997, respectively. The
proceeds were used to finance hospital acquisitions.
(D) STOCK OPTIONS
In 1996, the Company adopted a stock option plan (the Plan)
pursuant to which the Company has reserved 2,199 shares of common
stock for stock option grants to directors, key employees and
shareholders with exercise prices equal to the estimated fair
market value of the Company's common stock on the date of grant.
Stock options generally vest ratably over a period of five years
and are exercisable for ten years from grant date. As of March 31,
1999, there were approximately 706 shares available for grant
under the Plan.
The per share weighted-average fair value of stock options granted
during the years ended March 31, 1999, 1998 and 1997 was $2.35,
$0.82 and $0.86, respectively, for options issued with an exercise
price equal to fair market value on the date of grant using the
Black Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected volatility 0% to 30% 0% 0%
Risk-free interest rates 5.0% to 5.6% 5.5% to 6.0% 5.5%
Expected lives, in years 4 4 4
Expected dividend yield 0% 0% 0%
</TABLE>
The per share weighted average fair market value for stock options
granted during the year ended March 31, 1999 for options issued
with exercise prices below fair market value using the same
assumptions noted above was $4.61.
The Company applies the intrinsic value method as defined by APB
Opinion No. 25 in accounting for its Plan and, accordingly, other
than deferred compensation discussed below, no compensation cost
has been recognized for its stock options in the accompanying
consolidated financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for
its stock options under SFAS No. 123, the Company's net income
(loss) and earnings per share would have been as follows:
(Continued)
F-16
<PAGE> 61
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended March 31, 1999, 1998 and 1997
(Dollars and shares in thousands, except per share information)
<TABLE>
<CAPTION>
NET INCOME (LOSS) BASIC EPS DILUTED EPS
----------------- --------- -----------
<S> <C> <C> <C>
1999 As reported (182) (0.01) (0.01)
Pro forma (436) (0.03) (0.03)
1998 As reported 175 0.02 0.01
Pro forma 152 0.02 0.01
1997 As reported (1,084) (0.13) (0.13)
Pro forma (1,112) (0.13) (0.13)
</TABLE>
Stock option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
------ -----
<S> <C> <C>
Balance as of March 31, 1996 -- --
Granted 52 4.13
Forfeited -- --
Balance as of March 31, 1997 52 4.13
Granted 138 4.13
Forfeited (12) 4.13
------ ------
Balance as of March 31, 1998 178 4.13
Granted 1,801 8.40
Forfeited (164) 10.52
Canceled (322) 6.73
------ ------
Balance as of March 31, 1999 1,493 $ 8.02
====== ======
</TABLE>
As of March 31, 1999, the number of options exercisable was 282
and the weighted-average exercise price was $6.87. As of March 31,
1999, the weighted-average exercise price and the weighted-average
remaining contractual life of outstanding options was $8.02 and
9.4 years, respectively.
(Continued)
F-17
<PAGE> 62
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended March 31, 1999, 1998 and 1997
(Dollars and shares in thousands, except per share information)
(E) DEFERRED COMPENSATION
In April and May 1998, the Company issued options to purchase 389
shares of common stock that had exercise prices below the fair
market value of the common stock at the time of issuance. This
resulted in the Company recording $2,417 of deferred compensation
that is being amortized over the five-year vesting period. In
August 1998, the Company cancelled 322 of such options, which
resulted in the reversal of $1,808 of deferred compensation
related to such options.
(F) RECONCILIATION OF PRO FORMA INCOME PER SHARE CALCULATION
The following is a reconciliation of the numerators and
denominators of the basic and diluted earnings per share
computations for net earnings for the years ended March 31, as
follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Numerator:
Income from operations before extraordinary item $ 662 $ 792
Cumulative preferred dividends (710) (617)
-------- --------
Continuing operations (48) 175
Extraordinary item (134) --
======== ========
Net income (loss) attributable to common shareholders (182) 175
======== ========
Denominator:
Denominator for basic earnings per share -
Weighted-average shares outstanding 14,026 8,406
-------- --------
Effect of dilutive securities
Stock options -- 166
Warrants -- 449
Series B preferred stock -- 4,189
======== ========
Denominator for diluted earnings per share 14,026 13,210
======== ========
</TABLE>
For the year ended March 31, 1999, all options and warrants to
purchase common stock and convertible preferred stock have been
excluded from the computation of diluted EPS because they are
antidilutive.
(Continued)
F-18
<PAGE> 63
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended March 31, 1999, 1998 and 1997
(Dollars and shares in thousands, except per share information)
(G) WARRANT
In connection with the subordinated debt discussed in note 6, the
Company issued a warrant to purchase up to 592 shares of common
stock at $4.13 per share. The warrant expires January 30, 2008.
(9) RETIREMENT PLAN
The Company sponsors a 401(k) plan for its employees. All employees who
have been employed at least six months and are at least 20 1/2 years of
age are eligible for the plan. The Company may match employee
contributions at the discretion of the Board of Directors. Total 401(k)
plan expense for the years ended March 31, 1999, 1998, and 1997 was
$59, $115 and $30, respectively.
(10) INCOME TAXES
The components of income tax expense for the years ended March 31,
1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999
--------------------------------------
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
Federal $ -- 414 414
State 210 (161) 49
---- ---- ---
$210 253 463
==== ==== ===
</TABLE>
<TABLE>
<CAPTION>
1998
--------------------------------------
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
Federal $248 239 486
State 90 2 93
---- ---- ---
$338 241 579
==== ==== ===
</TABLE>
(Continued)
F-19
<PAGE> 64
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended March 31, 1999, 1998 and 1997
(Dollars and shares in thousands, except per share information)
<TABLE>
<CAPTION>
1997
--------------------------------------
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
Federal $ -- -- --
State 67 -- 67
---- ---- ---
$ 67 -- 67
==== ==== ===
</TABLE>
The actual income tax expense differs from the "expected" tax expense
(computed by applying the U.S. federal corporate income tax rate of 34%
to earnings before income taxes) as a result of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- --- ----
<S> <C> <C> <C>
Computed "expected" tax expense $383 466 (346)
Increase (reduction) in income taxes
resulting from:
State income taxes, net of federal
income tax benefit 32 61 4
Nondeductible goodwill amortization 40 47 --
Change in valuation allowance -- -- 436
Other 8 5 (27)
---- --- ----
$463 579 67
==== === ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset as of March 31, 1999 and 1998, are
presented below:
(Continued)
F-20
<PAGE> 65
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended March 31, 1999, 1998 and 1997
(Dollars and shares in thousands, except per share information)
<TABLE>
<CAPTION>
1999 1998
------- -----
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts 132 390
Accrued vacation 286 275
AMT credit carryover 263 248
Operating loss carryforward 3,239 123
Deferred costs due to differences in amortization and
write-off for tax purposes -- 74
Other -- 163
------- -----
Deferred tax assets 3,920 1,273
Less valuation allowance (576) --
------- -----
Net deferred tax assets 3,344 1,273
------- -----
Deferred tax liability:
Property and equipment, principally due to differences in
depreciation 4,050 1,813
Other 86 --
------- -----
Deferred tax liabilities 4,136 1,813
------- -----
Net deferred tax liability $ 792 540
======= =====
</TABLE>
There was a change in the valuation allowance of $576 and ($578) for the
years ended March 31, 1999 and 1998, respectively. The valuation
allowance as of March 31, 1997 was charged to goodwill in connection with
the acquisition of one of the Company's hospitals. The ultimate
realization of the deferred tax assets related to the loss carryforwards
is dependent upon the generation of future taxable income during the
periods in which those deductible carryovers may be utilized. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. In order to fully realize the deferred tax asset related to
the net operating loss carryforwards, the Company will need to generate
future taxable income of approximately $6,400 prior to the expiration of
the net operating loss carryforwards in 2012.
As of March 31, 1999, the Company had approximately $6,400 of net
operating loss carryforwards that begin to expire in 2011. The Company
also generated an alternative minimum tax
(Continued)
F-21
<PAGE> 66
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended March 31, 1999, 1998 and 1997
(Dollars and shares in thousands, except per share information)
net operating loss of approximately $2,700 in the fiscal year ended
March 31, 1999. Approximately $1,200 of the alternative
minimum tax net operating loss was carried back to prior years, which
resulting in a refund of approximately $230 of alternative minimum tax
paid in 1998. Included in prepaid expenses and other current assets at
March 31, 1999 and 1998, respectively is $681 and $799 of current
deferred tax assets.
(11) TRANSITION AND OTHER RELATED COSTS
Transition and other related costs include $906 of one-time charges
relating to the transition of the Company's new chief executive
officer.
(Continued)
F-22
<PAGE> 67
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended March 31, 1999, 1998 and 1997
(Dollars and shares in thousands, except per share information)
(12) CONTINGENCIES
(A) LIABILITY INSURANCE
The Company is insured for professional liability based on a
claims-made policy. Management is aware of no professional
liability claims whose settlement would have a material adverse
effect on the Company's financial position, results of operations
or liquidity.
(B) LITIGATION
The Company is subject to various claims, legal actions and
regulatory investigations which arise in the ordinary course of
business, certain of which could be material. In the opinion of
management, the ultimate resolution of such matters will be
adequately covered by insurance and will not have a material
adverse effect on the Company's financial position, results of
operations or liquidity.
F-23
<PAGE> 68
INDEPENDENT AUDITORS REPORT
The Board of Directors and Shareholders
New American Healthcare Corporation
Under date of May 14, 1999, we reported on the consolidated balance sheets of
New American Healthcare Corporation and subsidiaries as of March 31, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
March 31, 1999, as contained in the year ended March 31, 1999 annual report to
shareholders. These consolidated financial statements and our report thereon
are included in the annual report on Form 10-K for the year ended March 31,
1999. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related financial statement schedule.
The financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statement schedule based on our audits.
In our opinion, the financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Nashville, Tennessee
May 14, 1999
S-1
<PAGE> 69
Schedule II -- Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
ADDITIONS
-----------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF
OF PERIOD EXPENSES DESCRIBE(1) DESCRIBE(2) PERIOD
---------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1997:
Allowance for doubtful accounts -- 534 3,032 (2,984) 582
Year ended March 31, 1998:
Allowance for doubtful accounts 582 7,837 4,761 (4,008) 9,172
Year ended March 31, 1999:
Allowance for doubtful accounts 9,172 13,878 5,102 (13,045) 10,005
</TABLE>
- ---------------------------------
(1) Allowances as a result of acquisitions.
(2) Accounts written off, net of recoveries.
S-2
<PAGE> 70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEW AMERICAN HEALTHCARE CORPORATION
/s/ Thomas W. Singleton
----------------------------------------------
By: Thomas W. Singleton
Chief Executive Officer, President
/s/ Timothy S. Hill
----------------------------------------------
By: Timothy S. Hill
Chief Financial Officer, Senior Vice President
Date: June 28, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Paul B. Queally
- -----------------------------
Paul B. Queally Chairman of the Board, Director June 28, 1999
/s/ Thomas W. Singleton
- -----------------------------
Thomas W. Singleton Chief Executive Officer, President, June 28, 1999
(Principal Executive Officer), Director
/s/ Dana C. McLendon, Jr.
- -----------------------------
Dana C. McLendon, Jr. Senior Vice President, Chief Administrative June 28, 1999
Officer, Director
/s/ Richard H. Stowe
- -----------------------------
Richard H. Stowe Director June 28, 1999
/s/ James B. Hoover
- -----------------------------
James B. Hoover Director June 28, 1999
/s/ David A. Jensen
- -----------------------------
David A. Jensen Director June 28, 1999
/s/ Jeptha W. Dalston
- -----------------------------
Jeptha W. Dalston Director June 28, 1999
</TABLE>
<PAGE> 71
INDEX TO EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C> <C>
3.1 -- Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1
to the Registrant's Quarterly Report on form 10-Q for the quarter ended September
30,1998).
3.2 -- Form of Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 to the
Registrant's Quarterly Report on form 10-Q for the quarter ended September 30,1998).
4.1 -- Provisions of Articles of Incorporation defining the rights of security holders. See
Exhibit 3.1.
10.1 -- Form of Executive Non-Compete and Severance Agreements (Incorporated by reference to
Exhibit 10.1 to the Registrant's Registration Statement No. 333-57913 on form S-1).
10.2 -- Lease Agreement dated May 22, 1996 between New American Healthcare Corporation, as
Tenant, and James W. Ayers, as Landlord, as amended by First Amendment to Lease dated
October 10, 1996 between Highwoods/Forsyth Ltd. Partnership (as successor to James W.
Ayers) and New American Healthcare Corporation and further amended by Second Amendment
to Lease dated June 10, 1998 between Highwoods/Forsyth Ltd. Partnership (as successor to
James W. Ayers) and New American Healthcare Corporation for the office space located in
Brentwood, Tennessee (Incorporated by reference to Exhibit 10.2 to the Registrant's
Registration Statement No. 333-57913 on form S-1).
10.3 -- Securities Purchase Agreement dated as of January 30, 1998 among the Registrant and
WCAS Capital Partners III, L.P. (Incorporated by reference to Exhibit 10.3 to the
Registrant's Registration Statement No. 333-57913 on form S-1).
10.4 -- 10% Senior Subordinated Note due January 30, 2008 made by the Registrant in favor of
WCAS Capital Partners III, L.P. in the principal amount of $25 million (Incorporated by
reference to Exhibit 10.4 to the Registrant's Registration Statement No. 333-57913 on
form S-1).
10.6 -- Stock Subscription Warrant dated January 30, 1998 from the Registrant to WCAS Capital
Partners III, L.P. (Incorporated by reference to Exhibit 10.6 to the Registrant's
Registration Statement No. 333-57913 on form S-1).
</TABLE>
<PAGE> 72
<TABLE>
<S> <C> <C>
10.7 -- Securities Purchase Agreement dated as of December 19, 1995 among the Registrant, Welsh,
Carson, Anderson & Stowe VII, L.P. and the several other purchasers named in Annex I, as
amended (Incorporated by reference to Exhibit 10.7 to the Registrant's Registration
Statement No. 333-57913 on form S-1).
10.8 -- Registration Rights Agreement dated December 19, 1995 by and among the Registrant,
Welsh, Carson, Anderson & Stowe VII, L.P. and the several purchasers named in Annex I,
as amended (Incorporated by reference to Exhibit 10.8 to the Registrant's Registration
Statement No. 333-57913 on form S-1).
10.9 -- Stockholders Agreement dated December 19, 1995 by and among the Registrant, Welsh,
Carson, Anderson & Stowe VII, L.P. and several parties named in Schedule I, as amended
(Incorporated by reference to Exhibit 10.9 to the Registrant's Registration Statement
No. 333-57913 on form S-1).
10.10 -- Restricted Stock Agreement dated December 19, 1995 by and among the Registrant, Welsh,
Carson, Anderson & Stowe VII, L.P., the several other investors named in Annex I and the
several individuals named in Annex II (Incorporated by reference to Exhibit 10.10 to the
Registrant's Registration Statement No. 333-57913 on form S-1).
10.11 -- Asset Purchase Agreement effective August 1, 1996, between Doctors Hospital -
Wentzville, L.P., as Seller, and NAHC of Missouri, Inc., as Buyer (Incorporated by
reference to Exhibit 10.11 to the Registrant's Registration Statement No. 333-57913 on
form S-1).
10.12 -- Consulting Agreement dated August 1, 1996 between Jack B. Bailey and New American
Healthcare Corporation (Incorporated by reference to Exhibit 10.12 to the Registrant's
Registration Statement No. 333-57913 on form S-1).
10.13 -- Amended and Restated Credit Agreement dated as of January 30, 1998 between New American
Healthcare Corporation, Toronto Dominion (Texas), Inc. for itself and as Agent on behalf
of the Banks and the Issuing Bank (Incorporated by reference to Exhibit 10.13 to the
Registrant's Registration Statement No. 333-57913 on form S-1).
10.14 -- Promissory Note dated January 30, 1998 in the amount of $30,000,000 made by the Company
in favor of Toronto Dominion (Texas), Inc (Incorporated by reference to Exhibit 10.14 to
the Registrant's Registration Statement No. 333-57913 on form S-1).
10.15 -- Promissory Note dated January 30, 1998 in the amount of $25,000,000 made by the Company
in favor of NationsBank, N.A. (Incorporated by reference to Exhibit 10.15 to the
Registrant's Registration Statement No. 333-57913 on form S-1).
10.16 -- Promissory Note dated January 30, 1998 in the amount of $10,000,000 made by the Company
in favor of AmSouth Bank of Tennessee (Incorporated by reference to Exhibit 10.16 to the
Registrant's Registration Statement No. 333-57913 on form S-1).
</TABLE>
<PAGE> 73
<TABLE>
<S> <C> <C>
10.17 -- Promissory Note dated January 30, 1998 in the amount of $15,000,000 made by the Company
in favor of Corestates Bank, N.A. (Incorporated by reference to Exhibit 10.17 to the
Registrant's Registration Statement No. 333-57913 on form S-1).
10.18 -- Promissory Note dated January 30, 1998 in the amount of $10,000,000 made by the Company
in favor of Banque Paribas (Incorporated by reference to Exhibit 10.18 to the
Registrant's Registration Statement No. 333-57913 on form S-1).
10.19 -- Promissory Note dated January 30, 1998 in the amount of $12,500,000 made by the Company
in favor of First American National Bank (Incorporated by reference to Exhibit 10.19 to
the Registrant's Registration Statement No. 333-57913 on form S-1).
10.20 -- Promissory Note dated January 30, 1998 in the amount of $15,000,000 made by the Company
in favor of National City Bank, Kentucky (Incorporated by reference to Exhibit 10.20 to
the Registrant's Registration Statement No. 333-57913 on form S-1).
10.21 -- Promissory Note dated January 30, 1998 in the amount of $15,000,000 made by the Company
in favor of BankOne, N.A. (Incorporated by reference to Exhibit 10.21 to the
Registrant's Registration Statement No. 333-57913 on form S-1).
10.22 -- Amended and Restated Security Agreement dated January 30, 1998 by and between the
Company and Toronto Dominion (Texas), Inc. as Agent (Incorporated by reference to
Exhibit 10.22 to the Registrant's Registration Statement No. 333-57913 on form S-1).
10.23 -- Amended and Restated Stock Pledge Agreement dated as of January 30, 1998 between New
American Healthcare Corporation and Toronto Dominion (Texas), Inc. for itself and as
Agent on behalf of the Banks and the Issuing Bank (Incorporated by reference to Exhibit
10.23 to the Registrant's Registration Statement No. 333-57913 on form S-1).
10.24 -- Form of Subsidiary Security Agreement dated as of January 30, 1998 between each of the
Company's subsidiaries and Toronto Dominion (Texas), Inc. for itself and as Agent on
behalf of the Banks and the Issuing Bank (Incorporated by reference to Exhibit 10.24 to
the Registrant's Registration Statement No. 333-57913 on form S-1).
10.25 -- Form of Subsidiary Guaranty dated as of January 30, 1998 between each of the Company's
subsidiaries and Toronto Dominion (Texas), Inc. for itself and as Agent on behalf of the
Banks and the Issuing Bank (Incorporated by reference to Exhibit 10.25 to the
Registrant's Registration Statement No. 333-57913 on form S-1).
10.26 -- Stock Purchase Agreement effective May 1, 1997 among Larry F. McFall, Phil Sanderson,
D.L. Patterson, Charles F. Daniel, Sam C. Yeager, Mack R. Choplin, David R. Carver and
Timothy L. Yeager, as Shareholders, Southeastern Hospital Corporation, Park Healthcare
Company
</TABLE>
<PAGE> 74
<TABLE>
<S> <C> <C>
(Southeastern and Park, as Sellers) and New American Healthcare Corporation with
respect to the stock of Center Hospital, Inc. d/b/a Memorial Hospital of Center
(Incorporated by reference to Exhibit 10.26 to the Registrant's Registration Statement
No. 333-57913 on form S-1).
10.27 -- Asset Purchase Agreement dated May 1, 1997 among Eastwood Hospital, Inc., as Seller, the
Shareholder of Seller, and NAHC of Tennessee, Inc., as Buyer, and New American
Healthcare Corporation, as Parent (Incorporated by reference to Exhibit 10.27 to the
Registrant's Registration Statement No. 333-57913 on form S-1).
10.28 -- Interim Management Agreement dated May 16, 1997 between Eastwood Hospital, Inc. and NAHC
of Tennessee, Inc. with respect to the mental health outpatient facility located at 3960
Knight Arnold Road, Suite 303, Memphis, Tennessee 38118 (Incorporated by reference to
Exhibit 10.28 to the Registrant's Registration Statement No. 333-57913 on form S-1).
10.29 -- Asset Purchase Agreement effective August 1, 1997 by and among The Dolly V L.C., as
Seller, the Members of Seller, and NAHC II of Texas, Inc., as Buyer (Dolly Vinsant
Memorial Hospital) (Incorporated by reference to Exhibit 10.29 to the Registrant's
Registration Statement No. 333-57913 on form S-1).
10.30 -- Asset Sale Agreement dated as of December 22, 1997 among New American Healthcare
Corporation, as Buyer, and Davenport Medical Center, Inc., EGH, Inc., Qualicare of
Wyoming, Inc. and Woodland Park Hospital, Inc. (collectively, Seller), as assigned to
the respective subsidiaries of NAHC by that certain Assignment of Asset Sale Agreement
dated January 30, 1998 (Incorporated by reference to Exhibit 10.30 to the Registrant's
Registration Statement No. 333-57913 on form S-1).
10.31 -- Assignment and Assumption of Lease (Lander Valley Medical Center) effective February 1,
1998 between Qualicare of Wyoming, Inc. and NAHC of Wyoming, Inc. with respect to that
certain Lease dated July 10, 1982 between the City of Lander, as lessor, and Lander
Valley Regional Medical Center, as lessee, as modified by Amendment No. One to Lease
dated April 24, 1985 and the First Amendment to Lease dated July 1, 1991 (Incorporated
by reference to Exhibit 10.31 to the Registrant's Registration Statement No. 333-57913
on form S-1).
10.32 -- Assignment and Assumption of Lease (Woodland Park Hospital) effective February 1, 1998
between Woodland Park Hospital, Inc. (Assignor) and NAHC of Oregon, Inc. (Assignee) with
respect to that certain Lease dated December 27, 1968 between Woodland Park Corporation
(predecessor-in-interest to The Les Ashbar Trust; Ernest B. Martin, The Connie L.
McNight Trust dated April 6, 1993; David L. Harris as Successor Trustee FBO Joan K.
Bailey (nka Joan K. Ayala), Marti Ridout and Jan L. Schilded; A.E. Brim; Milton Zusman,
Melvin Weinstein; Melvin Weinstein and Anne Weinstein, Trustees U/T/A dated April 7,
1992, Michael Zusman, Steven Zusman, Bruce Weinstein and Lisa Marie
</TABLE>
<PAGE> 75
<TABLE>
<S> <C> <C>
Weinstein) and W.P.H., Inc. (Assignor's predecessor-in-interest), as amended by Amendment to
Lease dated March 4, 1971, as assigned by Notice of Assignment of Lease and Authorization for
Payment of Lease Rentals dated April 1, 1972 and as further amended by Second Amendment
to Lease dated January 30, 1998 (Incorporated by reference to Exhibit 10.32 to the
Registrant's Registration Statement No. 333-57913 on form S-1).
10.33 -- License Agreement (Pulse Health Services) dated as of January 31, 1998 among Tenet
HealthSystem HealthCorp, NAHC of Oregon, Inc. and New American Healthcare Corporation
(Incorporated by reference to Exhibit 10.33 to the Registrant's Registration Statement
No. 333-57913 on form S-1).
10.34 -- License Agreement (Pulse Home Health) dated as of January 31, 1998 among Tenet
HealthSystem HealthCorp, NAHC of Iowa, Inc. and New American Healthcare Corporation
(Incorporated by reference to Exhibit 10.34 to the Registrant's Registration Statement
No. 333-57913 on form S-1).
10.35 -- Asset Sale Agreement dated as of December 22, 1997 between New American Healthcare
Corporation, as Buyer, and PSH, Inc., as Seller (Incorporated by reference to Exhibit
10.35 to the Registrant's Registration Statement No. 333-57913 on form S-1).
10.36 -- Agreement dated March 23, 1998 between Healthcare Management Systems, Inc. and New
American Healthcare Corporation (management information systems) (Incorporated by
reference to Exhibit 10.36 to the Registrant's Registration Statement No. 333-57913 on
form S-1).
10.37 -- New American Healthcare Corporation Stock Option Plan (Incorporated by reference to
Exhibit 10.37 to the Registrant's Registration Statement No. 333-57913 on form S-1).
10.38 -- New American Healthcare Corporation Employee Stock Purchase Plan (Incorporated by
reference to Exhibit 10.38 to the Registrant's Registration Statement No. 333-57913 on
form S-1).
10.39 -- Agreement to Lease and Purchase dated October 29, 1998 among Lucius O. Crosby Memorial
Hospital ("Seller") and NAHC of Mississippi, Inc. and New American Healthcare
Corporation (incorporated by reference to Exhibit 2.1 of the Company's Current Report
on Form 8-K filed November 16, 1998).
10.40 -- Stock Purchase Agreement dated as of October 31, 1998 among NAHC Georgia Holdings, Inc. (as "Buyer"),
the shareholders of Memorial Hospital of Adel, Inc. (the "Shareholders") and New American Healthcare
Corporation (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K
filed November 18, 1998).
10.41 -- Third Amendment to Amended and Restated Credit Agreement, dated as of October 27, 1998, by and
among New American Healthcare Corporation, as Borrower, Toronto Dominion (Texas), Inc., as Agent,
The Toronto-Dominion Bank, as Issuing Bank, and various lenders thereto
</TABLE>
<PAGE> 76
<TABLE>
<S> <C> <C>
(incorporated by reference to Exhibit 10.3 of the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1998).
10.42 -- Severance Agreement and Release, dated as of February 22, 1999, between
Robert M. Martin and New American Healthcare Corporation.
10.43 -- Executive Employment Agreement, dated as of March 4, 1999, by and between
New American Healthcare Corporation and Thomas W. Singleton.
10.44 -- The Second Amended and Restated Credit Agreement, dated as of May 14, 1999, by
and among New American Healthcare Corporation, as Borrower, Toronto Dominion
(Texas), Inc., as Agent, The Toronto-Dominion Bank, as Issuing Bank, and
various lenders thereto.
21 -- Subsidiaries of the Registrant.
23 -- Consent of KPMG LLP.
27.1 -- Financial Data Schedule (for SEC use only).
</TABLE>
<PAGE> 1
Exhibit 10.42
Execution Copy
SEVERANCE AGREEMENT AND RELEASE
This Severance Agreement and Release, dated as of February 22, 1999 is
entered into between Robert M. Martin ("Martin") residing at 919 Stuart Lane,
Brentwood, Tennessee 37207, and New American Healthcare Corporation, a Delaware
corporation ("NAH").
WHEREAS, Martin was employed by NAH from about December 19, 1995,
originally pursuant to an Employment Agreement dated as of December 19, 1995,
which was terminated and superseded in its entirety on August 1, 1998 by a
Severance and Noncompete Agreement dated as of August 1, 1998 (the "Severance
and Noncompete Agreement"); and
WHEREAS Martin has served as a Director of NAH from about December 19,
1995; and
WHEREAS, as provided herein, Martin is resigning from his employment at NAH
and as a Director of NAH; and
WHEREAS, the parties hereto wish to resolve any and all matters arising out
of or relating to Martin's employment and directorship at NAH;
NOW, THEREFORE, in consideration of the mutual promises, releases and
covenants contained herein, the parties hereby agree as follows:
1. Martin hereby resigns his employment with NAH, effective as of 5:00 p.m.
on February 22, 1999.
2. The Severance and Noncompete Agreement is hereby amended as follows:
(a) Section 3 ("Termination") of the Severance and Noncompete Agreement
is hereby canceled and vacated and is of no further force and effect; and
(b) Section 2 ("Restrictive Covenants") of the Severance and Noncompete
Agreement is hereby amended by deleting the words "Section 3(b) hereof"
<PAGE> 2
on each occasion they occur therein and substituting therefor (i) on the first
such occasion, the words "Section 3 of the Severance Agreement and Release dated
February 22, 1999 (the "1999 Severance Agreement") and (ii) on each subsequent
such occasion, the words "Section 3 of the 1999 Severance Agreement". In
addition, the proviso at the end of clause (a) of said Section 2 is hereby
deleted in its entirety and replaced with the following text:
"provided, however, that the provisions of this Section 2(a) shall not be
deemed to prohibit the Executive's ownership of (i) not more than two
percent (2%) of the total shares of all classes of stock outstanding of any
publicly held company, or ownership, whether through direct or indirect
stock holdings or otherwise, of one percent (1%) or more of any other
business, or (ii) any interest in any entity that is an affiliate of Welsh
Carson, Anderson & Stowe VII, L.P. or any of its affiliates."
Except as otherwise provided hereinabove, all terms and provisions of the
Severance and Noncompete Agreement shall remain in full force and effect.
3. In consideration of Martin's execution and delivery of this Agreement
and his agreement to abide by its terms, NAH agrees to provide to Martin, as
severance payment, and in lieu of all amounts that would have been paid to him
pursuant to Section 3 of the Severance and Noncompete Agreement, the following:
(a) Martin's gross severance pay shall be $9,807 per two week pay
period, equivalent to an annual rate of $255,000, for a period of two years,
beginning on February 23, 1999 and terminating on February 22, 2001.
(b) payment of Martin's five (5) weeks of accrued vacation.
(c) NAH shall deduct or withhold from all payments to Martin under this
Agreement all appropriate taxes, whether income taxes, payroll taxes, or
otherwise.
(d) Beginning on February 23, 1999 and terminating on February 22, 2001,
subject to paragraph 23 hereof, Martin shall continue to be provided with the
employee benefits set forth below, and no others:
(i) an automobile allowance of $665 per month; and
(ii) all of the following employee benefits provided to Martin by NAH:
(A) short and long-term disability insurance and health and life
insurance, in accordance with NAH's standard benefit
2
<PAGE> 3
programs as in effect as of the date hereof, including
reimbursement for the private policy currently in effect;
(B) health and dental insurance for Martin and his dependents, with
no change in coverage; provided that, if NAH changes insurers,
there will be no exclusion for pre-existing conditions of Martin
or any of his dependents; and further provided that, if during
such period Martin or any of his dependents no longer qualifies
for such benefits, NAH shall obtain for Martin and/or his
dependents from third party sources, at NAH's sole cost,
substantially similar benefits;
(C) life insurance at current levels; and
(D) to the extent not already made, a matching contribution to
Martin's 401(k) plan account for the period of January 1, 1998
through February 22, 1999, which account NAH shall, as permitted
by applicable law, cause to become fully vested for Martin as of
February 22, 1999.
(e) Notwithstanding the provisions of the Restricted Stock Agreement
dated as of December 19, 1995 (the "Restricted Stock Agreement") among NAH and
the other several parties thereto, including Martin, the Restricted Shares (as
defined therein) held by Martin shall continue to vest from February 23, 1999
through July 31, 1999 at a rate equal to one-half the rate that would have been
applicable if he had continued to be employed by NAH and any such Restricted
Shares that would remain unvested after July 31, 1999 are being repurchased by
NAH simultaneously with the execution and delivery hereof at a price of $.05 per
share, with the result that, of the 184,875 Unvested Shares (as defined therein)
held by Martin as of the date hereof, (i) one-half thereof (or 92,437 shares)
are being repurchased by NAH and (ii) the remaining 92,437 such Unvested Shares
(subject to paragraph 8 below) shall vest monthly, on the last day of each
month, commencing February 28, 1999, at the rate of 1/6 of such 92,437 Unvested
Shares each month.
(f) Martin agrees and acknowledges that he is not entitled to any
compensation, bonus, contribution, benefit, pension or other payment from NAH,
in cash, in securities, or in kind, other than as set forth in this Agreement,
and furthermore agrees that he will forever forbear from making any claim
against NAH for such other compensation, bonus, contribution, benefit, pension
or other payment.
4. The Nonqualified Stock Option Agreement dated August 20, 1998 (the
"Option Agreement") between NAH and Martin is hereby amended (i) by reducing the
number of shares of Capital Stock (as defined therein) subject thereto from
133,678 to 26,736 (being 20% of the original amount), (ii) by providing that the
option to purchase
3
<PAGE> 4
all such 26,736 shares is fully vested as of the date hereof, and such option
may be exercised at any time or times prior to August 19, 2008, and (iii) by
deleting in its entirety Section 6.14 ("Non-Compete Provisions") thereof. NAH
further agrees that, with respect to any shares exercised by Martin under the
Option Agreement, NAH waives its rights under Section 6.2(b) of the New American
Healthcare Corporation Amended and Restated Stock Option Plan. Except as amended
in this paragraph 4, all terms and provisions of the Option Agreement shall
remain in full force and effect.
5. Martin will execute and deliver to NAH, simultaneously with the
execution and delivery of this Agreement, a letter of resignation substantially
in the form annexed hereto as Exhibit A.
6. (a) Except with respect to any indemnification obligation imposed on NAH
by clause (ii) of paragraph 23 hereof, Martin irrevocably and unconditionally
releases and discharges NAH, its past and present officers, directors, agents,
attorneys, representatives, employees, servants, subsidiaries, affiliates,
shareholders, successors and assigns, and all persons acting by, through, under
or in concert with any of them (collectively, the "NAH Releasees"), jointly and
severally, from any and all claims, demands, rights, liabilities, debts, liens,
damages, punitive damages, costs, losses, expenses and/or compensation,
covenants, contracts, controversies, agreements, promises, actions and causes of
action, of every kind and nature whatsoever, at law or in equity, including, but
not limited to, rights arising under the United States Constitution and the
Constitution of the State of Tennessee, and/or under statute (both state and
federal), rule, regulation, or ordinance (including, without limitation, Title
VII of the Civil Rights Act of 1964, the Rehabilitation Act of 1973, including
ss.504 thereof, the Civil Rights Act of 1866, 42 U.S.C. ss.1981, the Age
Discrimination in Employment Act of 1967, the Americans with Disabilities Act,
the Equal Pay Act, The Fair Labor Standards Act and the Employee Retirement
Income Security Act ("ERISA"), all as amended), at common law, whether in tort,
in contract or otherwise, known or unknown, suspected or unsuspected, disclosed
or undisclosed, which against the NAH Releasees, or any of them, Martin ever
had, now has or hereafter can, shall or may have for, upon, or by reason of any
act, omission, matter, cause or thing whatsoever, from the beginning of time to
the date of this Release.
(b) NAH irrevocably and unconditionally releases and discharges Martin,
his past and present agents, attorneys, representatives, employees, servants,
partners, successors and assigns, and all persons acting by, through, under or
in concert with any of them (collectively, the "Martin Releasees"), jointly and
severally, from any and all claims, demands, rights, liabilities, debts, liens,
damages, punitive damages, costs, losses, expenses and/or compensation,
covenants, contracts, controversies, agreements, promises, actions and causes of
action, of every kind and nature whatsoever, at law or in equity, under statute
(both state and federal), rule, regulation, or ordinance, at common law whether
in tort, in contract or otherwise, known or unknown, suspected or unsuspected,
disclosed or undisclosed, which against the Martin Releasees,
4
<PAGE> 5
NAH ever had, now has or hereafter can, shall or may have for, upon, or by
reason of any act, omission, matter, cause or thing whatsoever, from the
beginning of time to the date of this Release.
(c) Nothing in this paragraph 6 is intended to or constitutes a release
or waiver of any rights or obligations any party may have under this Agreement,
and all such rights and obligations are expressly preserved.
7. Martin and NAH expressly waive and release any and all claims or damages
which exist as of the effective date of this Agreement, but which he or it, as
the case may be, did not know or suspect to exist in his or its favor, whether
through ignorance, oversight, error, negligence, or otherwise, and which may or
might have materially affected his or its decision to execute this Agreement.
8. Martin acknowledges that the payments and benefits to be provided to him
pursuant to this Agreement exceed those to which he would otherwise be entitled.
He further acknowledges that the agreement by NAH to provide such payments and
other benefits, including without limitation the continued vesting of his
Restricted Stock as hereinabove provided, is expressly conditioned upon his
compliance with all the terms and conditions of this Agreement.
9. (a) Martin represents and warrants (i) that he has not filed or
commenced, individually or collectively, any actions, charges or claims against
NAH or its present and former shareholders, partners, officers, directors,
employees, agents, subsidiaries and affiliates, and that he will not, in the
future, file or commence, individually or collectively, any such actions,
charges or claims; (ii) that he has made no transfer, assignment, conveyance or
other disposition to any other person or entity any claims against or any
interest in claims against the NAH Releasees (iii) that no other person or
entity has an interest in any such claims; and (iv) and that he is fully
entitled to give his full and complete release of all such claims.
(b) NAH represents and warrants (i) that it has not filed or commenced,
individually or collectively, any actions, charges or claims against Martin, and
that it will not, in the future, file or commence, individually or collectively,
any such actions, charges or claims; (ii) that it has made no transfer,
assignment, conveyance or other disposition to any other person or entity any
claims against or any interest in claims against the Martin Releasees (iii) that
no other person or entity has an interest in any such claims; and (iv) and that
it is fully entitled to give its full and complete release of all such claims.
10. With respect to any action or proceeding by or against NAH or any of
its officers, directors or employees, whether civil or criminal, at law, in
equity, before any administrative board, agency or officer (collectively, for
this paragraph, "NAH"), or
5
<PAGE> 6
otherwise, Martin will cooperate fully with NAH in the prosecution or defense of
any such action or proceeding. Such cooperation shall include, without
limitation, Martin making himself available for interviews by counsel for NAH,
assisting in responding to discovery, making himself available as a witness for
deposition, trial or hearing testimony, or such other assistance as NAH may
reasonably require. NAH will, to the extent necessary and appropriate, select
and retain counsel for Martin in any such proceeding, subject to the consent of
Martin, which shall not unreasonably be withheld, and NAH shall pay the fees and
expenses of such counsel.
11. Martin agrees forever to forbear from rendering any voluntary
assistance to any person or entity prosecuting any claim, action or proceeding
against NAH, or contemplating or considering the commencement or prosecution of
any such action or proceeding.
12. Martin and NAH agree that they will not make any communications or
statements to the press or other third parties, including without limitation to
any hospitals and health care organizations or officials, denigrating or
impugning the character, ethics, integrity, or present or future business or
financial performance, ability, position or circumstances of the other or of any
of NAH's officers, directors or employees.
13. Martin acknowledges, agrees and reaffirms that the provisions of
Section 1 ("Confidential Information") and, as amended by paragraph 2 hereof,
Section 2 ("Restriction Covenants") of the Severance and Noncompete Agreement
remain in full force and effect on and after the date of this Agreement, and
further agrees that his right to receive any payment or benefit hereunder is
conditioned on his strict compliance with such provisions.
14. This Agreement is a compromise and settlement of disputed claims, and
this Agreement shall not be deemed or construed to be an admission of liability,
or of the merit or lack of merit of any claim or defense asserted, or that could
be asserted, on the part of any party hereto. The parties further agree and
understand that this Agreement is being entered into for the purpose of avoiding
further expense and threatened litigation, and this Agreement shall not be
offered into evidence in any action or proceeding between the parties for any
purpose whatsoever, except to enforce the terms thereof.
15. This Agreement shall in all respects be interpreted, enforced and
governed under the laws of the United States and of the State of Tennessee,
without giving effect to any choice of law principles thereof (except that any
agreement amended hereby shall, as so amended, continue to be governed by the
law provided therein).
6
<PAGE> 7
16. The parties hereto consent to the exclusive personal jurisdiction of
the Federal and State Courts located within or encompassing Williamson County,
Tennessee in any action arising out of or relating to this Agreement, or to the
breach of alleged breach thereof, and agree furthermore that the exclusive venue
of any such action shall be within the area of jurisdiction of such courts. In
any such action, the prevailing party shall be entitled to recover, in addition
to all other costs allowed by law, its or his reasonable attorney's fees.
17. Martin acknowledges and agrees that the remedies of NAH at law, if any,
for any breach or threatened breach of the provisions of paragraph 13 hereof
would be inadequate and, therefore, agrees that NAH shall be entitled to
appropriate injunctive and other equitable relief from a court of competent
jurisdiction, as such court may determine. Nothing in this paragraph 17 is
intended to alter any law, statute or rule regarding the burden of proof or
burden of persuasion in any such proceeding. In any such action, Martin waives
his rights, if any, to the posting of a bond or other security by NAH.
18. This Agreement shall be binding upon, and inure to the benefit of, the
successors, heirs, devisees, legatees, executors, administrators, assigns,
trustees, and agents of each of the parties hereto.
19. By signing this Agreement, Martin acknowledges and agrees that:
(a) he has been afforded a reasonable and sufficient period of time to
review this Agreement and conduct such investigation and make such inquiries as
he deems appropriate, for deliberation and for negotiation of the terms hereof,
that he has consulted with legal counsel of his choice before signing it, and
that such counsel has represented him in negotiating the terms of this
Agreement;
(b) he has carefully read and understands the terms of this Agreement,
which have been fully explained to him by his legal counsel;
(c) he has signed this Agreement freely and voluntarily and without
duress or coercion of any kind, and with full knowledge of its significance and
consequences and of the rights relinquished, surrendered, released and
discharged hereunder;
(d) the only consideration for entering into this Agreement are the
terms stated herein, and no other promise, statement or representation of any
kind has been made to Martin by any person or entity whatsoever to cause him to
sign this Agreement; and
(e) all waiting, "cooling off" or other periods during which this
Agreement could be re-considered, revoked or rescinded, if any, have, subject to
the
7
<PAGE> 8
proviso set forth below, expired as of the date of his execution of this
Agreement, and, to the extent any such period has not expired, Martin waives, to
the fullest extent permitted by law, any such right to re-consider, revoke or
rescind this Agreement; provided, however, that, anything in this clause (e) to
the contrary notwithstanding, Martin may revoke his agreement to release claims
under the Age Discrimination in Employment Act if he does so within seven days
of executing this Agreement and this Agreement shall not be binding on NAH until
expiration of such seven-day revocation period.
20. The parties acknowledge and agree that this Agreement and the other
documents executed and delivered by the parties pursuant hereto, together with
the Severance and Noncompete Agreement, the Restricted Stock Agreement and the
Option Agreement (each as amended hereby), contain the entire understanding of
the parties with respect to their subject matter, and there are no
representations, promises, warranties, covenants or undertakings other than
those expressly set forth herein or therein. Each party hereto expressly
disclaims having entered into this Agreement and any other documents executed
and delivered by the parties pursuant hereto by reason of any promise,
statement, representation, warranty, covenant or undertaking other than those
expressly set forth herein or therein. It is expressly understood and agreed
that this Agreement may not be altered, amended, modified or otherwise changed
in any respect whatsoever, except by a writing duly executed by the parties or
their authorized representatives. The parties acknowledge and agree that they
will make no claim at any time or place that this Agreement has been orally
altered or modified in any respect whatsoever. This Agreement is not effective
until it has been fully executed and delivered by all the parties and the
seven-day revocation period provided by paragraph 19 has expired.
21. This Agreement may be executed in one or more counterparts, each of
which shall constitute a duplicate of the original, and which together shall
constitute one document.
22. NAH shall reimburse Martin for his reasonable attorneys' fees and
expenses incurred in connection with this Agreement.
23. Nothing herein affects, in any manner, (i) the rights of Martin to
continuation of health care insurance under COBRA, it being expressly understood
that, except as provided in paragraph 3(d) hereof, NAH has no obligation of any
kind whatsoever, either arising under this Agreement or otherwise, to pay for or
finance, in whole or in part, in any manner whatsoever, any health care,
insurance or other employee pension or welfare benefits, as such terms are
defined in ERISA, for Martin or for any member of his family, and (ii) the
obligation of NAH to indemnify Martin as a former officer and director of NAH,
as provided by the By-Laws and Certificate of Incorporation of NAH and in
accordance with the law of the State of Delaware.
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<PAGE> 9
24. Martin will submit all expense vouchers and other requests for
reimbursement on or before February 28, 1999, with respect to all expenses and
disbursements incurred by him on behalf of NAH on or before February 22, 1999,
and NAH will reimburse Martin therefor in accordance with its regular practice.
25. Except as may be required by applicable law, the parties agree that any
publicity or communication to a third party of the existence of this Agreement
or of its terms or provisions, or any announcement or other form of disclosure
to third parties of Martin's resignation, shall be in a form mutually acceptable
to both parties and reviewed and approved of in advance by the non-disclosing
party.
26. All notices that are required or may be given pursuant to the terms of
this Agreement shall be in writing and shall be sufficient in all respects if
(i) delivered personally, (ii) mailed by registered or certified mail, return
receipt requested and postage prepaid, (iii) sent via a nationally recognized
overnight courier service or (iv) if applicable, sent via facsimile confirmed in
writing to the recipient, in each case as follows:
If to NAH, to:
New American Healthcare Corporation
109 Westpark Drive, Suite 440
Brentwood, Tennessee 37027
Attention: President
and with a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Attention: William J. Hewitt, Esq.
Facsimile: (212) 841-5725
If to Martin, to:
Mr. Robert M. Martin
919 Stuart Lane
Nashville, Tennessee 37207
and with a copy to:
Sherrard & Roe, PLC
424 Church Street
9
<PAGE> 10
Nashville, Tennessee 37219
Attention: Thomas J. Sherrard III, Esq.
Facsimile: (615) 742-4539
IN WITNESS WHEREOF, NAH and Martin have executed and delivered this
Severance Agreement and Release as of the day and year first above written.
NEW AMERICAN HEALTHCARE
CORPORATION
By:
------------------------------
Name:
Title
.
------------------------------
Robert M. Martin
10
<PAGE> 11
AGREEMENT AND CONSENT
As required by Article III, Section C of the Restricted Stock
Agreement, NAH, Martin and the additional parties to the Restricted Stock
Agreement, AGREE and CONSENT to the modification to the Restricted Stock
Agreement made pursuant to paragraph 3(e) hereof as of the date first written
above. All parties, including NAH and Martin, as evidenced by their signatures
above, further AGREE that the last sentence of Article III, Section C of the
Restricted Stock Agreement is hereby deleted in its entirety and replaced with
the following text:
"This Agreement may not be amended or modified nor any provisions
waived except in a writing signed by the Company and the party against
whom enforcement of such amendment or modification is to be made;
provided, however, that no amendment or modification shall discriminate
against or increase the obligations hereunder of any party without the
consent of such party."
Except as amended hereby, all terms and provisions of the Restricted Stock
Agreement shall remain in full force and effect.
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
By WCAS VII Partners, General Partner
By:
-------------------------------
General Partner
WCAS Healthcare Partners, L.P.
By WCAS HP Partners, General Partner
By:
-------------------------------
General Partner
- -----------------------------------
Patrick J. Welsh
- -----------------------------------
Russell L. Carson
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<PAGE> 12
- -----------------------------------
Bruce K. Anderson
- -----------------------------------
Richard H. Stowe
- -----------------------------------
Andrew M. Paul
- -----------------------------------
Thomas E. McInerney
- -----------------------------------
Laura VanBuren
- -----------------------------------
James B. Hoover
- -----------------------------------
Robert A. Minicucci
- -----------------------------------
Anthony J. de Nicola
12
<PAGE> 13
DAVID F. BELLET - TRUSTEE
PROFIT SHARING PLAN DLJSC
CUSTODIAN FBO DAVID F. BELLET
By:
--------------------------------
HORIZON INVESTMENTS ASSOCIATES, I
By:
--------------------------------
- -----------------------------------
Dana C. McLendon, Jr.
- -----------------------------------
Craig B. Watson
- -----------------------------------
Timothy S. Hill
- -----------------------------------
Neil McLean
13
<PAGE> 14
EXHIBIT A
ROBERT M. MARTIN
- --------------------------------------------------------------------------------
February 12, 1999
Board of Directors
New American Healthcare Corporation
109 Westpark Drive, Suite 440
Brentwood, Tennessee 37027
Dear Sirs:
New American Healthcare Corporation is a wonderful company having many talented
and dedicated people working for its success as evidenced by growth to 11
hospitals in nine states with revenue of over $215 million. I have had the most
gratifying experience of my professional life in leading the company over the
past four years. However, it is now time for me to step out of the day-to-day
responsibilities of running New American leaving that to the great management
team that has been assembled. I remain supportive, but at a more distant level.
I intend to take a break from the incredible pace I have been keeping for so
long, both at New American and previously at HealthTrust, and enjoy some of the
personal aspects of my life more, but I will remain very interested in New
American's success.
Therefore, I hereby resign as a Director and as Chairman, President and Chief
Executive Officer of New American Healthcare Corporation, and from all other
positions I may hold with New American Healthcare Corporation or any of its
subsidiaries or affiliates, effective February 22, 1999.
Very truly yours,
/s/ Robert M. Martin
Robert M. Martin
919 Stuart Lane - Brentwood, TN 37027 - (615) 370-8330
<PAGE> 15
STATE OF TENNESSEE )
) ss.:
COUNTY OF WILLIAMSON )
On the ______ day of _________, 1999, before me personally
came Robert M. Martin, to me known, and known to be the same person described
herein and who executed the foregoing Severance Agreement and Release, and who
duly acknowledged to me that he executed the same.
------------------------------
Notary Public
15
<PAGE> 1
Exhibit 10.43
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT, dated as of March 4, 1999 by and
between NEW AMERICAN HEALTHCARE CORPORATION, a Tennessee corporation (the
"Company"), and THOMAS W. SINGLETON (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to induce the Executive to enter into
employment with the Company for the period provided in this Agreement, and the
Executive is willing to accept such employment with the Company on a full-time
basis, all in accordance with the terms and conditions set forth below;
NOW, THEREFORE, for and in consideration of the premises hereof and the
mutual covenants contained herein, the parties hereto hereby covenant and agree
as follows:
1. Employment. (a) The Company hereby employs the Executive,
and the Executive hereby accepts such employment with the Company, for the
period set forth in Section 2 hereof, all upon the terms and conditions
hereinafter set forth.
(b) The Executive affirms and represents that he is under no
obligation to any former employer or other party which is in any way
inconsistent with, or which imposes any restriction upon, the Executive's
acceptance of employment hereunder with the Company, the employment of the
Executive by the Company, or the Executive's undertakings under this Agreement.
2. Term of Employment. Unless earlier terminated as
hereinafter provided, the term of the Executive's employment under this
Agreement, subject to the provisions of Section 3(b) below, shall initially be
for a period beginning on the date hereof and ending on March 4, 2003 (such
period from the date hereof until March 4, 2003 or until the date of such
earlier termination being hereinafter called the "Employment Term").
(a) In the event that the Executive continues in the full-time
employ of the Company after the end of the Employment Term (it being expressly
understood and agreed that the Company does not now, nor hereafter shall have,
any obligation to continue the Executive in its employ whether or not on a
full-time basis, after said Employment Term ends), then, unless otherwise
expressly agreed to by the Executive and the Company in writing, the Executive's
<PAGE> 2
continued employment by the Company after the Employment Term shall,
notwithstanding anything to the contrary expressed or implied herein, be
terminable by the Company at will, but shall in all other respects be subject to
the terms and conditions of this Agreement.
3. Duties. (a) The Executive shall be employed as the
President and Chief Executive Officer of the Company, shall faithfully and
competently perform such duties as are specified in the by-laws of the Company
and shall also perform and discharge such other executive employment duties and
responsibilities consistent with his position as President and Chief Executive
Officer as the Board of Directors of the Company may from time to time
reasonably prescribe. The Executive shall perform his duties at such places and
times as the Board of Directors of the Company may reasonably prescribe. Except
as provided in paragraph (b) below or as may otherwise be approved in advance by
the Board of Directors of the Company, and except during vacation periods and
reasonable periods of absence due to sickness, personal injury or other
disability, personal affairs or non-profit public service activities, the
Executive shall devote his full time during normal business hours throughout the
Employment Term to the services required of him hereunder. The Executive shall
render his business services exclusively to the Company during the Employment
Term and shall use his best efforts, judgment and energy to improve and advance
the business and interests of the Company in a manner consistent with the duties
of his position.
(b) The parties recognize that during the 90-day period
commencing on the date hereof, the Executive will be effecting a transition from
his employment and duties at his prior employer, Quorum Health Group, Inc.
("Quorum"), and that during such period he will be spending approximately an
aggregate one-third of his business time on Quorum matters and the balance on
his duties hereunder, with the Company, it being understood that the Executive
will seek to concentrate the time so spent on Quorum matters in the early part
of such 90-day period. The Executive represents and warrants that he has full
authorization and permission from Quorum to work on this basis during such
90-day period, and that all such work will terminate at the end of such 90-day
period.
4. Salary and Bonus. (a) Salary. As compensation for the
performance by the Executive of the services to be performed by the Executive
hereunder during the Employment Term, the Company shall pay the Executive a base
salary at the annual rate of two hundred sixty thousand dollars ($260,000) (said
amount, together with any increases thereto as provided in this Section 4(a),
being hereinafter referred to as "Salary"). Any Salary payable hereunder shall
be paid in regular intervals (but in no event less frequently than monthly) in
accordance with the Company's payroll practices from time to time in effect. The
Salary payable to the Executive pursuant to this Section 4(a) shall be subject
to annual review and may be increased as determined from time to time by the
Board of Directors of the Company in its sole discretion, but may not be
decreased.
2
<PAGE> 3
(b) Bonus. The Executive shall be eligible to receive bonus
compensation from the Company in respect of each fiscal year (or portion
thereof) occurring during the Employment Term in an amount up to 50% of his then
current Salary, based on meeting performance targets to be established by the
Board of Directors of the Company. Any bonus payable hereunder shall be paid as
promptly as practicable as determined by the Board of Directors.
(c) Withholding, Etc. The payment of any Salary and bonus
hereunder shall be subject to applicable withholding and payroll taxes, and such
other deductions as may be required under the Company's employee benefit plans.
5. Other Benefits. During the Employment Term, the Executive
shall:
(i) be eligible to participate in employee fringe benefits
and pension and/or profit sharing plans that may be provided by the
Company for its senior executive employees in accordance with the
provisions of any such plans, as the same may be in effect from time to
time;
(ii) be eligible to participate in any medical and health
plans or other employee welfare benefit plans that may be provided by
the Company for its senior executive employees in accordance with the
provisions of any such plans, as the same may be in effect from time to
time;
(iii) be entitled to the number of paid vacation days in
each calendar year determined by the Company from time to time for its
senior executive officers. The Executive shall also be entitled to all
paid holidays given by the Company to its senior executive officers;
(iv) be entitled to sick leave, sick pay and disability
benefits in accordance with any Company policy that may be applicable
to senior executive employees from time to time; and
(v) be entitled to reimbursement for all reasonable and
necessary out-of-pocket business expenses incurred by the Executive in
the performance of his duties hereunder in accordance with the
Company's policies applicable thereto.
6. Confidential Information. The Executive hereby covenants,
agrees and acknowledges as follows:
(a) The Executive has and will have access to and will
participate in the development of or be acquainted with confidential or
proprietary information and trade secrets related to the business of
the Company, and any present or future subsidiaries or affiliates
thereof (collectively with the Company, the "Companies"), including but
not limited to
3
<PAGE> 4
(i) customer lists; claims histories and related records and
compilations of information; the identity, lists or descriptions of
any new patients, referral sources or organizations; financial
statements; cost reports or other financial information; contract
proposals or bidding information; business plans; training and
operations methods and manuals; personnel records; software programs;
reports and correspondence; fee structures; and management systems,
policies or procedures, including related forms and manuals; (ii)
information pertaining to future developments such as future marketing
or acquisition plans or ideas, and potential new business locations
and (iii) all other tangible and intangible property, which are used
in the business and operations of the Companies but not made public.
The information and trade secrets relating to the business of the
Companies described hereinabove in this paragraph (a) are hereinafter
referred to collectively as the "Confidential Information", provided
that the term Confidential Information shall not include any
information (x) that is or becomes generally publicly available (other
than as a result of violation of this Agreement by the Executive) or
(y) that the Executive receives on a nonconfidential basis from a
source (other than the Companies or their representatives) that is not
known by him to be bound by an obligation of secrecy or
confidentiality to any of the Companies.
(b) The Executive shall not disclose, use or make known for
his or another's benefit any Confidential Information or use such
Confidential Information in any way except as is in the best interests
of the Companies in the performance of the Executive's duties under
this Agreement. The Executive may disclose Confidential Information
when required by a third party and applicable law or judicial process,
but only after providing (i) immediate notice to the Company at any
third party's request for such information, which notice shall include
the Executive's intent with respect to such request, and (ii)
sufficient opportunity for the Company to challenge or limit the scope
of the disclosure on behalf of the Companies, the Executive or both.
(c) The Executive acknowledges and agrees that a remedy at law
for any breach or threatened breach of the provisions of this Section 6
would be inadequate and, therefore, agrees that the Companies shall be
entitled to injunctive relief in addition to any other available rights
and remedies in case of any such breach or threatened breach, provided,
however, that nothing contained herein shall be construed as
prohibiting the Companies from pursuing any other rights and remedies
available for any such breach or threatened breach.
(d) The Executive agrees that upon termination of his
employment with the Company for any reason, the Executive shall
forthwith return to the Company all Confidential Information in
whatever form maintained (including, without limitation, computer disks
and other electronic media).
4
<PAGE> 5
(e) The obligations of the Executive under this Section 6
shall, except as otherwise provided herein, survive the termination of
the Employment Term and the expiration or termination of this Agreement
and shall terminate twenty-four months after the termination of the
Employment Term or, if later, twenty-four months after termination of
his employment with the Company.
(f) Without limiting the generality of Section 10 hereof, the
Executive hereby expressly agrees that the foregoing provisions of this
Section 6 shall be binding upon the Executive's heirs, successors and
legal representatives.
7. Termination. (a) The Executive's employment hereunder shall
be terminated upon the occurrence of any of the following:
(i) death of the Executive;
(ii) termination of the Executive's employment hereunder by
the Company because of the Executive's inability to perform his duties
on account of disability or incapacity for 180 days in any period of
twelve (12) consecutive months;
(iii) termination of the Executive's employment hereunder by
the Company at any time "for cause" (as defined below), such
termination to take effect immediately upon written notice from the
Company to the Executive to such effect; and
(iv) termination of the Executive's employment hereunder by
the Executive at any time for any reason whatsoever (including, without
limitation, resignation or retirement), other than pursuant to clause
(v)(B) below;
(v) termination of the Executive's employment hereunder (A) by
the Company at any time, other than (x) termination by reason of death,
disability or incapacity as contemplated by clause (i) or (ii) above or
(y) termination by the Company "for cause" as contemplated by clause
(iii) above or (B) by the Executive for the breach of any material
provision of this Agreement by the Company after written notice and a
reasonable opportunity to cure the same shall have been provided by the
Executive to the Company .
The following actions, failures and events by or affecting the
Executive shall constitute "cause" for termination within the meaning of clause
(iii) above: (A) conviction of the Executive for, or the entering of a plea of
nolo contendere by the Executive with respect to, having committed a felony, (B)
acts of dishonesty or moral turpitude by the Executive that are materially
detrimental to one or more of the Companies, (C) abuse of controlled substances
or alcohol by the Executive (in the case of alcohol abuse, that has a material
adverse effect on the Executive's performance of his obligations hereunder), (D)
acts or omissions by the Executive that the Executive knew were likely to
materially damage the business of one or more of the
5
<PAGE> 6
Companies, (E) reckless or willful disregard by the Executive of his obligations
hereunder or otherwise relating to his employment, or (F) failure by the
Executive to obey the reasonable and lawful orders of the Board of Directors
that are consistent with the provisions of this Agreement with respect to any
material matter (provided that, in the event such failure does not also
constitute "cause" under any of clauses (A) through (E) above, the Executive
shall have received written notice of such failure and a reasonable opportunity
to discuss the matter with the Board of Directors, followed by a notice that the
Board of Directors adheres to its position and a reasonable opportunity to
comply with such orders). In any litigation between the parties relating to this
Agreement involving "cause" (as defined herein), the burden of proof to
establish cause shall be on the Company, regardless of which party is the
plaintiff in such litigation.
(b) In the event that the Executive's employment is terminated
pursuant to clause (v) of Section 7(a) above, whether before, during, at or
after the end of the Employment Term, the Company shall pay to the Executive, as
severance pay or liquidated damages or both, monthly payments at the rate per
annum of his Salary at the time of such termination and shall provide the
Executive with the benefits provided by Section 5(ii) of this Agreement, for a
period from the date of such termination until 24 months after such termination
(or, if the Executive shall have made the election contemplated by Section 9(g)
below, 12 months after such termination, provided, however, that if the
Executive shall accept employment with another employer during such 24-month
period or 12-month period, as the case may be, then, from and after the first
day of the next month, (i) each monthly payment pursuant to this paragraph (b)
shall be reduced (but not below zero) by the amount of his monthly compensation
from such other employer and (ii) if such other employer shall provide benefits
substantially equivalent to those provided by Section 5(ii) of this Agreement,
such benefits pursuant to this paragraph (b) shall cease.
(c) Notwithstanding anything to the contrary expressed or
implied herein, except as required by applicable law and except as set forth in
Section 7(b) above, the Company (and its affiliates) shall not be obligated to
make any payments to the Executive or on his behalf of whatever kind or nature
by reason of the Executive's cessation of employment (including, without
limitation, by reason of termination of the Executive's employment by the
Company for "cause"), other than (i) such amounts, if any, of his Salary and
bonus as shall have accrued and remained unpaid as of the date of said cessation
and (ii) such other amounts, if any, which may be then otherwise payable to the
Executive from the Company's benefits plans or reimbursement policies.
(d) No interest shall accrue on or be paid with respect to any
portion of any payments hereunder, except that any payment pursuant to paragraph
(b) above that shall remain unpaid for more than five days after the same shall
be due and payable shall bear interest from and after such due date at the
"prime rate" from time to time announced by The Chase Manhattan Bank.
6
<PAGE> 7
8. Non-Assignability. (a) Neither this Agreement nor any right
or interest hereunder shall be assignable by the Executive or his beneficiaries
or legal representatives without the Company's prior written consent, provided,
however, that nothing in this Section 8(a) shall preclude the Executive from
designating a beneficiary to receive any benefit payable hereunder upon his
death or incapacity.
(b) Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion,
attachment, levy or similar process or to assignment by operation of law, and
any attempt, voluntary or involuntary, to effect any such action shall be null,
void and of no effect.
9. Restrictive Covenants. (a) Competition. During the
Employment Term (subject to the provisions of Section 3(b) above) and during the
twenty-four (24) month period following the end of the Employment Term for any
reason whatsoever (or, if later, the twenty-four (24) month period following
termination of the Executive's employment with the Company), provided that
payments, if any, required pursuant to Section 7(b) hereof are made in full and
in a timely fashion, the Executive will not directly or indirectly (as a
director, officer, executive employee, manager, consultant, independent
contractor, advisor or otherwise) engage in competition with, or own any
interest in, perform any services for, participate in or be connected with any
business or organization which engages in competition with any of the Companies
in any state of the United States of America, provided, however, that the
provisions of this Section 9(a) shall not be deemed to prohibit the Executive's
ownership of not more than two percent (2%) of the total shares of all classes
of stock outstanding of any publicly held company, or ownership, whether through
direct or indirect stock holdings or otherwise, of one percent (1%) or more of
any other business.
(b) Non-Solicitation. During the Employment Term and during
the twenty-four (24) month period following the end of the Employment Term for
any reason whatsoever (or, if later, the twenty-four (24) month period following
termination of the Executive's employment with the Company), provided that
payments, if any, required pursuant to Section 7(b) hereof are made in full and
in a timely fashion, the Executive will not directly or indirectly induce or
attempt to induce any employee of any of the Companies to leave the employ of
the Company or such subsidiary or affiliate, or in any way interfere with the
relationship between any of the Companies and any employee thereof. This Section
9(b) shall not prohibit the Executive from employing any employee of the Company
if such employee initially contacts Executive seeking such employment, and such
employee has stated to the Company his or her intention to terminate his or her
employment with the Company.
(c) Non-Interference. During the Employment Term and during
the twenty-four (24) month period following the end of the Employment Term for
any reason whatsoever (or, if later, the twenty-four (24) month period following
termination of the Executive's employment
7
<PAGE> 8
with the Company), provided that payments, if any, required pursuant to Section
7(b) hereof are made in full and in a timely fashion, the Executive will not
directly or indirectly hire, engage, send any work to, place orders with, or in
any manner be associated with any supplier, contractor, subcontractor or other
business relation of any of the Companies if such action by him would have a
material adverse effect on the business, assets or financial condition of any of
the Companies, or materially interfere with the relationship between any such
person or entity and any of the Companies.
(d) Certain Definitions.
(i) For purposes of this Section 9, a person or entity
(including, without limitation, the Executive) shall be deemed to be a
competitor of one or more of the Companies, or a person or entity
(including, without limitation, the Executive) shall be deemed to be
engaging in competition with one or more of the Companies, if such
person or entity (A) subject to the proviso set forth below, is a
for-profit general acute care hospital company, or (B) in any way
conducts, operates, carries out or engages in the business of managing
for-profit general acute care hospitals, in either case in any state of
the United States of America, provided, however, nothing in this
Agreement shall prohibit the Executive from becoming associated in any
capacity at a single for-profit general acute care hospital as long as
such hospital is not owned, operated or managed by a for-profit
multi-facility hospital company or management company.
(ii) For purposes of this Section 9, no corporation or entity
that may be deemed to be an affiliate of the Company solely by reason
of its being controlled by, or under common control with, Welsh,
Carson, Anderson & Stowe VII, L.P. or any of its affiliates other than
the Company, will be deemed to be an affiliate of the Company.
(e) Certain Representations of the Executive. In connection
with the foregoing provisions of this Section 9, the Executive represents that
his experience, capabilities and circumstances are such that such provisions
will not prevent him from earning a livelihood. The Executive further agrees
that the limitations set forth in this Section 9 (including, without limitation,
time and territorial limitations) are reasonable and properly required for the
adequate protection of the current and future businesses of the Companies. It is
understood and agreed that the covenants made by the Executive in this Section 9
(and in Section 6 hereof) shall survive the expiration or termination of this
Agreement.
(f) Injunctive Relief. The Executive acknowledges and agrees
that a remedy at law for any breach or threatened breach of the provisions of
Section 9 hereof would be inadequate and, therefore, agrees that the Company and
any of its subsidiaries or affiliates shall be entitled to injunctive relief in
addition to any other available rights and remedies in cases of any such breach
or threatened breach, provided, however, that nothing contained herein shall be
8
<PAGE> 9
construed as prohibiting the Company or any of its affiliates from pursuing any
other rights and remedies available for any such breach or threatened breach.
(g) Early Termination. Anything in this Section 9 to the
contrary notwithstanding, in the event that the employment of the Executive
hereunder shall have been terminated pursuant to clause (v) of Section 7(a)
above, the twenty-four (24) month period referred to herein may be shortened to
a twelve (12) month period by written notice from the Executive to the Company
at any time not more than 90 or less than 30 days prior to the end of such
twelve (12) month period by written notice to the Company irrevocably electing
to shorten both such period and the period during which severance is payable
pursuant to Section 7(b) above.
10. Binding Effect. Without limiting or diminishing the effect
of Section 8 hereof, this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, successors, legal
representatives and assigns.
11. Notices. All notices which are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and (i) delivered personally,
(ii) mailed by certified or registered mail, return receipt requested and
postage prepaid, (iii) sent via a nationally recognized overnight courier or
(iv) sent via facsimile confirmed in writing to the recipient, if to the Company
at the Company's principal place of business, and if to the Executive, at his
home address most recently filed with the Company, or to such other address or
addresses as either party shall have designated in writing to the other party
hereto.
12. Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee.
13. Severability. The Executive agrees that in the event that
any court of competent jurisdiction shall finally hold that any provision of
Section 6 or 9 hereof is void or constitutes an unreasonable restriction against
the Executive, the provisions of such Section 6 or 9 shall not be rendered void
but shall apply with respect to such extent as such court may judicially
determine constitutes a reasonable restriction under the circumstances. If any
part of this Agreement other than Section 6 or 9 is held by a court of competent
jurisdiction to be invalid, illegible or incapable of being enforced in whole or
in part by reason of any rule of law or public policy, such part shall be deemed
to be severed from the remainder of this Agreement for the purpose only of the
particular legal proceedings in question and all other covenants and provisions
of this Agreement shall in every other respect continue in full force and effect
and no covenant or provision shall be deemed dependent upon any other covenant
or provision.
14. Waiver. Failure to insist upon strict compliance with any
of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition,
9
<PAGE> 10
nor shall any waiver or relinquishment of any right or power hereunder at any
one or more times be deemed a waiver or relinquishment of such right or power at
any other time or times.
15. Entire Agreement; Modifications. This Agreement, together
with the Stock Option Agreement, dated as of March 4, 1999 (the "Stock Option
Agreement"), among the Company and the Executive), constitutes the entire and
final expression of the agreement of the parties with respect to the subject
matter hereof and supersedes all prior agreements, oral and written, between the
parties hereto with respect to the subject matter hereof. This Agreement may be
modified or amended only by an instrument in writing signed by both parties
hereto.
16. Counsel Fees. The Company shall pay the reasonable fees
and expenses of counsel for the Executive in connection with the negotiation,
execution and delivery of this Agreement and the Stock Option Agreement, upon
submission of invoices therefor supported in reasonable detail.
17. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Executive have duly
executed and delivered this Agreement as of the day and year first above
written.
NEW AMERICAN HEALTHCARE
CORPORATION
By
----------------------------------
Name:
Title:
-------------------------------------
Thomas W. Singleton
10
<PAGE> 1
EXHIBIT 10.44
================================================================================
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
BY AND AMONG
NEW AMERICAN HEALTHCARE CORPORATION,
AS BORROWER,
TORONTO DOMINION (TEXAS), INC.,
AS AGENT,
THE TORONTO-DOMINION BANK,
AS ISSUING BANK
AND
THE FINANCIAL INSTITUTIONS PARTY HERETO
DATED AS OF MAY 14, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINITIONS; ACCOUNTING TERMS..........................................................1
Section 1.1 Definitions............................................................................1
Section 1.2 Accounting Terms......................................................................22
ARTICLE II LOANS.................................................................................22
Section 2.1. Revolving Credit......................................................................22
Section 2.2 Interest and Fees.....................................................................24
Section 2.3 Payments..............................................................................28
Section 2.4 Waivers...............................................................................33
Section 2.5 Application of Payments...............................................................34
ARTICLE III LETTERS OF CREDIT.....................................................................35
Section 3.1 Issuance of Letters of Credit.........................................................35
Section 3.2 Draws Under Letters of Credit.........................................................36
Section 3.3 Actions by Issuing Bank...............................................................37
Section 3.4 Fees, Increased Costs, Indemnification, Expenses......................................39
ARTICLE IV SECURITY DOCUMENTS....................................................................41
Section 4.1 Security Agreements; Mortgages; Stock Pledge Agreements;
Concentration Account Pledge Agreement..............................................41
Section 4.2 Subsidiary Guaranties.................................................................42
ARTICLE V CONDITIONS PRECEDENT..................................................................42
Section 5.1 Conditions to Commitment..............................................................42
Section 5.2 Conditions to Each Loan...............................................................47
Section 5.3 Conditions Precedent to Each Letter of Credit.........................................47
Section 5.4 Conditions for the Benefit of the Agent and the Banks.................................48
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE BORROWER........................................49
Section 6.1 Due Organization......................................................................49
Section 6.2 Organization, Standing and Qualification of Subsidiaries..............................49
Section 6.3 Absence of Certain Activities.........................................................50
Section 6.4 Requisite Power.......................................................................50
Section 6.5 Authorization.........................................................................50
Section 6.6 Officer Authorization.................................................................50
Section 6.7 Binding Nature........................................................................50
Section 6.8 No Conflict...........................................................................51
Section 6.9 No Event of Default...................................................................51
Section 6.10 Financial Statements..................................................................51
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 6.11 No Adverse Change.....................................................................52
Section 6.12 Real Property.........................................................................52
Section 6.13 Equipment.............................................................................52
Section 6.14 Contracts.............................................................................52
Section 6.15 Intellectual Property.................................................................52
Section 6.16 Litigation............................................................................53
Section 6.17 Tax Returns and Tax Matters...........................................................53
Section 6.18 Employee Benefits.....................................................................53
Section 6.19 Environmental Matters.................................................................55
Section 6.20 Insurance.............................................................................56
Section 6.21 Compliance with Laws..................................................................56
Section 6.22 Statutory Regulation..................................................................56
Section 6.23 Use of Proceeds; Regulation U.........................................................56
Section 6.24 Solvency..............................................................................57
Section 6.25 Fiscal Year...........................................................................57
Section 6.26 Health Care Related Matters...........................................................57
Section 6.27 Related Agreements....................................................................58
Section 6.28 Year 2000 Compliance..................................................................58
ARTICLE VII AFFIRMATIVE COVENANTS.................................................................58
Section 7.1 Accounting Records....................................................................58
Section 7.2 Financial Statements and Notices......................................................58
Section 7.3 Inspection of Property Books and Records..............................................63
Section 7.4 Maintenance of Existence, Licenses, Permits, Etc......................................64
Section 7.5 Tax Returns...........................................................................64
Section 7.6 Qualifications To Do Business.........................................................64
Section 7.7 Compliance with Laws..................................................................64
Section 7.8 Compliance with Agreements............................................................64
Section 7.9 Insurance.............................................................................64
Section 7.10 Facilities............................................................................65
Section 7.11 Taxes and Other Liabilities...........................................................65
Section 7.12 Governmental Approvals................................................................65
Section 7.13 Compliance with Governmental Approvals and Governmental Requirements..................65
Section 7.14 Compliance with Environmental Laws....................................................65
Section 7.15 Prevent Contamination.................................................................66
Section 7.16 Tax Qualification.....................................................................66
Section 7.17 Funding...............................................................................66
Section 7.18 Financial Tests; Calculation Assumptions..............................................67
Section 7.19 Health Care Related Matters...........................................................71
Section 7.20 Concentration Account.................................................................71
Section 7.21 Operating Leases......................................................................71
Section 7.22 Subsidiary Control Documents..........................................................72
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VIII NEGATIVE COVENANTS....................................................................72
Section 8.1 Mergers...............................................................................72
Section 8.2 Change of Business....................................................................72
Section 8.3 Distributions.........................................................................73
Section 8.4 Accounting Policies...................................................................73
Section 8.5 Investments...........................................................................73
Section 8.6 Liens.................................................................................73
Section 8.7 Guaranties............................................................................73
Section 8.8 Indebtedness..........................................................................74
Section 8.9 Sale of Assets........................................................................74
Section 8.10 Sale-Leaseback Transactions...........................................................74
Section 8.11 Capital Expenditures..................................................................75
Section 8.12 Transactions with Affiliates..........................................................75
Section 8.13 Restrictive Agreements................................................................75
Section 8.14 Prepayments...........................................................................75
Section 8.15 Certain ERISA Payments................................................................75
Section 8.16 Compliance with ERISA.................................................................76
Section 8.17 Creation of Subsidiaries..............................................................76
Section 8.18 Fundamental Changes...................................................................76
ARTICLE IX EVENTS OF DEFAULT.....................................................................77
Section 9.1 Events of Default.....................................................................77
Section 9.2 Remedies..............................................................................80
ARTICLE X THE AGENT.............................................................................81
Section 10.1 Appointment and Authorization.........................................................81
Section 10.2 Delegation of Duties..................................................................81
Section 10.3 Liability of Agent....................................................................81
Section 10.4 Reliance by Agent.....................................................................82
Section 10.5 Notice of Default.....................................................................82
Section 10.6 Credit Decision.......................................................................83
Section 10.7 Indemnification.......................................................................83
Section 10.8 Agent in Individual Capacity..........................................................84
Section 10.9 Successor Agent.......................................................................84
ARTICLE XI MISCELLANEOUS.........................................................................84
Section 11.1 Successors and Assigns and Sale of Interests..........................................84
Section 11.2 No Implied Waiver.....................................................................86
Section 11.3 Amendments and Waivers................................................................86
Section 11.4 Remedies Cumulative...................................................................87
Section 11.5 Severability..........................................................................87
Section 11.6 Costs, Expenses and Attorneys' Fees...................................................88
</TABLE>
iii
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<TABLE>
<S> <C>
Section 11.7 General Indemnification...............................................................88
Section 11.8 Environmental Indemnification.........................................................89
Section 11.9 Notices...............................................................................89
Section 11.10 Entire Agreement......................................................................91
Section 11.11 Governing Law and Consent to Jurisdiction.............................................91
Section 11.12 Counterparts..........................................................................91
Section 11.13 Waiver Of Jury Trial..................................................................91
Section 11.14 Headings..............................................................................91
Section 11.15 Effect of Amendment and Restatement...................................................92
</TABLE>
iv
<PAGE> 6
EXHIBITS
Exhibit 2.1(c) Form of Request for Loan
Exhibit 2.1(d)-1 Form of Promissory Note
Exhibit 2.1(d)-2 Form of Subsidiary Note
Exhibit 3.1(b) Request for Issuance of Letter of Credit
Exhibit 4.1 Form of Subsidiary Security Agreement
Exhibit 4.2-1 Form of Subsidiary Guaranty
Exhibit 4.2-2 Form of Subsidiary Guaranty for Partially Owned Subsidiaries
Exhibit 11.1 Form of Assignment and Acceptance
v
<PAGE> 7
SCHEDULES
Schedule 5.1(i) Litigation
Schedule 6.2 List of Subsidiaries
Schedule 6.15 Intellectual Property
Schedule 6.18(i) ERISA Title IV Benefit Plans
Schedule 6.18(ii) Other Benefit Plans
Schedule 6.20 List of Insurance Policies
Schedule 6.21 Exceptions to Compliance with Laws
Schedule 6.26 Health Care Related Matters
Schedule 7.20 Bank Accounts
Schedule 8.5 Borrower's Corporate Investment Policy
Schedule 8.6 List of Existing Permitted Encumbrances
Schedule 8.8 List of Existing Indebtedness
Schedule 8.11 Capital Expenditures Budget
vi
<PAGE> 8
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of
May 14, 1999, by and among NEW AMERICAN HEALTHCARE CORPORATION, a Delaware
corporation (the "Borrower"), TORONTO DOMINION (TEXAS), INC., as agent for the
financial institutions party hereto (in such capacity, the "Agent"), THE
TORONTO-DOMINION BANK, as Issuing Bank (in such capacity, the "Issuing Bank"),
and THE FINANCIAL INSTITUTIONS PARTY TO THIS AGREEMENT (collectively, the
"Banks"; individually, a "Bank") and amends and restates in its entirety that
certain Amended and Restated Credit Agreement dated as of January 30, 1998 by
and among the Borrower, the Agent, the Issuing Bank and the Banks, as amended.
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS; ACCOUNTING TERMS
SECTION I.1 DEFINITIONS. In addition to any terms defined elsewhere in
this Agreement, the following terms have the meanings indicated for purposes of
this Agreement (such definitions being equally applicable to the singular and
plural forms of the defined term):
"ACCELERATION" means that the Loans (i) shall not have been paid at the
Final Maturity Date or (ii) shall have become due and payable prior to the Final
Maturity Date pursuant to SECTION 9.2 hereof.
"ACCOUNT" means any right to payment, whether or not it has been earned
by performance, for goods sold or leased or for services rendered in the
ordinary course of business which is not evidenced by an instrument (except as
part of chattel paper).
"ACCOUNTS PAYABLE AND ACCRUED EXPENSES" means any obligation to pay for
goods purchased or leased, or for services rendered in the ordinary course of
business.
"ACCOUNTS PAYABLE AND ACCRUED EXPENSES DAYS OUTSTANDING" means, as of
any calculation date, Accounts Payable and Accrued Expenses (excluding Accounts
Payable and Accrued Expenses for Capital Expenditures) divided by average daily
total expenses (excluding any gains or losses associated with (i) the sale of
properties, (ii) restructuring charges in an amount not to exceed Two Million
and Two Hundred Thousand Dollars ($2,200,000) and (iii) the provision for
doubtful accounts (as shown in the Borrower=s financial statements)) for the
three month period ending on the calculation date.
<PAGE> 9
"ACCOUNTS RECEIVABLE -- DAYS OUTSTANDING" means, as of any calculation
date, Receivables divided by average daily net patient revenue for the three
month period ending on the calculation date.
"AFFECTED BANK" has the meaning specified in SECTION 2.2(G) hereof.
"AFFILIATE" means, with respect to any Person, (i) each Person that,
directly or indirectly, owns or controls, whether beneficially or as a trustee,
guardian or other fiduciary, five percent (5%) or more of the outstanding
Capital Stock having ordinary voting power in the election of directors of such
Person, (ii) each Person that controls, is controlled by or is under common
control with such Person or any Affiliate of such Person, or (iii) each of such
Person's officers, directors, joint venturers and partners. For the purpose of
this definition, "control" of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or
policies, whether through the ownership of voting securities, by contract or
otherwise.
"AGENT" has the meaning specified in the heading to this Agreement.
"AGENT-RELATED PERSONS" has the meaning set forth in SECTION 10.3
hereof.
"AGGREGATE CREDIT OBLIGATIONS" means, as of any particular time, the
sum of (a) the aggregate principal amount of all Loans then outstanding, plus
(b) the aggregate amount of all Letter of Credit Obligations then outstanding.
"AGREEMENT" or "Credit Agreement" means this Second Amended and
Restated Credit Agreement, as may be from time to time further amended, modified
or supplemented.
"APPLICABLE LAW" shall mean, in respect of any Person, all provisions
of constitutions, statutes, rules, regulations, and orders of governmental
bodies or regulatory agencies applicable to such Person, and all orders and
decrees of all courts and arbitrators in proceedings or actions to which the
Person in question is a party or by which it is bound.
"APPRAISED VALUE" means, with respect to any real property to be
subjected to the Lien of a Mortgage, the value of such real property as
determined by an appraisal performed by an independent appraiser in accordance
with Applicable Law as of a date not more than ninety (90) days prior to the
date upon which such real property shall be so subjected to such Lien.
"ASSIGNEE" has the meaning specified in SECTION 11.1(B) hereof.
"ASSIGNMENT AND ACCEPTANCE" has the meaning specified in SECTION 11.(B)
hereof.
<PAGE> 10
"ASSIGNOR" has the meaning specified in SECTION 11.1(B) hereof.
"AUTHORIZED REPRESENTATIVES" shall mean those officers, employees or
other persons designated by the Borrower in a certificate delivered to the Agent
as being authorized to request any Borrowing, to make any interest rate
designation on behalf of the Borrower hereunder, or to give the Agent any other
notice hereunder which is required or contemplated by the terms hereof.
"AVAILABLE COMMITMENT AMOUNT" means, as of any particular time, (a) the
Total Commitment Amount, minus (b) the Aggregate Credit Obligations then
outstanding.
"BANK INDEMNITEES" has the meaning set forth in SECTION 11.7 hereof.
"BANK" or "BANKS" has the meaning specified in the heading of this
Agreement and any successors thereto.
"BANKING DAY" means a day other than a Saturday or a Sunday when
commercial banks are open for business in Houston, Texas and New York, New York
and, with respect to LIBOR Loans, when commercial banks are open for business in
London, England.
"BANKS' CLOSING FEE LETTER" means the letter dated May 14, 1999 from
the Banks to the Borrower and accepted by the Borrower, whereby the Borrower
agrees to pay the upfront closing fees of the Banks specified therein.
"BASE LIBOR" shall mean, for any Interest Period pertaining to a LIBOR
Loan, the rate per annum at which the Agent or any Affiliate thereof is offered
dollar deposits in the interbank Eurodollar market at approximately 11:00 a.m.
(London time) two (2) Banking Days prior to the beginning of the Interest Period
for such Loan, for delivery on the first day thereof for the number of months
comprised therein and in an amount equal to the amount of the LIBOR Loan to be
outstanding during such Interest Period.
"BASE RATE" means on any day the greater of the rate (rounded upwards
if necessary to the nearest whole one-sixteenth of one percent (0.0625%)) equal
to (a) the Prime Rate in effect on that day or (b) the Federal Funds Rate plus
50 basis points in effect on that day, plus (in either case) the applicable
margin based upon the Borrower's ratio of Funded Indebtedness to EBITDAR as
calculated in accordance with SECTION 7.18(A)(I) as follows:
Funded Indebtedness/EBITDAR Applicable Margin (bps)
--------------------------- -----------------------
>4.5 275.00
-
>4.0<4.5 175.00
-
>3.5<4.0 150.00
-
>3.0<3.5 125.00
-
>2.5<3.0 100.00
-
>2.0<2.5 75.00
-
<2.0 50.00
3
<PAGE> 11
"BASE RATE LOANS" means all Loans bearing interest at the Base Rate.
"BORROWER" has the meaning specified in the heading to this Agreement.
"BORROWING" means an extension of a Loan by the Banks to the Borrower
pursuant to ARTICLE II hereof.
"CAPITAL EXPENDITURE" means any expenditure for the maintenance of
existing physical plants, furniture, fixtures and equipment and any other
expenditure that would be capitalized on the balance sheet of the Borrower
(consolidated with its Subsidiaries) as of the end of that period, in conformity
with GAAP.
"CAPITAL STOCK" shall mean, as applied to any Person, any Capital Stock
of such Person, regardless of class or designation, and all warrants, options,
purchase rights, conversion or exchange rights, voting rights, calls or claims
of any character with respect thereto.
"CAPITALIZED LEASE" means any lease, under which the obligation of the
lessee is required by GAAP to be shown as a liability on the financial
statements of the lessee.
"CAPITALIZED LEASE OBLIGATION" means any lease obligation that, in
accordance with GAAP, is required to be shown as a liability on the financial
statements of the lessee. The amount of a Capitalized Lease Obligation shall be
the amount required by GAAP so to be shown.
"CASH MANAGEMENT POLICY" means the cash management policy of the
Borrower as in effect on the date hereof.
"CHANGE OF CONTROL" means the occurrence of any of the following
events: (a) all or substantially all of the assets of the Borrower are sold,
leased, exchanged or otherwise transferred to any Person or group of Persons
acting in concert as a partnership or other group; (b) the Borrower is merged or
consolidated with or into another corporation with the effect that the common
stockholders immediately prior to such merger or consolidation hold directly or
indirectly less than a majority of the ordinary voting power of the outstanding
securities of the surviving corporation of such merger or the corporation
resulting from such consolidation (the "new corporation"); or (c) a Person or
group (as such term is used in Rule 13d-5 under the Securities Exchange Act of
1934) of Persons shall, as a result of a tender or exchange offer, open market
purchases, merger, privately negotiated purchases or otherwise, have become,
directly or indirectly, the beneficial owner (within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934) of securities having twenty-five
percent (25%) or more of the ordinary voting power of the then outstanding
securities of the Borrower.
4
<PAGE> 12
"CLOSING DATE" means the date on which all of the conditions set forth
in SECTION 5.1 hereof have been satisfied or waived.
"COBRA" means Title X of the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended from time to time.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLATERAL" means, collectively, all of the assets and property
constituting collateral under the Security Agreements, the Concentration Account
Pledge Agreement, the Stock Pledge Agreements, the Partnership Interest Pledge
Agreement, the Mortgages or any document or instrument executed pursuant thereto
or under any of the other Loan Documents.
"COLLATERAL DOCUMENTS" means the Security Agreements, the Concentration
Account Pledge Agreement, the Stock Pledge Agreements, the Partnership Interest
Pledge Agreement, the Mortgages and any other documents or instruments executed
pursuant thereto.
"COMMITMENT" means the obligation of the Banks severally to extend
Loans to the Borrower pursuant to the terms and conditions of SECTION 2.1
hereof.
"COMMITMENT AMOUNT" means, with respect to each Bank, an amount equal
to such Bank's Commitment Percentage multiplied by the Total Commitment Amount.
"COMMITMENT FEE" shall mean the fee provided for in SECTION 2.2(C)
hereof.
"COMMITMENT PERCENTAGE" means the aggregate of the percentage set forth
after each Bank's signature at the end of this Agreement, plus the aggregate of
any Commitment Percentages thereafter acquired by such Bank as the Assignee and
minus any Commitment Percentages assigned by such Bank as the Assignor, and, as
to any new Bank, the aggregate of any Commitment Percentages acquired by such
new Bank as the Assignee less any Commitment Percentages assigned by such new
bank as Assignor.
"CONCENTRATION ACCOUNT" means an account with a financial institution
acceptable to the Agent into which substantially all cash receipts of the
Borrower and its Subsidiaries are deposited and with respect to which a Lien has
been placed on such account by the Agent on behalf of the Banks. As of the date
hereof, the Concentration Account is Account Number 4901309676 maintained at
NationsBank of Tennessee, N.A., Nashville, Tennessee, in the name of the
Borrower.
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<PAGE> 13
"CONCENTRATION ACCOUNT PLEDGE AGREEMENT" means the Second Amended and
Restated Concentration Account Pledge Agreement to be executed and delivered by
the Borrower in accordance with hereof.
"CONSOLIDATED CAPITAL EXPENDITURES" means the aggregate Capital
Expenditures of the Borrower and its Subsidiaries.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, gross
consolidated interest expense for the period (including all commissions,
discounts, fees and other charges in connection with standby letters of credit
and similar instruments and such portion of payments under Capitalized Leases as
may be characterized as interest expense in accordance with GAAP) for the
Borrower and its Subsidiaries; plus the portion of the up-front costs and
expenses for Rate Contracts (to the extent not included in gross interest
expense) fairly allocated to such Rate Contracts as expenses for such period;
all as determined in accordance with GAAP.
"CONSOLIDATED LIABILITIES" means all liabilities of the Borrower and
its Subsidiaries that would, in accordance with GAAP, be required to be included
as liabilities on a consolidated balance sheet of the Borrower and its
Subsidiaries.
"CONSOLIDATED NET INCOME" means, for any period, the net income of the
Borrower and its Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP; provided, however, that in determining Consolidated Net
Income, there shall not be included in gross revenues any earnings of, and
dividends payable to, the Borrower or any of its Subsidiaries in a currency
which at the time may not be converted into Dollars under the laws of the nation
issuing such currency.
"CONSOLIDATED NET REVENUE" means the Net Revenues of the Borrower and
its Subsidiaries on a consolidated basis.
"CONTROLLED GROUP" means the Borrower and all Persons (whether or not
incorporated) under common control or treated as a single employer with the
Borrower pursuant to Section 414(b) or (c) of the Code.
"DEFAULT RATE" means the Base Rate plus two percent (2.0%) per annum.
"DOLLARS" and "$" mean United States Dollars.
"DISTRIBUTION" means any dividend (in cash, securities or any other
form of property) on, or other payment or distribution on account of, any Equity
Interests of a Person.
"EBITDA" means, for any period, the sum of (a) Consolidated Net Income
for such period, plus (b) to the extent deducted in determining such
Consolidated Net Income, (i) extraordinary charges, (ii) consolidated
depreciation, amortization and interest (including the
6
<PAGE> 14
portion of payments under any Capitalized Lease that may be characterized as
interest) and (iii) federal, state, local and foreign income taxes, minus (c) to
the extent included in determining such Consolidated Net Income, extraordinary
gains.
"EBITDAR" means, for any period, the sum of (a) the Consolidated Net
Income for such period, plus (b) to the extent deducted in determining such
Consolidated Net Income, (i) extraordinary charges, (ii) consolidated
depreciation, amortization and interest (including the portion of payments under
a Capitalized Lease that may be characterized as interest), (iii) federal,
state, local and foreign income taxes and (iv) Hospital Operating Lease expenses
for the Borrower and its Subsidiaries, minus (c) to the extent included in
determining such Consolidated Net Income, extraordinary gains.
"EMPLOYEE BENEFIT PLAN" means any Pension Plan or any other employee
benefit plan (as defined in Section 3(3) of ERISA) which any Borrower or any
member of the Controlled Group maintains, or to which it makes or is obligated
to make contributions.
"EMPLOYEE STOCK PURCHASE PROGRAM" means that certain stock purchase
program to be implemented by the Borrower authorizing the issuance and/or
purchase of up to Two Million shares of Stock of the Borrower to, or on behalf
of, employees of the Borrower.
"ENVIRONMENTAL CLAIM" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law or for release or injury
to the environment or threat to public health, personal injury (including
sickness, disease or death), property damage, natural resources damage, or
otherwise alleging liability or responsibility for damages (punitive or
otherwise), cleanup, removal, remedial or response costs, restitution, civil or
criminal penalties, injunctive relief, or other type of relief, resulting from
or based upon (a) the presence, placement, discharge, emission or release
(including intentional and unintentional, negligent and non-negligent, sudden or
non-sudden, accidental or non-accidental placement, spills, leaks, discharges,
emissions or releases) of any Hazardous Material at, in or from property,
whether or not owned by the Borrower or any of its Subsidiaries, or (b) any
other circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law.
"ENVIRONMENTAL LAWS" means any applicable Governmental Requirement
pertaining to land use, air, soil, surface water, groundwater (including the
protection, cleanup, removal, remediation or damage thereof), public or employee
health or safety or any other environmental matter, including, without
limitation, the following laws as the same may be amended from time to time:
(1) Clean Air Act (42 U.S.C. ss. 7401, et seq.);
(2) Clean Water Act (33 U.S.C. ss. 1251, et seq.);
(3) Resource Conservation and Recovery Act (42 U.S.C.
ss. 6901, et seq.);
7
<PAGE> 15
(4) Comprehensive Environmental Response, Compensation
and Liability Act (42 U.S.C. ss. 9601, et seq.);
(5) Safe Drinking Water Act (42 U.S.C. ss. 300f, et
seq.);
(6) Toxic Substances Control Act (15 U.S.C. ss. 2601, et
seq.);
(7) Rivers and Harbors Act (33 U.S.C. ss. 401, et seq.);
(8) Endangered Species Act (16 U.S.C. ss. 1531, et seq.);
and
(9) Occupational Safety and Health Act (29 U.S.C. ss.
651, et seq.);
together with any other applicable foreign or domestic laws (federal, state,
provincial or local) relating to emissions, discharges, releases or threatened
releases of any Hazardous Substance into ambient air, land, surface water,
groundwater, personal property or structures, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, discharge or handling of any Hazardous Substance.
"ENVIRONMENTAL REPORT" means an environmental review and audit report
with respect to real property which is prepared by a consultant acceptable to
the Agent not more than ninety (90) days prior to the acquisition of such
property and which is satisfactory in all respects to the Agent.
"EQUITY INTERESTS" with respect to any Person shall mean indicia of
ownership generally entitling the holder to direct the management or policies of
such Person or to receive distributions of profits, including, without
limitation, shares of Capital Stock (in the case of a corporation), partnership
interests (in the case of a general, limited or limited liability partnership)
or membership interests (in the case of a limited liability company).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA AFFILIATED GROUP" means any entity that, together with the
Borrower or other member of the Controlled Group, is treated as a single
employer under Section 414(m) of the Code.
"EVENT OF DEFAULT" has the meaning set forth in SECTION 9.1 hereof.
"EXCESS CASH FLOW" means, for any fiscal year, Consolidated Net Income
(or loss) (excluding extraordinary gains and extraordinary losses) for such
fiscal year, plus (a) the sum of (i) depreciation and amortization for such
fiscal year, (ii) the non-cash portion, if any, of Interest Expense and (iii) an
amount equal to a decrease in consolidated working capital during such fiscal
year, minus (b) an amount equal to (i) Consolidated Capital Expenditures for
such fiscal year, (ii) the aggregate principal amount of all Indebtedness
required by its terms to be repaid during such fiscal year, (iii) the amount of
all taxes paid during such fiscal year, to the extent not deducted in
determining such Consolidated Net Income, (iv) an amount equal to any increase
in
8
<PAGE> 16
consolidated working capital during such fiscal year and (v) the aggregate
principal amount of Indebtedness hereunder voluntarily prepaid during such
fiscal year.
"EXCLUDED LEASES" means any lease (a) which has annual aggregate rental
payments of One Hundred Thousand Dollars ($100,000) or less, or (b) the loss of
which would not have a material adverse effect on the operation of the acute
care facilities of the Borrower and its Subsidiaries, or (c) for which there
does not exist any economic value between the market value of the space and the
rental payments made thereunder.
"FEDERAL FUNDS RATE" means, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Board (including any such
successor, "H.15(519)") for such day opposite the caption "Federal Funds
(Effective)." If on any relevant day such rate is not yet published in
H.15(519), the rate for such day will be the rate set forth in the daily
statistical release designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m.
Quotations") for such day under the caption "Federal Funds Effective Rate." If
on any relevant day the appropriate rate for such day is not yet published in
either H.15(519) or the Composite 3:30 p.m. Quotations, the rate for such day
shall be the arithmetic mean of the rates for the last transaction in overnight
federal funds arranged prior to 9:00 a.m., New York City time, on that day by
each of three leading brokers of federal funds transactions in New York City,
selected by the Agent.
"FINAL MATURITY DATE" means November 30, 2002.
"FIRST AMENDED AND RESTATED CREDIT AGREEMENT" means that certain
Amended and Restated Credit Agreement dated as of January 30, 1998 by and among
the Borrower, the Agent, the Issuing Bank and the Banks, as amended.
"FIXED CHARGE COVERAGE RATIO" means the ratio of (a) EBITDAR, to (b)
the sum of (i) Maintenance Capital Expenditure Limit, (ii) Interest Expense,
(iii) scheduled principal payments of Funded Indebtedness actually made or
coming due during the period of measure (excluding any mandatory prepayments
made pursuant to SECTION 2.3(C) hereto) and (iv) any payments of the Borrower
and/or its Subsidiaries for Hospital Operating Leases actually made or coming
due during the period of measure.
"FUNDED INDEBTEDNESS" means, without duplication, all obligations,
liabilities and indebtedness of the Borrower and its Subsidiaries of the types
described in clauses (a) through (g) of the definition of Indebtedness.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified
9
<PAGE> 17
Public Accountants and in the statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
may be approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination.
"GOVERNMENTAL APPROVALS" means any consent, right, exemption,
concession, permit, license, authorization, certificate, order, franchise,
determination or approval of any federal, state, provincial, municipal or
governmental department, commission, board, bureau, agency or instrumentality
required for the ownership of or activities of the Borrower or any of its
Subsidiaries or any other Person in connection with the business of the Borrower
or any of its Subsidiaries.
"GOVERNMENTAL AUTHORITY" means any nation, state, province or other
political subdivision thereof or any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"GOVERNMENTAL REQUIREMENT" means all legal requirements in effect from
time to time, including all laws, statutes, codes, acts, ordinances, orders,
judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, certificates, orders, franchises, determinations, approvals,
notices, demand letters, directions and requirements of all governments,
departments, commissions, boards, courts, authorities, agencies, officials and
officers, and all instruments of record, foreseen or unforeseen, ordinary or
extraordinary, including, but not limited to, any change in any law or
regulation or the interpretation thereof by any foreign or domestic governmental
or other authority (whether or not having the force of law), relating now or at
any time heretofore or hereafter to the business or operations of the Borrower
or any of its Subsidiaries or to any of the property owned, leased or used by
the Borrower or any of its Subsidiaries, including, without limitation, the
development, design, construction, acquisition, start-up, ownership and
operation and maintenance of property.
"GUARANTY" or "GUARANTEED," as applied to an obligation (each a
"primary obligation"), means (a) any guaranty, direct or indirect, in any
manner, of any part or all of such primary obligation, and (b) any agreement,
direct or indirect, contingent or otherwise, the practical effect of which is to
assure in any way the payment or performance (or payment of damages in the event
of non-performance) of any part or all of such primary obligation, including,
without limiting the foregoing, any reimbursement obligations as to amounts
drawn down by beneficiaries of outstanding letters of credit, and any obligation
of any Person, whether or not contingent, (i) to purchase any such primary
obligation or any property or asset constituting direct or indirect security
therefor, (ii) to advance or supply funds (A) for the purchase or payment of
such primary obligation or (B) to maintain working capital, equity capital or
the net worth, cash flow, solvency or other balance sheet or income statement
condition of any other Person, (iii) to purchase property, assets, securities or
services primarily for the purpose of assuring the owner or holder of any
primary obligation of the ability of the primary obligor with
10
<PAGE> 18
respect to such primary obligation to make payment thereof or (iv) otherwise to
assure or hold harmless the owner or holder of such primary obligation against
loss in respect thereof.
"HAZARDOUS SUBSTANCE" means any pollutant, contaminant, toxic or
hazardous substance, material, constituent or waste as such terms are defined in
or pursuant to any Environmental Law.
"HAZARDOUS WASTE FACILITY PERMIT" means any permit, license or other
governmental authorization relating to the storage, treatment or disposal of any
Hazardous Substance required pursuant to any Environmental Law.
"HCFA" means the Health Care Financing Administration of HHS and any
Person succeeding to the functions thereof.
"HEALTH FACILITY LICENSE" shall mean a license or permit under
Applicable Law to provide any nursing, medical or other health related services
or any combination of such services.
"HHS" means the United States Department of Health and Human Services
and any Person succeeding to the functions thereof.
"HIGHEST LAWFUL RATE" shall mean the maximum non-usurious interest
rate, if any, that at any applicable time may be contracted for, taken,
reserved, charged or received on any Loan or on the other amounts which may be
owing to any Bank pursuant to this Agreement under the laws applicable to such
Bank and this transaction.
"HOSPITAL OPERATING LEASE" means an operating lease of a hospital
and/or other healthcare facility with an annual lease expense in excess of
Seventy Five Thousand Dollars ($75,000).
"INCIPIENT DEFAULT" has the meaning set forth in SECTION 5.1(E) hereof.
"INDEBTEDNESS" of any Person means, without duplication (a) any
obligation for borrowed money; (b) any obligation evidenced by bonds,
debentures, notes or other similar instruments; (c) any obligation to pay the
deferred purchase price of property or services (other than in the ordinary
course of business); (d) any Capitalized Lease Obligation; (e) any obligation or
liability of others secured by a Lien on property owned by such Person, whether
or not such obligation or liability is assumed; (f) obligations and amounts owed
under synthetic or off-balance sheet leases; (g) eight (8) times the annualized
amounts payable on any Hospital Operating Lease; (h) any obligation under any
Rate Contract; (i) any Guaranty; and (j) any other obligation or liability which
is required by GAAP to be shown as part of the Consolidated Liabilities on a
consolidated balance sheet of the Borrower and its Subsidiaries.
11
<PAGE> 19
"INSOLVENCY PROCEEDING" means (a) any case, action or proceeding before
any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution, winding-up
or relief of debtors or (b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors or other similar arrangement.
"INTELLECTUAL PROPERTY RIGHTS" has the meaning set forth in SECTION
6.15 hereof.
"INTEREST EXPENSE" means, for any period, the cash interest expense and
letter of credit fee expense of the Borrower and its Subsidiaries determined on
a consolidated basis for such period.
"INTEREST PERIOD" means, with respect to any LIBOR Loan, a period from
the borrowing date with respect to such Loan (or the date of the expiration of
the then current Interest Period with respect to such Loan) to a date up to one
(1), two (2), three (3) or six (6) months thereafter, subject to the following:
(a) if any Interest Period would otherwise end on a day which is not a
Banking Day, that Interest Period shall be extended to the next succeeding
Banking Day, unless the result of such extension would be to extend such
Interest Period into another calendar month, in which event such Interest Period
shall end on the immediately preceding Banking Day;
(b) any Interest Period which begins on a day for which there is no
numerically corresponding day in the calendar month during which such Interest
Period is to end shall (subject to SUBPARAGRAPH (A) above) end on the last day
of such calendar month; and
(c) any Interest Period that would otherwise extend beyond the Final
Maturity Date shall end on the Final Maturity Date or, if the Final Maturity
Date shall not be a Banking Day, on the next preceding Banking Day.
"INVENTORY" means all goods intended for sale or lease or furnished or
to be furnished under contracts of service or used or consumed in the business
of the Borrower or any of its Subsidiaries, including, without limitation, all
raw materials, work in process and finished goods or materials, together with
all supplies of any kind, nature or description which are or might be used in
connection with the manufacture, packing, shipping, advertisement, sale or
finishing of such goods, and all documents of title or documents representing,
covering or evidencing any of the foregoing.
"INVESTMENT," as applied to any Person, means any direct or indirect
ownership or purchase or other acquisition by that Person of any Capital Stock,
equity interest, obligations or other securities, or of a beneficial interest in
any Capital Stock, equity interest, obligations or other securities, or all or
substantially all of the assets of any other Person (including any Subsidiary),
or any direct or indirect loan, advance (other than advances to officers and
12
<PAGE> 20
employees for moving and travel expenses, drawing accounts and similar
expenditures in the ordinary course of business) or capital contribution by that
Person to any other Person, including all indebtedness and accounts receivable
from that other Person which are not current assets or did not arise from sales
to that other Person in the ordinary course of business.
"ISSUING BANK" shall mean The Toronto-Dominion Bank and any other
Person which The Toronto-Dominion Bank may hereafter designate as the successor
Issuing Bank pursuant to an Assignment and Acceptance or otherwise.
"JCAHO" means the Joint Commission on Accreditation of Healthcare
Organizations.
"KEY CONTRACTS" has the meaning set forth in SECTION 6.14 hereof.
"LETTER OF CREDIT" means a Letter of Credit issued by Issuing Bank on
behalf or for the account of the Borrower from time to time in accordance with
ARTICLE III hereof.
"LETTER OF CREDIT COMMITMENT" means the obligation of the Issuing Bank
to issue Letters of Credit on behalf of the Banks from time to time in an
aggregate face amount not to exceed One Million Dollars ($1,000,000). The Banks
shall participate in such Letters of Credit in an amount equal to their
respective Commitment Percentages.
"LETTER OF CREDIT FEE" means the fee provided for in SECTION 3.4(A)
hereof.
"LETTER OF CREDIT OBLIGATIONS" means, at any time, the sum of (a) an
amount equal to the aggregate undrawn and unexpired amount (including the amount
to which any such Letter of Credit can be reinstated pursuant to the terms
thereof) of the then outstanding Letters of Credit and (b) an amount equal to
the aggregate outstanding and unreimbursed drawings on any Letters of Credit.
"LETTER OF CREDIT RESERVE ACCOUNT" means any account maintained by the
Agent for the benefit of the Issuing Bank, the proceeds of which shall be
applied as provided SECTION 9.2(D) hereof.
"LIBOR LOAN" means any Loan bearing interest at the LIBOR Rate.
"LIBOR RATE" means the rate (rounded upwards if necessary to the
nearest whole one-sixteenth of one percent (0.0625%)) equal to (a) the product
of Base LIBOR times Statutory Reserves, plus (b) the applicable LIBOR margin
based upon the Borrower's ratio of Funded Indebtedness to EBITDAR as calculated
in accordance with SECTION 7.18(A)(I) as follows:
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Funded Indebtedness/EBITDAR LIBOR (bps)
--------------------------- -----------
>4.5 400.00
-
>4.0<4.5 300.00
-
>3.5<4.0 275.00
-
>3.0<3.5 250.00
-
>2.5<3.0 225.00
-
>2.0<2.5 200.00
-
<2.0 175.00
; provided, however, that after Borrower's first mandatory permanent reduction
of the Loans in the principal amount of Twelve Million Dollars ($12,000,000) in
accordance with SECTION 2.3(C)(IV) hereof, if the ratio of Funded Indebtedness
to EBITDAR is greater than or equal to 4.5, the applicable LIBOR margin shall be
350 basis points.
"LIEN" means any mortgage, deed of trust, pledge, hypothecation,
assignment, charge or deposit arrangement, encumbrance, lien (statutory or
other) or preference, priority or other security interest or preferential
arrangement of any kind or nature whatsoever (including, without limitation,
those created by, arising under or evidenced by any conditional sale or other
title retention agreement, the interest of a lessor under a Capitalized Lease,
any financing lease having substantially the same economic effect as any of the
foregoing, or the filing of any financing statement naming the owner of the
asset to which such lien relates as debtor, under the UCC or any comparable law,
but excluding therefrom any financing statement filed by a lessor under an
operating lease not intended as security) and any contingent or other agreement
to provide any of the foregoing.
"LOAN" has the meaning set forth in SECTION 2.1(A) hereof (including
any and all Base Rate Loans and LIBOR Loans), and "LOANS" means all such Loans
at any time outstanding.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Subsidiary Notes,
the Security Agreements, the Mortgages, the Subsidiary Guaranties, the Stock
Pledge Agreements, the Partnership Interest Pledge Agreement, the Concentration
Account Pledge Agreement, the Omnibus Amendment and Confirmation Agreement,
reimbursement agreements relating to Letters of Credit, Rate Contracts under
which any of the Agent or the Banks (or any Affiliate of the Agent or a Bank) is
the counterparty, the Banks' Closing Fee Letter and all other agreements,
instruments and documents (including, without limitation, security agreements,
loan agreements, notes, fee agreements, guaranties, mortgages, deeds of trust,
subordination agreements, pledges, assignments of intellectual property, powers
of attorney, consents, assignments, contracts, notices, leases, financing
statements, certificates, reports, notices and all other writings) heretofore,
now or hereafter executed by, on behalf of or for the benefit of the Borrower or
any of its Subsidiaries and delivered to the Agent, the Issuing Bank or any of
the Banks pursuant to or in connection with this Agreement or the transactions
contemplated hereby, together with all amendments, modifications and supplements
thereto.
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<PAGE> 22
"LOAN REQUEST" has the meaning set forth in SECTION 2.1(C) hereof.
"MAINTENANCE CAPITAL EXPENDITURE LIMIT" means an amount equal to thirty
(30%) of Capital Expenditures.
"MAJORITY BANKS" means at any time Banks holding at least sixty-six and
two-thirds percent (66-2/3%) of the then aggregate outstanding principal amount
of the Loans, or, if no such principal amount is then outstanding, Banks having
at least sixty-six and two-thirds percent (66-2/3%) of the Commitment
Percentages.
"MATERIAL ADVERSE CHANGE" shall mean a material adverse change in (a)
the business, assets, operations, prospects or financial condition of the
Borrower and its Subsidiaries considered as a whole, (b) the collective ability
of the Borrower and its Subsidiaries to pay the Obligations in accordance with
their terms, or (c) the security interests or liens of the Agent, the Issuing
Bank and the Banks in or on the Collateral or the priority of such security
interests or liens.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, assets, operations, or financial condition of the Borrower and its
Subsidiaries considered as a whole, (b) the collective ability of the Borrower
and its Subsidiaries to pay the Obligations in accordance with their terms, or
(c) the security interests or liens of the Agent, the Issuing Bank and the Banks
in or on the Collateral or the priority of such security interests or liens.
"MATURITY" means any date on which a Loan or any portion thereof
becomes due and payable whether as stated, by virtue of mandatory prepayment, by
Acceleration or otherwise.
"MEDICAID CERTIFICATION" shall mean the certification by the applicable
state Medicaid agency or its successor that a facility complies with all the
requirements for participation set forth in the Medicaid Regulations.
"MEDICAID PROVIDER AGREEMENT" shall mean an agreement entered into with
a state Medicaid agency or its successor or other such entity administering the
Medicaid program pursuant to which the agency agrees to pay for covered services
provided by a facility to eligible Medicaid recipients in accordance with the
terms of such agreement and the Medicaid Regulations.
"MEDICAID REGULATIONS" shall mean collectively (a) all Federal statutes
(whether set forth in Title XIX of the Social Security Act or elsewhere)
affecting the medical assistance program established by Title XIX of the Social
Security Act (42 U.S.C. " 1396, et seq.); (b) all applicable provisions of all
federal rules, regulations, manuals, final orders and administrative,
reimbursement and other guidelines of all Governmental Authorities (whether or
not having the force of law) promulgated pursuant to or in connection with the
statutes described in clause (a)
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<PAGE> 23
above; (c) all state statutes and regulations and plans for medical assistance
enacted in connection with the statutes and provisions described in clauses (a)
and (b) above; and (d) all applicable provisions of all rules, regulations,
manuals, final orders and administrative, reimbursement and other applicable
guidelines of all Governmental Authorities (whether or not having the force of
law) promulgated pursuant to or in connection with any of the foregoing.
"MEDICARE CERTIFICATION" shall mean certification by HCFA or a state
agency or entity under contract with HCFA that a facility complies with all the
applicable requirements for participation set forth in the Medicare Regulations.
"MEDICARE PROVIDER AGREEMENT" shall mean an agreement entered into with
HCFA or a state agency under contract with HCFA under which HCFA agrees to pay
for covered services provided by a facility to Medicare beneficiaries in
accordance with the terms of such agreement and the Medicare Regulations.
"MEDICARE REGULATIONS" shall mean collectively all Federal statutes
(whether set forth in Title XVIII of the Social Security Act or elsewhere)
affecting the health insurance program for the aged and disabled established by
Title XVIII of the Social Security Act (42 U.S.C. ss. 1395, et seq.), together
with all applicable provisions of all rules, regulations, manuals, final orders
and administrative, reimbursement and other applicable guidelines of all
Governmental Authorities, including HHS, HCFA or the Office of the Inspector
General of HHS, or any Person succeeding to the functions of any of the
foregoing (whether or not having the force of law).
"MINORITY HOLDERS" means the holders (other than the Borrower or any
Wholly-Owned Subsidiary) of Equity Interests in a Partial Subsidiary.
"MOODY'S" means Moody's Investors Service, Inc. and any successor
thereto that is a nationally recognized rating agency.
"MORTGAGES" means the mortgages, leasehold mortgages, deeds of trust or
other similar instruments, in form satisfactory to the Agent, to be executed and
delivered by the Borrower, its Subsidiaries and their respective Subsidiaries in
accordance with SECTION 4.1 hereof.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) and to which the Borrower or any other member of
the Controlled Group makes, is obligated to make or at any time since December
31, 1988 has made or been obligated to make contributions.
"NET ASSETS" means, with respect to the Borrower on a consolidated
basis, the aggregate amount of all items categorized as assets on the
consolidated balance sheet of the Borrower under GAAP.
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<PAGE> 24
"NET CASH PROCEEDS" means, with respect to any sale, lease, transfer or
other disposition of assets or Stock by the Borrower or any of its Subsidiaries,
the aggregate amount of cash received for such assets or Stock, net of
reasonable and customary transaction costs properly attributable to such
transaction and payable by the Borrower or such Subsidiary in connection with
such sale, lease, transfer or other disposition of assets or Stock, including,
without limitation, sales commissions.
"NET REVENUES" means gross revenues of the Borrower on a consolidated
basis with its Subsidiaries less contractual adjustments thereto.
"NET WORTH" means, at any time, with respect to the Borrower on a
consolidated basis, the excess of Net Assets over Indebtedness.
"NOTES" has the meaning set forth in SECTION 2.1(D)(I) hereof.
"OBLIGATIONS" means all loans, advances, debts, liabilities,
obligations, covenants and duties owing to the Agent or the Banks by the
Borrower or any of its Subsidiaries of any kind or nature, present or future,
whether or not evidenced by any note, guaranty or other instrument, arising
under this Agreement or any of the other Loan Documents, whether or not for the
payment of money, arising by reason of an extension of credit, absolute or
contingent, due or to become due, now existing or hereafter arising, including
all principal, interest, charges, expenses, fees, attorneys' fees and
disbursements and any other sum chargeable to the Borrower or any of its
Subsidiaries under this Agreement or any other Loan Document.
"OMNIBUS AMENDMENT AND CONFIRMATION AGREEMENT" means that certain
Omnibus Amendment and Confirmation of Collateral Documents agreement to be
executed and delivered by the Borrower and its Subsidiaries in connection with
SECTION 4.1 hereof.
"ORIGINAL AGREEMENT" means that certain Credit Agreement dated as of
September 30, 1996, by and among the Borrower, the Agent, the Issuing Bank and
the Banks, as amended.
"ORIGINAL CLOSING DATE" means the date on which the obligation of the
Banks to undertake the Commitment occurred under the Original Agreement.
"ORIGINAL MORTGAGES" shall have the meaning set forth in
SECTION 4.1 (B).
"ORIGINAL NOTES" means those promissory notes evidencing the Borrower's
obligations to repay all loans made by the Banks pursuant to the Original
Agreement and the First Amended and Restated Credit Agreement.
"ORIGINAL SUBSIDIARY NOTES" means those promissory notes evidencing the
Subsidiaries= obligations to repay loans made by the Borrower to such
Subsidiaries.
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<PAGE> 25
"PARTNERSHIP INTEREST PLEDGE AGREEMENT" means the Partnership Interest
Pledge Agreement, dated as of the Closing Date, between the Borrower and the
Agent.
"PARTIAL SUBSIDIARY" shall mean any Subsidiary which is not a
Wholly-Owned Subsidiary.
"PARTICIPANT" has the meaning set forth in SECTION 11.1(E) hereof.
"PBGC" means the Pension Benefit Guaranty Corporation and any successor
to all or any part of such corporation's functions under ERISA.
"PENSION PLAN" means any Multiemployer Plan or any other employee
pension benefit plan (as defined in Section 3(2) of ERISA) that is subject to
Title IV of ERISA and which the Borrower or any member of the Controlled Group
maintains, or to which it makes, is obligated to make or at any time during the
preceding five calendar years has made or has been obligated to make
contributions.
"PERMITTED ENCUMBRANCES" means: (a) carriers', warehousemen's,
mechanics', landlords', materialmen, suppliers', tax, assessment, governmental
and other like liens and charges arising in the ordinary course of business
securing obligations that are not incurred in connection with the obtaining of
any advance or credit and which are not more than thirty (30) days overdue, or
are being contested in good faith by appropriate proceedings, provided that, in
accordance with GAAP, adequate reserves have been established; (b) liens arising
in connection with worker's compensation, unemployment insurance, appeal and
release bonds and progress payments under government contracts; (c) judgment
liens with respect to which execution has been stayed, or the appeal period for
which has not expired, or the payment of which is covered in full by insurance
(as certified by an Authorized Representative; (d) zoning restrictions,
easements, licenses or other restrictions on the use of real property, so long
as the same do not materially impair the use of such real property by the
Borrower or any of its Subsidiaries or the value thereof to the owner of such
real property; (e) any lien existing or arising by operation of law in the
ordinary course of business, such as a "banker's lien" or similar right of
offset; (f) liens on the property of the Borrower or any of its Subsidiaries
securing (i) the performance of bids, trade contracts (other than for borrowed
money), leases, statutory obligations, (ii) obligations on surety and appeal
bonds, and (iii) other obligations of a like nature incurred in the ordinary
course of business, provided that all such Liens in the aggregate have no
reasonable likelihood of causing a Material Adverse Effect; (g) liens covering
equipment (including liens in favor of a lessor under a Capitalized Lease),
which liens secure purchase money financing for such equipment, provided that
any such lien covers only the equipment so acquired; (h) liens identified on
SCHEDULE 8.6 attached hereto; (i) liens and security interests securing payment
of the Obligations granted pursuant to any of the Loan Documents; (j) any
renewals or extensions of any of the liens referred to in any of the foregoing
clauses (g), (h) or (i), provided
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<PAGE> 26
that by any such renewal or extension no lien is extended to additional property
and that no monetary amount secured by any such lien is increased; (k) any other
lien or security interest securing payment of a determinable amount which is not
overdue and which, when added to all other liens covered by this clause (k),
does not exceed One Million Dollars ($1,000,000); and (l) liens in favor of any
Wholly-Owned Subsidiary of Borrower, provided such Subsidiary has executed an
intercreditor agreement subordinating such liens to the liens of the Banks and
otherwise in form and substance acceptable to the Agent in its sole discretion.
"PERMITTED PURPOSES" means the purposes for which Loans may be used or
Letters of Credit issued. The Permitted Purposes are as follows: (a) to provide
funds for general corporate purposes, including (but not limited to) initial and
ongoing working capital, and capital improvements to acute care facilities or
related businesses owned by the Borrower or any of its Subsidiaries on the
Closing Date; provided that (x) the outstanding aggregate principal amount of
all Loans made for working capital purposes shall not exceed Four Million
Dollars ($4,000,000), (y) the aggregate face amount of all Letters of Credit
shall not exceed One Million Dollars ($1,000,000), and (z) the outstanding
aggregate amount of all Loans made for Capital Expenditures shall not exceed Ten
Million Dollars ($10,000,000) at any one time, as certified by the Borrower as a
condition for the making of any Loan for working capital or Capital Expenditures
purposes, or the issuance of any Letter of Credit.
"PERSON" means any individual, corporation, partnership, trust,
association or other entity or organization, including any government, political
subdivision, agency or instrumentality thereof.
"PRIME RATE" shall be the rate most recently announced by The
Toronto-Dominion Bank as its "Prime Rate." Prime Rate is a base rate which
serves as the basis upon which effective rates of interest are calculated for
those loans making reference thereto, and is evidenced by the reporting thereof
after its announcement in such internal publication or publications as the Agent
may designate. Any change in the interest rate resulting from a change in such
Prime Rate shall become effective as of 12:01 a.m. of the Banking Day on which
each change in Prime Rate is announced by The Toronto-Dominion Bank.
"RATE CONTRACTS" means interest rate and currency swap agreements, cap,
floor and collar agreements, interest rate insurance, currency spot and forward
contracts and other agreements or arrangements designed to provide protection
against fluctuations in interest or currency exchange rates.
"RECEIVABLES" shall mean any right to payment, whether or not it has
been earned by performance, for goods sold or leased or for services rendered in
the ordinary course of business, after adjustment for estimated settlements with
third party payors.
"REPLACEMENT BANK" has the meaning set forth in SECTION 2.2(G) hereof.
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<PAGE> 27
"REPORTABLE EVENT" means any of the events set forth in Section 4043(b)
of ERISA or the regulations thereunder other than a Reportable Event as to which
the provision of thirty (30) days notice to the PBGC is waived under applicable
regulations. In addition, a Reportable Event means a withdrawal from a plan
described in Section 4063 of ERISA or a cessation of operations described in
Section 4062(e) of ERISA, if such withdrawal or cessation could reasonably be
expected to result in a liability of the Borrower or member of the Controlled
Group to the PBGC, to a trustee or to a Multiemployer Plan in an aggregate
amount of One Million Dollars ($1,000,000) or more.
"RESPONSIBLE OFFICER" means the Borrower's Chief Executive Officer,
Senior Vice President, Finance and Administration, or Treasurer.
"REVOLVING TERMINATION DATE" means November 30, 2002 or such earlier
date, if any, that the Total Commitment Amount is reduced to zero pursuant to
SECTION 2.1 (B) hereof.
"S&P" means Standard & Poor's, a division of The McGraw-Hill Companies,
and any successor thereto that is a nationally recognized rating agency.
"SALE-LEASEBACK TRANSACTION" means an arrangement relating to property
now owned or hereafter acquired whereby the Borrower or one of its Subsidiaries
transfers such property to a Person and the Borrower or one of its Subsidiaries
leases it from such Person.
"SECURITY AGREEMENTS" means the Amended and Restated Security Agreement
executed and delivered by the Borrower and the Security Agreements executed and
delivered by its Subsidiaries and their respective Subsidiaries in connection
with SECTION 4.1 of the First Amended and Restated Credit Agreement.
"SENIOR INDEBTEDNESS" means all Funded Indebtedness.
"SOLVENT" means, when used with respect to any Person, that at the time
of determination:
(i) the fair value of its assets (both at fair valuation and
at present fair salable value) is in excess of the total amount of all
of its debts and liabilities, including contingent, subordinated,
unmatured and unliquidated liabilities; and
(ii) it is then able to pay its debts as they become due; and
(iii) it owns property having a value (both at fair valuation
and at present fair salable value) in excess of the total amount
required to pay its debts; and
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<PAGE> 28
(iv) it has capital sufficient to carry on its business.
"STATUTORY RESERVES" means a fraction (expressed as a decimal), the
numerator of which is the number one (1) and the denominator of which is the
number one (1) minus the aggregate of the maximum reserve percentages
(including, without limitation, any marginal, special, emergency or supplemental
reserves, and expressed as a decimal) established by the Federal Reserve Board
or any other United States banking authority to which the Agent or any Bank is
subject for Eurocurrency Liabilities (as defined in Regulation D of the Federal
Reserve Board). Such reserve percentages shall include, without limitation,
those imposed under said Regulation D. LIBOR Loans shall be deemed to constitute
Eurocurrency Liabilities and as such shall be deemed to be subject to such
reserve requirements without benefit of or credit for proration, exceptions or
offsets which may be available from time to time to the Banks under said
Regulation D. Statutory Reserves shall be adjusted automatically on and as of
the effective date of any change in any reserve percentage.
"STOCK" means all shares, options, warrants, general or limited
partnership interests or other equivalents (regardless of how designated) of or
in a corporation, partnership or equivalent entity whether voting or nonvoting,
including common stock, preferred stock or any other "equity security" (as such
term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated
by the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended), excluding however, any of the foregoing issued and/or
purchased in connection with the Employee Stock Purchase Program.
"STOCK PLEDGE AGREEMENTS" means the Second Amended and Restated Stock
Pledge Agreement, dated as of the Closing Date, between the Borrower and the
Agent, and the Pledge Agreements to be executed and delivered pursuant to
SECTION 4.1 of this Agreement.
"SUBSIDIARY" of a Person means any corporation, partnership, joint
venture, association or other business entity of which such Person now or
hereafter owns, directly or indirectly, securities or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other governing body thereof. References herein to Subsidiaries of the Borrower
shall, unless otherwise specifically provided, include any Subsidiaries of the
Borrower's Subsidiaries, whether now or hereafter acquired.
"SUBSIDIARY GUARANTIES" means the Guaranty Agreements to be executed
and delivered by all Subsidiaries of the Borrower in accordance with SECTION 4.2
hereof.
"SUBSIDIARY NOTE" has the meaning set forth in SECTION 2.1(D)(II)
hereof.
"TOTAL COMMITMENT AMOUNT" means, as of any date, subject to SECTIONS
2.1(B) and 2.3 hereof, an amount equal to One Hundred Sixteen Million Dollars
($116,000,000).
"UCC" means the Uniform Commercial Code as in effect in the relevant
jurisdiction.
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<PAGE> 29
"WCAS" means WCAS Capital Partners III, L.P.
"WELSH CARSON" means Welsh, Carson, Anderson & Stowe VII, L.P., WCAS
Healthcare Partners, L.P. and related parties.
"WELSH CARSON GUARANTY" mean that certain Limited Guaranty, dated of
even date herewith, between Welsh, Carson, Anderson & Stowe VII, L.P. and Agent.
"WHOLLY-OWNED SUBSIDIARY" shall mean any Subsidiary as to which all of
the Equity Interests are held by the Borrower or a Wholly-Owned Subsidiary of
the Borrower.
SECTION I.2 ACCOUNTING TERMS.
Each accounting term not defined herein and each accounting term partly
defined herein to the extent not defined shall have the meaning given to it
under GAAP.
ARTICLE II
LOANS
SECTION II.1. REVOLVING CREDIT.
(a) Revolving Loans. Subject to the terms and conditions of this
Agreement, each Bank severally agrees to make loans to the Borrower on a
revolving basis (each herein called a "Loan"), from time to time until the
Revolving Termination Date, in an aggregate principal amount not to exceed at
any time outstanding such Bank's Commitment Amount. The Borrower shall use the
proceeds of the Loans exclusively for Permitted Purposes. The Loans shall
consist of one or more Base Rate Loans and LIBOR Loans, subject to SECTION
2.2(A) hereof. All of the Loans shall mature on the Final Maturity Date. Subject
to the terms and conditions of this Agreement, Loans which are prepaid may be
reborrowed in whole or in part prior to the Revolving Termination Date. Each
Borrowing of a Base Rate Loan hereunder shall be in a principal amount equal to
an integral multiple of Fifty Thousand Dollars ($50,000) and in a minimum
principal amount of Two Hundred and Fifty Thousand Dollars ($250,000), and each
Borrowing of a LIBOR Loan hereunder shall be in a principal amount equal to an
integral multiple of Fifty Thousand Dollars ($50,000) and in a minimum principal
amount of Two Hundred and Fifty Thousand Dollars ($250,000).
(b) Commitment Limits. The aggregate principal amount of Loans
outstanding shall not at any one time exceed the Total Commitment Amount minus
the Letter of Credit Obligations, and the Banks shall have no obligation to make
any Loan if, after giving effect
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<PAGE> 30
thereto, the Available Commitment Amount would be less than zero. The Borrower
may reduce the Total Commitment Amount upon not less than five (5) Banking Days
telephone notice, confirmed by an Authorized Representative on the date of such
notice by electronic facsimile transmission, to the Agent and by repaying to the
Agent for the account of the Banks the principal amount of any Loans outstanding
in excess of such reduced amount. Any such reduction shall be permanent and
shall (unless reducing the Total Commitment Amount to zero) be in an amount
equal to at least One Million Dollars ($1,000,000) and be an integral multiple
of Five Hundred Thousand Dollars ($500,000).
(c) Borrowing Procedures. For any proposed Borrowing which is to be a
Base Rate Loan, an Authorized Representative shall give the Agent telephone
notice not later than 11:00 a.m. (Houston, Texas time) on the Banking Day of the
proposed Borrowing, confirmed by a written borrowing request in substantially
the form attached hereto as EXHIBIT 2.1(C) (a "Loan Request"), executed by an
Authorized Representative and received by the Agent by facsimile on the day of
such telephone notice. For any proposed Borrowing which is to consist of at
least one (1) LIBOR Loan, an Authorized Representative shall give the Agent
telephone notice not later than 11:00 a.m. (Houston, Texas time) at least three
(3) Banking Days prior to the date of the proposed Borrowing, confirmed by a
Loan Request executed by an Authorized Representative and received by the Agent
by facsimile on the day of such telephone notice. Upon receipt by the Agent of
the Loan Request, the Agent shall promptly notify each Bank of the proposed
Borrowing, including the date and amount thereof. Each Bank will make an amount
equal to its respective Commitment Percentage of such Borrowing available to the
Agent for the account of the Borrower at the office specified by the Agent in
SECTION 11.9 hereof for payment to the Borrower by 2:00 p.m. (Houston, Texas
time) on the borrowing date requested by the Borrower. Unless any applicable
condition specified in ARTICLE V hereof has not been satisfied, the proceeds of
all such Loans will then be made available to the Borrower by the Agent at such
office by crediting the account of the Borrower with the aggregate of the
amounts made available to the Agent by the Banks in like funds as received by
the Agent.
(d) Notes.
(i) Notes of the Borrower. The Borrower's obligation to repay all
Loans made by the Banks shall be evidenced by a promissory note in
favor of each Bank in the form attached hereto as EXHIBIT 2.1(D)-1 (the
"Notes").
(ii) Notes of Subsidiaries. In the event that the Borrower loans
all or a portion of any Loan to any of its Subsidiaries, such
Subsidiary shall execute and deliver a promissory note in favor of the
Borrower in the form attached hereto as EXHIBIT 2.1(D)-2 (the
"Subsidiary Note"), and the Borrower shall assign such Subsidiary Note
to the Agent to be held by the Agent, on behalf of itself and for the
benefit of the Banks, as additional security for the repayment of such
Loan.
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<PAGE> 31
SECTION II.2 INTEREST AND FEES.
(a) Interest. Subject to all other provisions of this SECTION 2.2, all
or a part of each Loan may, at the option of the Borrower, be a Base Rate Loan
or a LIBOR Loan. Subject to SECTION 2.2(F) hereof, the Loans shall bear interest
on the unpaid principal amount thereof from the date of disbursement until such
amount shall become due and payable at Maturity (i) in the case of each Base
Rate Loan, at a fluctuating rate per annum equal to the Base Rate as from time
to time in effect and (ii) in the case of each LIBOR Loan, at a rate per annum
equal to the LIBOR Rate for the applicable Interest Period. Interest on each
Base Rate Loan shall be payable in arrears on the last day of each calendar
quarter, on any date that any such Base Rate Loan is converted to a LIBOR Loan,
on the date of any prepayment as to the amount of such prepayment, and on the
Final Maturity Date. Interest on each LIBOR Loan shall be payable in arrears on
the last day of the applicable Interest Period (provided, however, that interest
on each LIBOR Loan with an Interest Period of six (6) months shall be paid three
(3) months after commencement of such Interest Period and on each three (3)
month anniversary thereof), on any date when such LIBOR Loan is converted to a
Base Rate Loan, on the date on which any LIBOR Loan is prepaid as to the amount
of such prepayment, and on the Final Maturity Date.
Upon the occurrence of an Event of Default, and at the direction of the
Majority Banks, interest on the Loans and any other outstanding Obligations
shall accrue at the Default Rate from the date of the occurrence of such Event
of Default. Interest accruing at the Default Rate shall be payable on demand and
in any event at Maturity and shall accrue until the earliest to occur of (i)
waiver in writing by the Majority Banks of the applicable Event of Default,
which waiver may provide for the waiver of the Default Rate from the initial
date of accrual thereof to the date of such waiver, (ii) agreement by the
Majority Banks to rescind the charging of interest at the Default Rate, or (iii)
payment in full of the Loans and other outstanding Obligations. The Banks shall
not be required to (i) accelerate the maturity of the Loans or (ii) exercise any
other rights or remedies under the Loan Documents in order to charge interest
hereunder at the Default Rate.
(b) Extensions and Conversions. Subject to the terms and conditions
hereof, including SECTION 2.2(A), the Borrower shall have the option at any time
to convert all or any part of a Loan into a Base Rate Loan or a LIBOR Loan;
provided, however, that (i) a LIBOR Loan may be converted only as of the last
day of the applicable Interest Period, and (ii) the Borrower may not convert a
Base Rate Loan into a LIBOR Loan or extend a LIBOR Loan after the occurrence and
during the continuance of an Event of Default hereunder. Each LIBOR Loan shall
be in a principal amount equal to an integral multiple of Fifty Thousand Dollars
($50,000) and in a minimum principal amount of Two Hundred and Fifty Thousand
Dollars ($250,000). Subject to the terms and conditions hereof, the Borrower may
extend a LIBOR Loan beyond its current Interest Period. In the case of a
proposed conversion of a Base Rate Loan into a LIBOR Loan or an extension of a
LIBOR Loan, an Authorized Representative shall give the Agent telephone notice
not later than 11:00 a.m. (Houston, Texas time) at least three (3) Banking Days
prior to the date of the proposed conversion or extension, confirmed by a
written notice executed
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<PAGE> 32
by an Authorized Representative and received by the Agent by facsimile on the
day of such telephone notice. The Agent shall provide a copy of such written
notice to the Banks. In the case of a proposed conversion of a LIBOR Loan into a
Base Rate Loan, an Authorized Representative shall give the Agent telephone
notice not later than 11:00 a.m. (Houston, Texas time) at least one (1) Banking
Day prior to the end of the applicable Interest Period confirmed by a Notice of
Conversion/Extension executed by any Authorized Representative and received by
the Agent by facsimile the day of such telephone notice. Any notice given by an
Authorized Representative under this SECTION 2.2(B) shall be irrevocable. Unless
the Agent receives notice of a proposed conversion as and when required
hereunder, then at the end of an Interest Period for a LIBOR Loan, such Loan
shall automatically convert to a Base Rate Loan.
(c) Commitment Fee. The Borrower shall pay to the Agent for the account
of the Banks, in accordance with the Banks' Commitment Percentages, a Commitment
Fee equal to the amount listed below based upon the Borrower's ratio of Funded
Indebtedness to EBITDAR as calculated in accordance with SECTION 7.18(A)(I) of
the average daily Available Commitment Amount as follows:
Funded Indebtedness/ Commitment Fee
EBITDAR (bps)
-------------------- --------------
>4.5 50.00
-
>4.0<4.5 37.50
-
>3.5<4.0 37.50
-
>3.0<3.5 31.25
-
>2.5<3.0 31.25
-
>2.0<2.5 31.25
-
<2.0 25.00
The Commitment Fee shall (i) accrue from the Closing Date to the Revolving
Termination Date and (ii) be payable quarterly in arrears on the last day of
each quarter commencing with the quarter ending June 30, 1999 and on the
Revolving Termination Date.
(d) Computation of Interest and Commitment Fee. The computation of
interest and the Commitment Fee shall be based on the actual number of days
elapsed assuming (i) in the case of Base Rate Loans and any period during which
any such Loans are outstanding, a year consisting of three hundred sixty-five
(365) days and (ii) in the case of LIBOR Loans and any period during which any
such Loans are outstanding, a year consisting of three hundred sixty (360) days.
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<PAGE> 33
(e Illegality, Taxation and Additional Interest Rate Provisions.
(i In the event the Agent shall have determined (which
determination shall be conclusive and binding) that by reason of
circumstances affecting the interbank Eurodollar market, adequate and
reasonable means do not exist for ascertaining Base LIBOR, the Agent
shall forthwith give notice of such determination, confirmed in
writing, to the Borrower. If such notice is given, and until such
notice has been withdrawn by the Agent, no additional LIBOR Loans shall
be made and no additional conversions of Loans to LIBOR Loans shall be
permitted, and at the end of the Interest Period relating to any
outstanding LIBOR Loans, such Loans shall become Base Rate Loans.
(ii Notwithstanding any other provisions herein, if any law,
treaty, rule or regulation, or determination of a court or other
Governmental Authority, or any change therein or in the interpretation
or application thereof, shall make it unlawful for a Bank to make or
maintain LIBOR Loans, as contemplated by this Agreement, the obligation
of such Bank hereunder to make LIBOR Loans shall forthwith be suspended
until such Bank shall notify the Agent that the circumstances causing
such suspension no longer exist, and each LIBOR Loan of such Bank then
outstanding shall (if required by such law, treaty, rule, regulation,
determination or change) immediately become a Base Rate Loan.
(iii In the event that any adoption or modification of any law,
treaty, rule or regulation, or determination of a court or other
Governmental Authority, or that any change in the interpretation or
application thereof, which adoption, modification or change becomes
effective after the date hereof, or in the event that compliance by a
Bank with any request or directive issued after the date hereof
(whether or not having the force of law) from any Governmental
Authority:
(A does or shall subject a Bank or any of its
foreign offices to any tax of any kind whatsoever (other than
taxes based on income from all sources) with respect to this
Agreement, the Notes, the Loans or any payments made to and
received by such Bank of principal, interest, fees or any
other amount payable hereunder; or
(B does or shall impose, modify, or hold applicable
any reserve, special deposit, compulsory loan, FDIC insurance
or similar requirement against assets held by, deposits or
other liabilities in or for the account of, advances or loans
by, other credit extended by or any other acquisition of funds
by, any office of a Bank (other than to the extent previously
taken into account in determining the Base Rate or Statutory
Reserves); or
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<PAGE> 34
(C does or shall impose on a Bank any other condition;
and the result of any of the foregoing is to increase the cost to a
Bank of making, renewing or maintaining such Bank's Commitment Amount
or the Loans, or to reduce any amount receivable in respect thereof or
under any of the Loan Documents; then, in any such case, such Bank
shall notify the Borrower of any such event and shall deliver to the
Agent and the Borrower a written statement specifying in reasonable
detail the losses or expenses sustained or incurred, and any reasonable
allocation made by such Bank of such losses and expenses shall be
conclusive. The Borrower shall, within ten (10) days following demand
therefor, pay the amount of such losses and expenses.
(iv Each Bank represents and warrants to the Agent and the Borrower
that, under applicable law and treaties, such Bank is entitled to
receive all payments under this Agreement and the Notes payable to it,
without deduction or withholding of any taxes imposed by the United
States or any political subdivision thereof. On or before the Closing
Date, each Bank shall deliver to each of the Borrower and the Agent two
(2) executed copies of valid and properly completed (i) United States
Internal Revenue Service Form 1001 or 4224 certifying that such Bank is
entitled to receive payments under this Agreement and the Notes then
held by it, without deduction or withholding of any United States
federal income taxes, and (ii) Internal Revenue Service Form W-8 or W-9
establishing any exemption from United States backup withholding tax.
If any such form is found to be incomplete or incorrect, or must be
replaced (on the same or a successor form) in order to maintain its
effectiveness, the affected Bank shall execute and deliver to the
Borrower and the Agent two (2) executed copies of a valid, complete and
correct replacement form.
(f Capital Adequacy Requirements. If any Bank shall determine that the
application of any law, rule, regulation or guideline regarding capital
adequacy, or any change therein or any change in the interpretation or
administration thereof by any central bank or other Governmental Authority
charged with the interpretation or administration thereof, or compliance by such
Bank (or its lending office) or any corporation controlling such Bank, with any
request, guideline or directive regarding capital adequacy (whether or not
having the force of law) of any such central bank or other authority (which in
any such case has become effective after the date hereof), affects or would
affect the amount of capital required or expected to be maintained by such Bank
or any corporation controlling such Bank, and such Bank determines that the
amount of such capital is increased as a consequence of its obligation under
this Agreement, then, upon demand of such Bank, the Borrower shall, within ten
(10) days following demand therefor, pay to such Bank, from time to time as
specified by the Bank, additional amounts sufficient to compensate such Bank for
such increase.
(g Substitution of Banks. Upon the receipt by the Borrower from any
Bank (an "Affected Bank") of a request for compensation or payment under this
SECTION 2.2, the Borrower
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<PAGE> 35
may: (i) request the Agent to use reasonable efforts to obtain a replacement
bank or financial institution satisfactory to the Borrower to acquire and assume
all or part of such Affected Bank's Loans and Commitments (a "Replacement
Bank"); (ii) request one or more of the other Banks to acquire and assume all or
part of such Affected Bank's Loans and Commitments; (iii) designate a
Replacement Bank; or (iv) subject to SECTION 11.3(E) hereof, terminate in whole
or reduce in part the Commitments of the Affected Bank and prepay all or part of
the outstanding Loans owing to such Affected Bank in accordance with SECTION 2.3
hereof. Any such designation of a Replacement Bank under clause (i) or (iii)
shall be subject to the prior written consent of the Agent and each of the other
Banks (which consent in the case of the Banks and the Agent shall not be
unreasonably withheld).
(h Highest Lawful Rate. Anything in this Agreement to the contrary
notwithstanding, the Borrower shall never be required to pay unearned interest
on any Loan and shall never be required to pay interest on any Loan at a rate in
excess of the Highest Lawful Rate, and if the effective rate of interest which
would otherwise be payable under this Agreement would exceed the Highest Lawful
Rate, or if any Bank shall receive any unearned interest or shall receive monies
that are deemed to constitute interest which would increase the effective rate
of interest payable under this Agreement to a rate in excess of the Highest
Lawful Rate, then (a) in lieu of the amount of interest which would otherwise be
payable under this Agreement, the Borrower shall pay the Highest Lawful Rate and
(b) any unearned interest paid by the Borrower or any interest paid by the
Borrower in excess of the Highest Lawful Rate shall be credited on the principal
of such Loan and thereafter shall be refunded to the Borrower. It is further
agreed, without limiting the foregoing, that all calculations of the rate of
interest contracted for, charged or received by any Bank under this Agreement
that are made for the purpose of determining whether such rate exceeds the
Highest Lawful Rate applicable to such Bank (such Highest Lawful Rate being such
Bank's "Maximum Permissible Rate") shall be made, to the extent permitted by
usury laws applicable to such Bank (now or hereafter enacted), by amortizing,
prorating and spreading in equal parts during the period of the full stated term
of the Loans all interest at any time contracted for, charged or received by
such Bank in connection therewith. If at any time and from time to time (i) the
amount of interest payable to any Bank on any date shall be computed at such
Bank's Maximum Permissible Rate pursuant to this SECTION 2.2(H) and (ii) in
respect of any subsequent interest computation period the amount of interest
otherwise payable to such Bank would be less than the amount of interest
otherwise payable to such Bank computed at such Bank's Maximum Permissible Rate,
then the amount of interest payable to such Bank in respect of such subsequent
interest computation period shall continue to be computed at such Bank's Maximum
Permissible Rate until the total amount of interest payable to such Bank shall
equal the total amount of interest which would have been payable to such Bank if
the total amount of interest had been computed without giving effect to this
SECTION 2.2(H).
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SECTION II.3 PAYMENTS.
(a Payment of Loans. The Borrower shall repay all Loans which are
outstanding on the Revolving Termination Date.
(b Optional Prepayment. Subject to the following and the provisions of
SECTION 2.3(C) and SECTION 2.3(D) hereof, the Borrower may at any time prepay,
upon notice given not later than 10:30 a.m. (Houston, Texas time) on the date of
such prepayment in the case of Base Rate Loans, or three (3) Banking Days prior
written notice to the Agent as to any LIBOR Loans, the principal amount of any
or all of the Loans in whole or in part, without penalty or premium. With
respect to each prepayment hereunder, interest accrued to the date of prepayment
on the amount of such prepayment shall be payable (i) for LIBOR Loans, on the
date of the prepayment, and (ii) for Base Rate Loans, on the next scheduled date
for the payment of interest pursuant to SECTION 2.2(A) hereof. Any such notice
of prepayment shall specify the amount of the prepayment. Any such prepayment
shall be in a minimum principal amount of Two Hundred and Fifty Thousand Dollars
($250,000) and in a principal amount which is an integral multiple of One
Hundred Thousand Dollars ($100,000).
(c Mandatory Prepayment.
(i If at any time the aggregate principal amount of the Loans
outstanding exceeds the Total Commitment Amount minus the Letter of
Credit Obligations, then the Borrower shall immediately pay to the
Agent, for the account of each Bank, the amount of such excess (as a
prepayment in respect of the Loans), plus any amount due under SECTION
2.3(D) hereof as a result of such prepayment.
(ii In the event that the Borrower or any of its Subsidiaries sells
or otherwise disposes of any asset, or any Stock of Borrower or any
Subsidiary, in any calendar year (other than the sale or other
disposition of assets that are obsolete or no longer used or useful in
Borrower's business and having a value not exceeding $250,000 in any
single transaction or $500,000 in the aggregate in any calendar year),
the Borrower shall prepay the Loans from the Net Cash Proceeds received
at any time by the Borrower or its Subsidiaries from such sale or other
disposition. The Borrower shall also pay any amount due under SECTION
2.3(D) hereof as a result of such prepayment or may, in lieu thereof,
deposit the Net Cash Proceeds with the Agent, to be held pending
expiration of Interest Periods until the earliest time at which such
proceeds may be used to prepay the Loans in accordance herewith without
the Borrower being obligated to pay any amounts which would have been
due under SECTION 2.3(D) hereof had payment been made earlier.
(iii Within sixty (60) days after the end of each fiscal year
(commencing with the fiscal year ending March 31, 2000), the Borrower
shall prepay the Loans in an amount equal to one hundred percent (100%)
of the Excess Cash Flow for such fiscal year reduced by the amount
necessary to maintain a minimum of Four Million Dollars
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($4,000,000) of cash and cash equivalents on the Borrower=s
consolidated balance sheet at the end of such fiscal year.
(iv The Borrower shall prepay the Loans and permanently reduce the
Total Commitment Amount by (A) paying Twelve Million Dollars
($12,000,000) on or before October 31, 1999, and (B) paying Eight
Million Dollars ($8,000,000) on or before October 31, 2000. The
Borrower shall have the option of extending each of the mandatory
prepayments described in the preceding sentence one time only for up to
one hundred twenty (120) days, provided that: (I) the Borrower provides
a written request to the Agent not less than thirty (30) days prior to
each mandatory prepayment, and (II) the Majority Banks shall have
approved such request in writing, and (III) no Event of Default or
Incipient Default shall exist on the date of the Borrower=s request or
on the original due date of the relevant mandatory prepayment.
(v In the event that the Borrower shall issue Equity Interests
(other than in connection with the Employee Stock Purchase Program) to
a Person in exchange for cash, or shall incur unsecured or subordinated
Indebtedness, Borrower shall prepay the Loans in an amount equal to one
hundred percent (100%) of the Net Cash Proceeds received by the
Borrower.
Any prepayment made pursuant to SECTIONS 2.3(C)(II)(III)(IV) OR (V)
hereof shall permanently reduce the Total Commitment Amount without reducing or
increasing the amount of advances available to the Borrower pursuant to SECTION
5.2(D) hereof; provided, however, that if and to the extent that the Net Cash
Proceeds result from the sale of any asset which is being replaced or will be
replaced within twelve (12) months after the date of receipt of such Net Cash
Proceeds by a similar or comparable replacement asset having a comparable fair
market value and if the Borrower notifies the Agent in writing within five (5)
Banking Days after the applicable sale that the Borrower or its Subsidiary
intends to so replace the asset sold, the Total Commitment Amount shall not be
permanently reduced until the twelve (12) month anniversary of such sale, and on
such 12-month anniversary, the Total Commitment Amount shall be permanently
reduced by (i) one hundred percent (100%) of such Net Cash Proceeds received by
the Borrower or its Subsidiary from such sale if the Borrower fails to notify
the Agent in writing on or before the twelve (12) month anniversary of such
asset sale that the replacement asset has been acquired, or (ii) the amount of
any excess Net Cash Proceeds not used to acquire the replacement asset.
(d Payments Prior to Interest Period Expiration. The Borrower hereby
agrees to indemnify and hold the Banks free and harmless from any loss or
expense (including, without limitation, any loss or expense incurred by reason
of the liquidation or redeployment of deposits or other funds acquired by the
Banks to fund or maintain any LIBOR Loan and in addition to any interest or
other payments which may be due the Banks under this Agreement) which the Banks
may incur as a result of (i) the failure by the Borrower to accept or complete a
borrowing,
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conversion or extension with respect to a LIBOR Loan after making a request
therefor, (ii) the failure of the Borrower to make any prepayment after notice
has been given in accordance with SECTION 2.3(B) hereof, (iii) a prepayment in
whole or in part (whether optional or mandatory) of any LIBOR Loan prior to the
expiration of a related Interest Period, or (iv) the conversion of a LIBOR Loan
as a result of any of the events indicated in SECTION 2.3(G) hereof. The Agent,
after consultation with the Banks, shall deliver to the Borrower a written
statement specifying in reasonable detail any amounts due the Banks as provided
above, and such statement, in the absence of manifest error, shall be fixed and
binding on all parties. In no event shall any amounts be payable by the Banks to
the Borrower under this SECTION 2.3(D).
(e Payments by the Borrower. All payments (including prepayments)
required to be made on account of principal, interest and fees shall be made
without set-off or counterclaim and shall be made to the Agent, for the account
of the Banks, at the Agent's office referenced in SECTION 11.9 hereof, in
Dollars and in immediately available funds no later than 2:00 p.m. (Houston,
Texas time). The Agent will promptly distribute such payments to each Bank its
Commitment Percentage of such principal, interest, fees or other amounts, in
like funds as received. Any payment which is received by the Agent later than
2:00 p.m. (Houston, Texas time) shall be deemed to have been received on the
immediately succeeding Banking Day. Whenever any payment hereunder shall be
stated to be due on a day other than a Banking Day, such payment shall be made
on the next succeeding Banking Day, and such extension of time shall in such
case be included in the computation of interest or fees, as the case may be.
Unless the Agent shall have received notice from the Borrower prior to the date
on which any payment is due to the Banks hereunder that the Borrower will not
make such payment in full, the Agent may assume that the Borrower has made such
payment in full to the Agent on such date and the Agent may (but shall not be so
required), in reliance upon such assumption, cause to be distributed to each
Bank on such due date an amount equal to the amount then due such Bank. If and
to the extent such payment has not been made in full to the Agent, each Bank
shall repay to the Agent on demand such amount distributed to such Bank,
together with interest thereon for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Agent, at the Federal Funds Rate as in effect from time to time.
(f Payments by the Banks to the Agent. Each Bank shall make available
to the Agent in immediately available funds the amount of such Bank's Commitment
Percentage of any Borrowing pursuant to notification as provided in SECTION
2.1(C). Unless the Agent shall have received notice from a Bank at least one (1)
Banking Day prior to the date of any proposed Borrowing that such Bank will not
make available to the Agent for the account of the Borrower the amount of that
Bank's Commitment Percentage of the proposed Borrowing, the Agent may assume
that each Bank has made such amount available to the Agent on the borrowing date
and the Agent may (but shall not be so required), in reliance upon such
assumption, make available to the Borrower on such date a corresponding amount.
If and to the extent any Bank shall not have made its full amount available to
the Agent and the Agent in such circumstances has made available to the Borrower
such amount, that Bank shall within two (2) Banking Days following the date of
such Borrowing make such amount available to the Agent, together with interest
at the Federal Funds Rate as in effect for each day during such period. notice
from the Agent submitted to any Bank with respect to amounts owing under this
SECTION 2.3(F) shall be conclusive, absent manifest error. If such amount is so
made available, such payment to the Agent shall constitute such Bank's Loan on
the date of the Borrowing for all purposes of this Agreement. If such amount is
not made available to the Agent within two (2) Banking Days following
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the date of such Borrowing, the Agent shall notify the Borrower of such failure
to fund and, upon demand by the Agent, the Borrower shall pay such amount to the
Agent for the account of the Agent, together with interest thereon for each day
elapsed since the date of such Borrowing, at a rate per annum equal to the
interest rate applicable at the time to the Loans comprising such Borrowing. The
failure of any Bank to make any Loan on any date of any proposed Borrowing shall
not relieve any other Bank of its obligation hereunder to make its Loan on such
date, but no Bank shall be responsible for the failure of any other Bank to make
the Loan to be made by such other Bank on such date. In the event that a Bank
for any reasons fails or refuses to fund its portion of a Loan in violation of
this Agreement, then, until such time as such Bank has funded its portion of
such Loan, or all other Banks have received payment in full (whether by
repayment or prepayment) of the principal and interest due in respect of such
Loan, such non-funding Bank shall (i) have no right to vote regarding any issue
on which voting is required or advisable under this Agreement or any other Loan
Document and (ii) shall not be entitled to receive any payments of principal,
interest or fees from the Agent (or the other Banks) in respect of its Loans.
(g Sharing of Payments, etc.. If any Bank shall obtain any payment
(whether voluntary, involuntary, through the exercise of any right of set-off,
or otherwise) on account of any Obligations owing to such Bank and such payment
exceeds such Bank's pro rata share of all Obligations owing to all of the Banks,
such Bank shall forthwith (a) notify the Agent of such fact and (b) purchase
from the other Banks such participations in the Obligations owing to such other
Banks as shall be necessary to cause such purchasing Bank to share the excess
payment ratably with each of them; provided, however, that if all or any portion
of such excess payment is thereafter recovered from the purchasing Bank, such
purchase shall to that extent be rescinded and each other Bank shall repay to
the purchasing Bank the purchase price paid thereto together with an amount
equal to such paying Bank's allocable portion (according to the proportion of
(i) the amount of such paying Bank's required repayment to (ii) the total amount
so recovered from the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so recovered. The
Borrower agrees that any Bank so purchasing a participation from another Bank
pursuant to this SECTION 2.3(G) may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of offset in SECTION
2.3(H) hereof), with respect to such participation as fully as if such Bank were
the direct creditor of the Borrower in the amount of such participation. The
Agent shall keep records (which shall be conclusive and binding in the absence
of manifest error) of participations purchased pursuant to this SECTION 2.3(G)
and shall in each case notify the Banks following any such purchases.
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(h Offset. In addition to and not in limitation of all rights of
offset that the Banks may have under applicable law, the Banks, upon the
occurrence and during the continuance of an Acceleration, shall have the right
to appropriate and apply to the payment of all Obligations any and all balances,
credits, deposits, accounts or moneys of the Borrower then or thereafter with
the Banks. Each Bank agrees promptly to notify the Borrower and the Agent after
any such offset and application made by such Bank; provided, however, that the
failure to give such notice shall not affect the validity of such offset and
application. The rights of each Bank under this SECTION 2.3(H) are in addition
to the other rights and remedies which such Bank may have.
SECTION II.4 WAIVERS.
The Borrower hereby expressly waives presentment, protest, notice,
demand or action on delinquency in respect of the Obligations. The Borrower
waives any defense arising by reason of any inability to pay or any defense
based on bankruptcy or insolvency or other similar limitations on creditors'
remedies. The Borrower authorizes the Agent and the Banks, without notice or
demand and without affecting the Borrower's liability hereunder or under any of
the other Loan Documents, from time to time to: (i) renew, extend, accelerate or
otherwise change the time or place for payment of the Notes or the Obligations
or any part thereof; (ii) take and hold security, and exchange, enforce, waive
and release any collateral or security or any part thereof or any such other
security, surrender, modify, impair, change, alter, renew, continue, compromise
or release in whole or in part any such security, or fail to perfect its
interest in any such security or to establish its priority with respect thereof;
(iii) apply such security and direct the order or manner or sale thereof as the
Agent and the Banks in their sole discretion may determine; (iv) release or
substitute, in whole or in part any of the endorsers or guarantors of the
Obligations or any part thereof; (v) settle or compromise any or all of the
Obligations with any endorser or guarantor of the Obligations; and (vi)
subordinate any or all of the Obligations to any other obligations of or claim
against the Borrower, whether owing to or existing in favor of the Agent or the
Banks or any other party. The Obligations of the Borrower shall continue to be
effective or be reinstated (as the case may be) if at any time payment by the
Borrower of all or any part of the Obligations is rescinded or must otherwise be
returned by either of the Agent or the Banks upon the insolvency, bankruptcy or
reorganization of the Borrower or otherwise, all as though such payment to
either of the Agent or the Banks had not been made.
The Agent and the Majority Banks may, at their election, exercise any
right or remedy they may have against the Borrower or any security now or
hereafter held by or for the benefit of the Agent or the Banks including,
without limitation, the right to foreclose upon any such security by judicial or
nonjudicial sale, without affecting or impairing in any way the liability of the
Borrower hereunder, except to the extent the Obligations may thereby be paid.
The Borrower waives any defense arising out of the absence, impairment or loss
of any right or remedy against any such security, whether resulting from any
defect in, failure of, or loss or absence of priority with respect to the
interest of the Agent or the Banks in such security, or otherwise. Neither the
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Agent nor any Bank shall be required to institute or prosecute proceedings to
recover any deficiency as a condition of payment hereunder or enforcement
hereof.
The Borrower waives the benefit of any statute of limitations affecting
its liability hereunder or the enforcement thereof, to the extent permitted by
law. The Borrower understands and acknowledges that the Banks would not make the
Loans in the absence of the covenants and waivers of the Borrower contained
herein.
The Borrower acknowledges that repeated and successive demands may be
made and payments or performance made hereunder in response to such demands as
and when, from time to time, the Borrower may default in performance of the
Obligations. Notwithstanding any such payment or performance hereunder, this
Agreement shall remain in full force and effect and shall apply to any and all
subsequent defaults by the Borrower in payment or performance of the
obligations.
The Borrower waives any set-off, defense or counterclaim which the
Borrower may have or claim to have against the Agent or the Banks.
SECTION II.5 APPLICATION OF PAYMENTS.
(a Payments Prior to Acceleration. Prior to the acceleration of the
Obligations under SECTION 8.2 hereof, and other than with respect to payments
required to be made pursuant to SECTION 2.3(C) hereof (which shall be applied as
set forth in SECTION 2.3(C) hereof), if some but less than all amounts due from
the Borrower are received by the Agent, the Agent shall distribute such amounts
in the following order of priority: FIRST, to the payment of interest then due
and payable on the Loans; SECOND, to the payment of principal then due and
payable on the Loans; THIRD, to the payment of any fees then due and payable to
the Agent hereunder or under any other Loan Document; FOURTH, to the payment of
any fees then due and payable to the Banks or the Issuing Bank hereunder or
under any other Loan Document; FIFTH, to the extent of the undrawn and unexpired
amount of any Letter of Credit Obligations, to the Letter of Credit Reserve
Account; SIXTH, to the costs and expenses (including attorneys' fees and
expenses), if any, incurred by the Agent in the collection of such amounts under
this Agreement or any of the other Loan Documents; SEVENTH, to the payment of
all other Obligations not otherwise referred to in this then due and payable
hereunder or under any of the other Loan Documents; and EIGHTH, upon
satisfaction in full of all outstanding Obligations, to the Borrower.
(b Payments Subsequent to Acceleration. Subsequent to the acceleration
of the Obligations under SECTION 8.2 hereof, payments and prepayments with
respect to the Obligations made to the Agent, the Banks or the Issuing Bank or
otherwise received by the Agent, any Bank or the Issuing Bank (from realization
on Collateral or otherwise) shall be distributed in the following order of
priority: FIRST, to the costs and expenses (including attorneys' fees and
expenses), if any, incurred by the Agent, any Bank or the Issuing Bank in the
collection of such
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amounts under this Agreement or any of the other Loan Documents, including,
without limitation, any costs incurred in connection with the sale or
disposition of any Collateral; SECOND, to the payment of interest then due and
payable on the Loans; THIRD, to the payment of the principal of any Loans then
outstanding; FOURTH, to any fees then due and payable to the Agent under this
Agreement or any of the other Loan Documents; FIFTH, to any fees then due and
payable to the Banks and the Issuing Bank under this Agreement or any other of
the Loan Documents; SIXTH, to the extent of the undrawn and unexpired amount of
any Letter of Credit Obligations, to the Letter of Credit Reserve Account;
SEVENTH, to the payment of any obligation under any Rate Contract between the
Borrower, on the one hand, and the Agent (or an Affiliate of the Agent) or one
or more Banks (or an Affiliate of a Bank), on the other hand; EIGHTH, to any
other Obligations not otherwise referred to in this SECTION 2.5(B); NINTH, to
damages incurred by the Agent, any Bank or the Issuing Bank by reason of any
breach hereof or of any of the other Loan Documents; and TENTH, upon
satisfaction in full of all Obligations, to the Borrower or as otherwise
required by law.
ARTICLE III
LETTERS OF CREDIT
SECTION III.1 ISSUANCE OF LETTERS OF CREDIT.
(a Subject to the terms and conditions hereof, the Issuing Bank, on
behalf of the Banks, and in reliance on the agreements of the Banks set forth in
this SECTION 3.1 hereby agrees to issue one or more Letters of Credit up to an
aggregate face amount equal to the Letter of Credit Commitment; provided,
however, that the Issuing Bank shall not issue any Letter of Credit unless the
conditions precedent to the issuance thereof set forth in SECTION 5.3 hereof
have been satisfied, and the Issuing Bank shall have no obligation to issue any
Letter of Credit if, after giving effect to such issuance, the Available
Commitment Amount would be less than zero. Each Letter of Credit shall (1) be
denominated in Dollars and (2) expire no later than the earlier to occur of (A)
the Final Maturity Date and (B) three hundred sixty (360) days after its date of
issuance (but may contain provisions for automatic renewal, provided that no
Event of Default or Incipient Default exists on the renewal date or would be
caused by such renewal). Each Letter of Credit shall be subject to the Uniform
Customs and, to the extent not inconsistent therewith, the laws of the State of
New York. The Issuing Bank shall not at any time be obligated to issue, or cause
to be issued, any Letter of Credit if such issuance would conflict with, or
cause the Issuing Bank to exceed any limits imposed by, any Applicable Law.
(b The Borrower may from time to time request that the Issuing Bank
issue a Letter of Credit for a Permitted Purpose. The Borrower shall execute and
deliver to the Agent and the Issuing Bank a Request for Issuance of Letter of
Credit in the form attached hereto as EXHIBIT 3.1(B) for each Letter of Credit
to be issued by the Issuing Bank not later than 11:00 a.m.
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(Houston time) on the fifth (5th) Banking Day preceding the date on which the
requested Letter of Credit is to be issued, subject to such shorter notice as
may be acceptable to the Issuing Bank and the Agent. Upon receipt of any such
request, subject to satisfaction of all conditions precedent thereto as set
forth in SECTION 5.3 hereof and in accordance with SECTION 3.1 hereof, the
Issuing Bank shall process such request and the certificates, documents and
other papers and information delivered to it in connection therewith in
accordance with its customary procedures and shall promptly issue the Letter of
Credit requested thereby. The Issuing Bank shall furnish a copy of such Letter
of Credit to the Borrower and the Agent following the issuance thereof. The
Borrower shall pay or reimburse the Issuing Bank for normal and customary costs
and expenses incurred by the Issuing Bank in issuing, effecting payment under,
amending or otherwise administering the Letters of Credit.
SECTION III.2 DRAWS UNDER LETTERS OF CREDIT.
(a At such time as the Agent shall be notified by the Issuing Bank
that the beneficiary under any Letter of Credit has drawn on the same, the Agent
shall promptly notify the Borrower and each Bank, by telephone or telecopy, of
the amount of the draw and, in the case of each Bank, such Bank's portion of
such draw amount as calculated in accordance with its Commitment Percentage.
(b The Borrower hereby agrees to immediately reimburse the Issuing
Bank for amounts paid by such Issuing Bank in respect of draws under a Letter of
Credit. In order to facilitate such repayment, the Borrower hereby irrevocably
requests the Banks, and the Banks hereby severally agree, on the terms and
conditions of this Agreement (other than as provided in ARTICLE II hereof with
respect to the amounts of, the timing of requests for, and the repayment of
Loans hereunder and in ARTICLE IV hereof with respect to conditions precedent to
Loans hereunder), with respect to any drawing under a Letter of Credit prior to
the occurrence of an event described in SECTION 9.1(J) hereof, to make a Base
Rate Loan to the Borrower on each day on which a draw is made under a Letter of
Credit and in the amount of such draw, and to pay the proceeds of such Loan
directly to the Issuing Bank to reimburse the Issuing Bank for the amount paid
by it upon such draw. The Borrower agrees to deliver to the Agent a Loan Request
requesting the making of such Base Rate Loan on the day of any such draw;
provided, however, that the failure of the Borrower to deliver such Loan Request
shall not effect the validity of any Base Rate Loan made hereunder. Each Bank
shall fund its share of such Base Rate Loan by paying its portion of such Loan
to the Agent in accordance with SECTION 2.3(E) hereof and its Commitment
Percentage, without reduction for any set-off or counterclaim of any nature
whatsoever and regardless of whether any Incipient Default or Event of Default
(other than with respect to an event described in SECTION 2.3(E) hereof) then
exists or would be caused thereby. If at any time that any Letters of Credit are
outstanding, any of the events described in SECTION 9.1(J) shall have occurred,
then each Bank shall, automatically upon the occurrence of any such event and
without any action on the part of the Issuing Bank, the Borrower, the Agent or
the Banks, be deemed to have purchased an undivided participation in the face
amount of all
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Letters of Credit then outstanding in an amount equal to such Bank's Commitment
Percentage, and each Bank shall, notwithstanding the occurrence of such event,
upon a drawing under any Letter of Credit, immediately pay to the Agent for the
account of the Issuing Bank, in immediately available funds, the amount of such
Bank's participation, and the Issuing Bank shall deliver to such Bank a loan
participation certificate dated the date of the occurrence of such event and in
the amount of such Bank's Commitment Percentage. The disbursement of funds in
connection with a draw under a Letter of Credit pursuant to this SECTION 3.2
shall be subject to the terms and conditions of SECTION 2.3(E) hereof. The
obligations of each Bank to make payments to the Agent, for the account of the
Issuing Bank, in accordance with this SECTION 3.2 shall be absolute and
unconditional, and no Bank shall be relieved of its obligations to make such
payments by reason of noncompliance by any other Person with the terms of the
Letter of Credit or for any other reason. The Agent shall promptly remit to the
Issuing Bank the amounts so received from the other Banks. Any overdue amounts
payable by the Banks to the Issuing Bank in respect of a draw under any Letter
of Credit shall bear interest, payable on demand, (x) for the first two (2)
Banking Days, at the rate on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as published
for such day by the Federal Reserve Bank of New York, and (y) thereafter, at the
Base Rate.
(c The Borrower agrees that each Loan made by the Banks to reimburse
the Issuing Bank for draws under any Letter of Credit shall, for all purposes
hereunder, be deemed to be a Base Rate Loan and shall be payable and bear
interest in accordance with all other Base Rate Loans. At the Borrower's option,
any such Base Rate Loan may be converted to a LIBOR Loan as provided in SECTION
2.2(B).
SECTION III.3 ACTIONS BY ISSUING BANK.
(a The Borrower agrees that any action taken or omitted to be taken by
the Issuing Bank in connection with any Letter of Credit, except for such
actions or omissions as shall constitute gross negligence or willful misconduct
on the part of the Issuing Bank, shall be binding on the Borrower as between the
Borrower and the Issuing Bank and shall not result in any liability of the
Issuing Bank to the Borrower. The obligation of the Borrower to reimburse the
Issuing Bank for a drawing under any Letter of Credit or the Banks for Loans
disbursed by them to the Issuing Bank on account of draws made under the Letters
of Credit shall be absolute, unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement under all circumstances
whatsoever, including, without limitation, the following circumstances:
(i Any lack of validity or enforceability of any Loan Document;
(ii Any amendment or waiver of or consent to any departure from any
or all of the Loan Documents;
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(iii Any improper use which may be made of any Letter of Credit or
any improper acts or omissions of any beneficiary or transferee of any
Letter of Credit in connection therewith;
(iv The existence of any claim, set-off, defense or any right which
the Borrower may have at any time against any beneficiary or any
transferee of any Letter of Credit (or Persons for whom any such
beneficiary or any such transferee may be acting), any Bank or any
other Person, whether in connection with any Letter of Credit, any
transaction contemplated by any Letter of Credit, this Agreement or any
other Loan Document, or any unrelated transaction;
(v Any statement or any other documents presented under any Letter
of Credit proving to be insufficient, forged, fraudulent or invalid in
any respect or any statement therein being untrue or inaccurate in any
respect whatsoever;
(vi The insolvency of any Person issuing any documents in connection
with any Letter of Credit;
(vii Any breach of any agreement between the Borrower and any
beneficiary or transferee of any Letter of Credit;
(viii Any irregularity in the transaction with respect to which any
Letter of Credit is issued, including any fraud by the beneficiary or
any transferee of such Letter of Credit;
(ix Any errors, omissions, interruptions or delays in transmission
or delivery of any messages, by mail, cable, telegraph, wireless or
otherwise, whether or not they are in code;
(x Any act, error, neglect or default, omission, insolvency or
failure of business of any of the correspondents of the Issuing Bank;
and
(xi Any other circumstances arising from causes beyond the control
of the Issuing Bank.
SECTION III.4 FEES, INCREASED COSTS, INDEMNIFICATION, EXPENSES.
(a Letter of Credit Fee.
(i The Borrower shall pay the Letter of Credit Fee to the Banks, in
accordance with the Banks' respective Commitment Percentages, and to
the Issuing Bank in the following amounts: (a) with respect to the
Banks, an amount equal to the Letter of Credit Obligations with respect
to each Letter of Credit multiplied by the rate equal to the
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applicable LIBOR margin based upon the Borrower's ratio of Funded
Indebtedness to EBITDAR (calculated in accordance with SECTION
7.18(A)(I)) as follows:
Funded Indebtedness/EBITDAR LIBOR Margin (bps)
--------------------------- ------------------
>4.5 400.00
-
>4.0<4.5 300.00
-
>3.5<4.0 275.00
-
>3.0<3.5 250.00
-
>2.5<3.0 225.00
-
>2.0<2.5 200.00
-
<2.0 175.00
from the date of issuance of such Letter of Credit through and including the
later of the expiration date thereof or the date as of which all reimbursement
obligations owing with respect thereto shall be paid in full; provided, however,
that after Borrower's first mandatory permanent reduction of the Loans in the
principal amount of Twelve Million Dollars ($12,000,000) in accordance with
SECTION 2.3(C)(IV) hereof, if the ratio of Funded Indebtedness to EBITDAR is
greater than or equal to 4.5, the applicable LIBOR margin shall be 350 basis
points; and (b) with respect to the Issuing Bank, an amount equal to one-eighth
of one percent (1/8%) per annum of the stated amount of each Letter of Credit
issued by the Issuing Bank from the date of issuance of such Letter of Credit
through and including the expiration date thereof, plus Two Hundred Fifty
Dollars ($250) for issuing, amending and renewing any Letter of Credit.
(ii The Letter of Credit Fee shall be payable quarterly in arrears
on the last day of each quarter commencing with the quarter ending June
30, 1999 and on the Final Maturity Date, subject to SECTION 2.2(D)
hereof.
(b If any change in Applicable Law, any change in the interpretation
or administration thereof, or any change in compliance with Applicable Law by
the Issuing Bank as a result of any request or directive of any Governmental
Authority, central bank or comparable agency (whether or not having the force of
law) after the date hereof shall (i) impose, modify or deem applicable any
reserve (including, without limitation, any imposed by the Board of Governors of
the Federal Reserve System), special deposit, capital adequacy, assessment or
other requirements or conditions against letters of credit issued by the Issuing
Bank or (ii) impose on the Issuing Bank any other condition regarding this
Agreement or any Letter of Credit or any participation therein, and the result
of any of the foregoing in the determination of the Issuing Bank is to increase
the cost to the Issuing Bank of issuing or maintaining any Letter of Credit or
purchasing or maintaining any participation therein, then, on the earlier of the
Final Maturity Date or a date not more than fifteen (15) days after demand by
the Issuing Bank, the Borrower agrees to pay to the Issuing Bank, from time to
time as specified by the Issuing Bank, such additional amount or amounts as the
Issuing Bank determines will compensate it for such increased costs, from the
date such change or action is effective, together with interest on each
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such amount from the Final Maturity Date or the date demanded, as applicable,
until payment in full thereof at the Base Rate. A certificate as to such
increased cost incurred by the Issuing Bank as a result of any event referred to
in this subsection (b) submitted by the Issuing Bank to the Borrower shall be
conclusive, absent manifest error, as to the amount thereof.
(c The Borrower will indemnify and hold harmless the Agent, the
Issuing Bank and each other Bank and each of their respective employees,
representatives, officers and directors from and against any and all claims,
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever (including
reasonable attorneys' fees, but excluding taxes) which may be imposed on,
incurred by or asserted against the Agent, the Issuing Bank or any other Bank in
any way relating to or arising out of the issuance of a Letter of Credit, except
that the Borrower shall not be liable to the Agent, the Issuing Bank or any
other Bank for any portion of such claims, liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the gross negligence or willful misconduct of the Agent, the
Issuing Bank or any other Bank, as the case may be. This SUBPARAGRAPH (C) shall
survive termination of this Agreement.
(d Each Bank shall be responsible for its pro rata share (based on
such Bank's Commitment Percentage) of any and all reasonable out-of-pocket
costs, expenses (including reasonable legal fees) and disbursements which may be
incurred or made by the Issuing Bank in connection with the collection of any
amounts due under, the administration of, or the presentation or enforcement of
any rights conferred by any Letter of Credit or the Borrower's or any
guarantor's obligations to reimburse draws thereunder or otherwise. In the event
the Borrower shall fail to pay such expenses of the Issuing Bank within thirty
(30) days of demand for payment by the Issuing Bank, each Bank shall thereupon
pay to the Issuing Bank its pro rata share (based on such Bank's Commitment
Percentage) of such expenses within ten (10) days from the date of the Issuing
Bank's notice to the Banks of the Borrower's failure to pay; provided, however,
that if the Borrower shall thereafter pay such expenses, the Issuing Bank will
pay to each Bank the amounts received from such Bank hereunder.
ARTICLE IV
SECURITY DOCUMENTS
SECTION IV.1 SECURITY AGREEMENTS; MORTGAGES; STOCK PLEDGE AGREEMENTS;
CONCENTRATION ACCOUNT PLEDGE AGREEMENT.
The Obligations shall be secured by the Security Agreements, the
Mortgages, the Concentration Account Pledge Agreement, the Stock Pledge
Agreements and the Partnership Interest Pledge Agreement which shall be executed
and delivered to the Agent as follows:
(a Security Agreements. On or prior to the Closing Date, the Borrower
and its Subsidiaries shall execute and deliver the Omnibus Amendment and
Confirmation Agreement
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amending and confirming the Security Agreements, and any entity which becomes a
Subsidiary of the Borrower thereafter shall execute and deliver a Security
Agreement in substantially the form attached hereto as EXHIBIT 4.1 at the time
of its creation or acquisition by the Borrower or its Subsidiary.
(b Mortgages. The Borrower and its Subsidiaries previously have
delivered Mortgages with respect to their respective ownership or leasehold
interest in all real property which the Borrower and its Subsidiaries either own
or lease prior to the Closing Date (as amended, the "Original Mortgages"). On or
prior to the Closing Date, the Borrower and its Subsidiaries shall (i) execute
and deliver the Omnibus Amendment and Confirmation Agreement amending and
confirming the Original Mortgages, together with such other amendments to the
Original Mortgages as the Agent may request in each case in form and substance
satisfactory to the Agent and (ii) cause to be delivered an endorsement to each
title insurance policy previously issued to the Agent in connection with the
Original Mortgages, in each case, in form and substance satisfactory to the
Agent, confirming that such title policy covers this Agreement. As to any other
ownership or leasehold interest in real property which the Borrower or any
Subsidiary acquires from time to time after the Closing Date, the Borrower or
such Subsidiary, as the case may be, shall execute and deliver additional
Mortgages, provided that this SECTION 4.1(B) shall not require the Borrower or
its Subsidiaries to execute and deliver any Mortgage with respect to the
Excluded Leases; and provided further that (i) prior to any such acquisition,
the Agent shall have received an Environmental Report with respect to the real
property so acquired and (ii) concurrently with the execution and delivery of
each such Mortgage the Agent shall have received a title insurance policy with
respect to any real property so acquired which is substantially similar to the
title insurance policies delivered pursuant to SECTION 5.1(J)(II)(B) hereof and,
to the extent applicable, landlord's waivers from landlords in any ground leases
so acquired which shall be in form and substance satisfactory to the Agent. By
virtue of the execution and delivery of a Mortgage pursuant to this SECTION
4.1(B) the Borrower shall be deemed to have affirmed, with respect to the real
property thereby mortgaged, the covenants set forth in SECTION 6.19 hereof.
(c Stock Pledge Agreements. On or prior to the Closing Date, the
Borrower and its Subsidiaries shall execute and deliver the Stock Pledge
Agreements, together with share certificates representing all of the Stock being
pledged pursuant thereto and stock powers for such share certificates executed
in blank. The Borrower represents that, to the best of its knowledge after
reasonable inquiry, none of its Subsidiaries existing as of the Closing Date
owns any Equity Interests of any Person. In the event that either such
Subsidiary or any entity which becomes a Subsidiary of the Borrower after the
Closing Date shall ever own any Equity Interests of any Person, the Borrower
shall, promptly upon learning of such Equity Interest ownership, cause such
Subsidiary to execute and deliver additional agreements and documents as
necessary to give the Banks a fully-perfected, first priority security interest
in such Equity Interests. Where the Equity Interests consist of Capital Stock of
a Person, such additional agreements and documents shall include, but shall not
be limited to, a Stock Pledge Agreement.
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(d Concentration Account Pledge Agreement. On or prior to the Closing
Date, the Borrower shall execute and deliver the Omnibus Amendment and
Confirmation Agreement amending and confirming the Concentration Account Pledge
Agreement delivered in connection with the First Amended and Restated Credit
Agreement.
(e Partnership Interest Pledge Agreement. On a prior to the Closing
Date, the Borrower shall execute and deliver the Partnership Interest Pledge
Agreement.
SECTION IV.2 SUBSIDIARY GUARANTIES.
On or prior to the Closing Date, each Subsidiary shall execute and
deliver the Omnibus Amendment and Confirmation Agreement amending and confirming
the Subsidiary Guarantees. Any entity which shall become a Subsidiary of the
Borrower or one of its Subsidiaries after the Closing Date shall execute and
deliver a Subsidiary Guaranty substantially in the form attached hereto as
EXHIBIT 4.2-1 at the time of its creation or acquisition by the Borrower or its
Subsidiary. Notwithstanding the foregoing, with the consent of Banks having at
least seventy-five percent (75%) of the Commitment Percentages, Partial
Subsidiaries may execute and deliver a Subsidiary Guaranty in substantially the
form attached hereto as EXHIBIT 4.2-2.
ARTICLE V
CONDITIONS PRECEDENT
SECTION V.1 CONDITIONS TO COMMITMENT.
The obligation of the Banks to continue to undertake the Commitment
pursuant to the terms and conditions of this Agreement shall be subject to the
prior or contemporaneous satisfaction of each of the following conditions
precedent:
(a Delivery of Documents. The Borrower shall have delivered or caused
to be delivered to the Agent the following documents, each duly executed by an
Authorized Representative or similar authorized person:
(i This Agreement.
(ii The Omnibus Amendment and Confirmation Agreement.
(iii Notes executed by the Borrower payable to each of the Banks in
the Commitment Amount of each Bank. Such Notes shall replace and
supercede any Original Notes. All obligations evidenced by the Original
Notes shall continue in full force and effect, but shall be governed by
the Notes and this Agreement. The execution
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<PAGE> 50
and delivery of the Notes shall not be construed as a novation of the
obligations outstanding under the Original Notes.
(iv) The Welsh Carson Guaranty.
(v) The Partnership Interest Pledge Agreement.
(vi) The Stock Pledge Agreements and all share certificates and
stock powers required to be delivered thereunder.
(vii) From any Subsidiary of the Borrower which previously has not
delivered an Original Subsidiary Note, but as to which a Subsidiary
Note is required by the terms of SECTION 2.1(D)(II), a Subsidiary Note.
(viii) The Subsidiary Guaranties: any Subsidiary of the Borrower as
of the Closing Date which has not previously executed a Subsidiary
Guaranty shall deliver a Subsidiary Guaranty.
(ix) The Security Agreements: any Subsidiary of Borrower as of the
Closing Date which has not previously executed a Security Agreement
shall deliver a Security Agreement.
(x) Amendments to the Original Mortgages and "bring-down"
endorsements to the title insurance policies previously issued to the
Agent in connection therewith, each in form and substance satisfactory
to the Agent.
(xi) The Banks' Closing Fee Letter.
(b) Reports, Certificates and Other Information. The Agent shall have
received the following, dated and in full force and effect on the Closing Date:
(i) a certificate of the Secretary or an Assistant Secretary of the
Borrower and each of its Subsidiaries as to (A) its corporate charter
and by-laws, (B) authorization of the execution, delivery and
performance of this Agreement and all of the other Loan Documents
(including action of shareholders, where required), and (C) the
incumbency and signatures of persons authorized to act hereunder and
thereunder on behalf of the Borrower and its Subsidiaries, to which
shall be attached the resolutions of the Boards of Directors of the
Borrower and its Subsidiaries relating to the matters described in the
preceding clause (B), certified by such Secretary or Assistant
Secretary to be in full force and effect on the Closing Date;
(ii) a certificate, signed by a Responsible Officer of the Borrower
and each of its Subsidiaries stating (A) that the representations and
warranties contained in
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<PAGE> 51
ARTICLE VI hereof and in each of the other Loan Agreements, as
applicable, are then true and accurate as though made on and as of such
date, and (B) that there then exists no Event of Default or Incipient
Default;
(iii) good standing certificates for the Borrower and each of its
Subsidiaries bearing a date satisfactory to the Agent; and
(iv) such other instruments or documents as either the Agent may
reasonably request relating to the existence and good standing of the
Borrower or any of its Subsidiaries or corporate authority for the
execution, delivery and performance of this Agreement or any of the
other Loan Documents.
(c) Opinion of Counsel. There shall have been delivered to the Agent a
written opinion dated as of the date hereof by Harwell Howard Hyne Gabbert &
Manner, P.C., as counsel to the Borrower and its Subsidiaries, in form and
substance reasonably acceptable to the Agent, together with such additional
opinions of local counsel as Lender reasonably may request.
(d) Payment of Fees. On or before the Closing Date, the Agent shall
have received payment of any fee or other payment due the Agent or the Banks
pursuant to any of (i) the Banks' Closing Fee Letter, or (ii) the other Loan
Documents.
(e) No Existing Default. No Event of Default or event which, upon the
lapse of time or the giving of notice or both, would constitute an Event of
Default (an "Incipient Default") shall exist on the Closing Date or after giving
effect to the transactions contemplated to take place hereunder on such date.
(f) Representations and Warranties Correct. The representations and
warranties set forth in ARTICLE VI hereof and in each of the other Loan
Documents shall be true and correct on the Closing Date, and after giving effect
to the transactions contemplated to occur on such date.
(g) Legality of Transactions. It shall not be unlawful for the
Borrower, its Subsidiaries, the Agent, the Issuing Bank or the Banks to carry
out their respective obligations under this Agreement or any of the other Loan
Documents.
(h) No Material Adverse Change. Since February 22, 1999, no Material
Adverse Change shall have occurred in the consolidated financial condition,
operations or prospects of the Borrower.
(i) No Material Litigation. No material action, suit, investigation,
tax claim or proceeding shall as of the Closing Date be pending or, to the
knowledge of the Borrower, threatened against or affecting the Borrower or any
of its Subsidiaries or the property of the Borrower or any of its Subsidiaries
before any court, arbitrator or administrative or governmental
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body other than the matters described in SCHEDULE 5.1(I) hereto, and an
Authorized Representative shall certify that the matters described in said
SCHEDULE 5.1(I) are not reasonably expected to have a Material Adverse Effect.
(j) Security Interests and Collateral. On or before the Closing Date,
the Borrower and its Subsidiaries shall have taken or caused to be taken all
such actions as may be reasonably necessary, in the opinion of counsel to the
Agent, to give the Banks a valid and perfected first priority Lien on and
security interest in the Collateral. Such actions shall include without
limitation:
(i) The delivery to the Agent pursuant to the Security Agreements,
the Concentration Account Pledge Agreement, the Stock Pledge Agreements
and the Partnership Interest Pledge Agreement relating to such
Collateral of evidence satisfactory to the Agent of the filing of
proper financing statements and fixture filings duly filed under the
Uniform Commercial Code in form and substance satisfactory to the Agent
in each jurisdiction as may be reasonably necessary or desirable in
order to perfect the first priority security interests in the
Collateral created thereby.
(ii) With respect to the Collateral constituting real property, the
delivery to the Agent of the following:
(A) Evidence that counterparts of the Mortgages and such other
documents, instruments and agreements reasonably requested by the
Agent (in each case in form and substance reasonably satisfactory
to the Agent) have been duly recorded in all places that are
reasonably necessary to create a valid and enforceable first
priority Lien on all parcels of real property constituting the
Collateral delivered on the Closing Date in favor of the Banks,
subject only to Permitted Encumbrances;
(B) A title insurance policy for each parcel of real property
constituting such Collateral in the form of an American Land Title
Association Standard Loan Policy Form 1992 (L.P. 10), with ALTA
Endorsement Form 1 Coverage, insuring that on the Closing Date, the
Borrower or the applicable Subsidiary of the Borrower owns fee
simple title to such real property and that the mortgage relating
thereto is a valid first Lien on such real property. Each such
title insurance policy shall be in an amount approved by the Agent
and normally equal to at least the Appraised Value of such real
property and contain the special endorsements requested by the
Agent. No such title insurance policy shall contain any survey
exceptions, exceptions for rights of parties in possession,
easements not of record or installments of taxes or special
assessments (other than taxes and special assessments not then
payable), or any other exceptions to coverage not approved by the
Agent. Each such title insurance policy shall contain such
reinsurance agreements as the Agent may reasonably require; and
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<PAGE> 53
(C) Evidence of the payment of the applicable fees respecting
the recordation of the Mortgages and applicable fees respecting the
recordation of amendments to the Original Mortgages.
(iii) The Agent shall have received a landlord's waiver from
the landlord under any ground lease in form and substance satisfactory
to the Agent as to each of the leased premises (if any) which
constitutes any Collateral being delivered on the Closing Date;
provided, however, that the Agent may, in its sole discretion, waive
this requirement as to any leases which it feels are immaterial to the
overall Collateral.
(k) Insurance. The Agent shall have received copies of policies or
binders or certificates of insurance (or evidence thereof) required by the Loan
Documents, together with lender's loss payable endorsements in form and
substance satisfactory to the Majority Banks as to insurance maintained with
respect to the Collateral to be mortgaged or pledged under the Loan Documents,
and evidence of the payment of the premium therefor.
(l) Written Receipt. If any part of the proceeds of the Loan is to be
disbursed to a Person other than the Borrower, the Agent shall have received
from the Borrower written disbursement instructions and a written receipt for
such proceeds;
(m) Notice of Authorized Representatives. The Borrower shall have
delivered a certificate to the Agent providing the names, titles and signatures
of the Authorized Representatives; and
(n) Other Documents. The Agent shall have received any other document,
instrument, undertaking or certificate required by any of the Loan Documents to
be delivered on or prior to the Closing Date.
SECTION V.2 CONDITIONS TO EACH LOAN.
The obligation of the Banks to make any Loan is subject to the prior or
contemporaneous satisfaction of each of the following conditions precedent on
and as of the date of such Borrowing:
(a) Closing Date. The Closing Date shall have occurred;
(b) No Existing Default. No Event of Default or Incipient Default shall
exist at the date of such Borrowing or after giving effect to the transactions
contemplated to take place hereunder on such date;
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<PAGE> 54
(c) Representations and Warranties Correct. The representations and
warranties set forth in ARTICLE VI hereof shall be true and correct at the date
of such Borrowing and after giving effect to the transactions contemplated to
take place hereunder on such date;
(d) Loan Request. The Agent shall have received a Loan Request which
shall (i) describe the Permitted Purposes for which such Loan is being requested
and the amount of such Loan to be applied to each such Permitted Purpose, (ii)
certify that the amount of such Loan (A) allocable to working capital purposes,
together with the outstanding principal amount of Loans previously made for such
purposes, does not exceed Four Million Dollars ($4,000,000), and (B) allocable
for Capital Expenditure purposes, together with the outstanding principal amount
of Loans previously made for such purposes, does not exceed Ten Million Dollars
($10,000,000), and (iii) constitute a certification by the Borrower that the
conditions set forth in this SECTION 5.2 are or will be satisfied on and as of
the date of such Borrowing;
(e) No Material Adverse Change. No Material Adverse Change shall have
occurred since February 22, 1999;
(f) Payment of Indebtedness Tax. Any recording tax under Tennessee Code
Annotated, Section 67-4-409 shall have been paid; and
(g) Additional Conditions. The Agent shall have received all such other
certificates, reports, statements, or other documents as the Agent may
reasonably request, and all other conditions to the making of such Loan which
are set forth in this Agreement, including, but not limited to, those set forth
in SECTION 4.1 and SECTION 4.2 hereof, shall have been fulfilled.
SECTION V.3 CONDITIONS PRECEDENT TO EACH LETTER OF CREDIT.
The obligation of the Issuing Bank to issue each Letter of Credit is
subject to the fulfillment of each of the following conditions immediately prior
to or contemporaneously with the issuance of such Letter of Credit:
(a) Closing Date. The Closing Date shall have occurred;
(b) Representations and Warranties Correct. All of the representations
and warranties set forth in ARTICLE VI hereof shall be true and correct at the
date of issuance of the Letter of Credit and after giving effect to such
issuance;
(c) No Existing Default. There shall not exist on the date of issuance
of such Letter of Credit, and after giving effect thereto, an Event of Default
or an Incipient Default;
(d) Request for Issuance of Letter of Credit. The Agent and the Issuing
Bank shall have received a Request for Issuance of Letter of Credit which shall
constitute a certification by the Borrower that (i) the conditions set forth in
this SECTION 5.3 are or will be satisfied on and as
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of the date of issuance of such Letter of Credit; and (ii) the Letter of Credit
is being requested for a Permitted Purpose;
(e) No Material Adverse Change. No Material Adverse Change shall have
occurred since February 22, 1999; and
(f) Additional Conditions. The Agent and the Issuing Bank shall have
received all such other certificates, reports, statements or other documents as
the Agent or the Issuing Bank may reasonably request, and all other conditions
to the issuance of such Letter of Credit which are set forth in this Agreement,
including, but not limited to, those set forth in SECTION 4.1 and SECTION 4.2
hereof, shall have been fulfilled.
SECTION V.4 CONDITIONS FOR THE BENEFIT OF THE AGENT AND THE BANKS.
The conditions set forth in this ARTICLE V are for the exclusive
benefit of the Banks and the Agent and may be waived only by a written waiver
signed by the Majority Banks and the Agent. For purposes of determining
satisfaction of the conditions set forth in SECTION 5.1 hereof, each Bank agrees
that, by funding its Commitment Percentage of the initial Borrowing subsequent
to the Closing Date, it will be deemed to have approved any matter in such
conditions requiring its approval. For purposes of determining satisfaction or
waiver of the conditions set forth in SECTION 5.2 hereof for any Borrowing
subsequent to such initial Borrowing, each Bank which funds its Commitment
Percentage of such subsequent Borrowing shall be deemed to have approved any
matter disclosed by the Borrower in writing to such Bank and the Agent at least
three (3) Banking Days prior to such Borrowing, which writing refers
specifically to SECTION 5.2 and SECTION 5.4 hereof and includes a statement to
the effect that such Bank's funding shall be deemed a waiver of the applicable
condition with respect to such matter. Such waiver shall not be deemed a waiver
with respect to the conditions applicable to any subsequent Borrowing, but the
Borrower shall not be required to send the Banks or the Agent any additional
written notice.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
In order to induce the Agent, the Issuing Bank and the Banks to enter
into this Agreement, to extend the Loans and to issue the Letters of Credit, the
Borrower makes the following representations and warranties to the Agent, the
Issuing Bank and the Banks, all of which shall be true and correct as of the
Closing Date and shall survive the execution of this Agreement:
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SECTION VI.1 DUE ORGANIZATION.
Each of the Borrower and its Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, and each is duly licensed or qualified to conduct business, and
each is in good standing in, each jurisdiction wherein the character of the
property owned or the nature of the business transacted by it makes such
licensing or qualification necessary (except for jurisdictions in which the
failure to so qualify or be in good standing would not have a Material Adverse
Effect).
SECTION VI.2 ORGANIZATION, STANDING AND QUALIFICATION OF SUBSIDIARIES.
(a) Set forth in SCHEDULE 6.2 attached hereto is a complete and
accurate list of the Borrower's Subsidiaries as of the date hereof, showing
their respective jurisdictions of organization, the jurisdictions in which each
is qualified to do business and all trade names or assumed or fictitious names
used by any Subsidiary.
(b) The organizational documents and all amendments thereto for the
Borrower and each of its Subsidiaries have been duly filed (where required) and
are in proper order. All of the outstanding Equity Interests of the Borrower and
its Subsidiaries have been validly issued in compliance with all federal and
state securities laws and are fully paid and nonassessable. Except as specified
in SCHEDULE 6.2, all of the Equity Interests of or other ownership interest in
each of the Subsidiaries is owned by the Borrower or one of its Subsidiaries
free and clear of all Liens.
(c) Other than certain Equity Interests held by Welsh Carson, the terms
of which are disclosed on SCHEDULE 6.2, neither the Borrower nor any of its
Subsidiaries is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any of its Equity Interests, provided,
however, that any Partial Subsidiary of the Borrower may at any time redeem any
Equity Interests held by Persons who are not Affiliates of the Borrower at a
redemption price not in excess of the fair market value of such Equity
Interests.
SECTION VI.3 ABSENCE OF CERTAIN ACTIVITIES.
Except as set forth on SCHEDULE 6.2 attached hereto, neither the
Borrower nor any of its Subsidiaries is a partner in any partnership or a joint
venturer in any joint venture, which partnership or joint venture has not been
previously disclosed to and approved by the Majority Banks; provided, however,
that the foregoing representation shall be limited to the knowledge of the
Borrower following reasonable inquiry as to any partnerships or joint ventures
of those Subsidiaries having as their primary business the operation of acute
care facilities.
SECTION VI.4 REQUISITE POWER.
Each of the Borrower and its Subsidiaries has all requisite corporate,
partnership or other organizational power and all governmental licenses,
permits, authorizations, consents and approvals necessary to own and operate its
respective
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properties and to carry on its respective business as now conducted and as
proposed to be conducted (except where the failure to do so would not have a
Material Adverse Effect). Each of the Borrower and its Subsidiaries has all
requisite power to borrow the sums provided for in this Agreement and to
execute, deliver, issue and perform this Agreement, the Notes, the Subsidiary
Notes, the Security Agreements, the Concentration Account Pledge Agreement, the
Mortgages, the Subsidiary Guaranties, the Stock Pledge Agreements and the other
Loan Documents to which any of them is a party.
SECTION VI.5 AUTHORIZATION.
All action on the part of the Borrower and its Subsidiaries and their
respective directors, stockholders, partners, managers and members necessary for
the authorization, execution and delivery and performance of this Agreement, the
Notes, the Subsidiary Notes, the Security Agreements, the Concentration Account
Pledge Agreement, the Mortgages, the Subsidiary Guaranties, the Stock Pledge
Agreements and the other Loan Documents has been duly taken and is in full force
and effect.
SECTION VI.6 OFFICER AUTHORIZATION.
Each natural person executing this Agreement or any of the other Loan
Documents on behalf of the Borrower or its Subsidiaries is (as of the date of
such execution) duly and properly in office and fully authorized to execute and
deliver the same.
SECTION VI.7 BINDING NATURE.
This Agreement, the Notes, the Subsidiary Notes, the Security
Agreements, the Mortgages, the Subsidiary Guaranties, the Concentration Account
Pledge Agreement, the Stock Pledge Agreements and each of the other Loan
Documents are, or upon the execution and delivery thereof will be, a legal,
valid and binding obligation of the Borrower or its Subsidiaries, with respect
to which any of such parties is a signatory thereto, in full force and effect
and enforceable in accordance with its respective terms, except for the effect
of applicable laws regarding bankruptcy or insolvency and the effect of
equitable principles generally.
SECTION VI.8 NO CONFLICT.
Neither the execution nor delivery of this Agreement, the Notes, the
Subsidiary Notes, the Security Agreements, the Concentration Account Pledge
Agreement, the Mortgages, the Subsidiary Guaranties, the Stock Pledge Agreements
or any of the other Loan Documents nor performance of nor compliance with the
terms and provisions hereof or thereof will (a) conflict with or result in a
breach of any Governmental Requirement or any other material agreement or
instrument binding upon the Borrower or any of its Subsidiaries, or conflict
with or result in a breach of any provision of the corporate charter or by-laws,
partnership, or other constituent document of the Borrower or any of its
Subsidiaries, or (b) result in the creation or imposition of any Lien upon any
property of the Borrower or any of its Subsidiaries pursuant to any such
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agreement or instrument (other than pursuant to the Security Agreements, the
Concentration Account Pledge Agreement, the Subsidiary Guaranties, the Mortgages
and the Stock Pledge Agreements). No authorization, consent or approval or other
action by, and no notice to or filing with, any Governmental Authority is
required to be obtained or made by the Borrower or any of its Subsidiaries,
other than those which will be obtained or made prior to the date hereof, for
the due execution, delivery and performance by the Borrower or its Subsidiaries
of this Agreement, the Notes, the Subsidiary Notes, the Security Agreements, the
Concentration Account Pledge Agreement, the Mortgages, the Subsidiary
Guaranties, the Stock Pledge Agreements or any of the other Loan Documents or
for the validity or enforceability thereof.
SECTION VI.9 NO EVENT OF DEFAULT.
No Event of Default or Incipient Default has occurred and is continuing
or will result from the execution, delivery or performance of this Agreement,
the Notes, the Subsidiary Notes, the Security Agreements, the Concentration
Account Pledge Agreement, the Mortgages, the Subsidiary Guaranties, the Stock
Pledge Agreements or any of the other Loan Documents.
SECTION VI.10 FINANCIAL STATEMENTS.
The financial statements most recently delivered to the Agent pursuant
to SECTION 7.2 hereof fairly present the financial condition and results of
operations of the Borrower consolidated with its Subsidiaries. All such
financial statements were prepared in accordance with GAAP consistently applied
throughout the respective periods covered thereby, except that financial
statements not dated as of the end of a fiscal year are subject to adjustments
upon audit. Except as disclosed in such financial statements or otherwise
disclosed in writing to the Banks, neither the Borrower nor any Subsidiary of
the Borrower is liable for any material liability, direct or contingent,
including, but not limited to, liabilities for taxes, long-term leases or
long-term commitments, which would be required to be shown as a liability or
otherwise disclosed in current financial statements.
SECTION VI.11 NO ADVERSE CHANGE.
Since February 22, 1999, there has been no Material Adverse Change, and
there has occurred no event which would have a Materially Adverse Effect on the
Borrower or any of its Subsidiaries.
SECTION VI.12 REAL PROPERTY.
Each of the Borrower and its Subsidiaries has good marketable title in
fee simple to, or a valid and subsisting leasehold interest in, all real
property reasonably necessary for the operation of its business as a whole, free
from all Liens, charges, mortgages, deeds of trust, security interests and
encumbrances of any nature whatsoever, except for Permitted Encumbrances.
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SECTION VI.13 EQUIPMENT.
The Borrower and its Subsidiaries own or have the right to use, under
valid and subsisting leases, equipment and fixtures reasonably necessary for the
operation of their business as a whole. Substantially all of the tangible
property of the Borrower and its Subsidiaries used in connection with their
business is in good operating condition (ordinary wear and tear excepted),
usable in the ordinary course of business, and is adequate for the operation of
their business.
SECTION VI.14 CONTRACTS.
Neither the Borrower nor any of its Subsidiaries nor, to the best
knowledge of the Borrower, any other party to any of the material contracts to
which the Borrower or any of its Subsidiaries is a party ("Key Contracts") is in
material default thereunder, and there are no presently existing facts or
circumstances which, if continued or on notice, could reasonably be expected to
result in such a material default on the part of the Borrower or any of its
Subsidiaries, or, to the best knowledge of the Borrower, on the part of the
other party thereto. The Borrower has no knowledge that any other party to any
of the Key Contracts intends to terminate such Key Contract.
SECTION VI.15 INTELLECTUAL PROPERTY.
SCHEDULE 6.15, attached hereto contains a complete and correct list of
all material patents, copyrights, trademarks, licenses, service marks, trade
names and other similar rights (the "Intellectual Property Rights") used by the
Borrower or any of its Subsidiaries. No proceedings have been instituted or are
pending or have been threatened in writing which challenge the validity,
ownership or use of any such Intellectual Property Rights which could reasonably
be expected to have a Material Adverse Effect. To the best knowledge of the
Borrower, no infringement of any Intellectual Property Right of any third party
has occurred or would result in any way from the operations or business of the
Borrower or any of its Subsidiaries, and, except as set forth in SCHEDULE 6.15,
no claim has been made by any such third party based on allegation of any such
infringement which could reasonably be expected to have a Material Adverse
Effect.
SECTION VI.16 LITIGATION.
There is no action, suit, investigation, tax claim or proceeding
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower or any of its Subsidiaries or the property of the Borrower or any
of its Subsidiaries before any court, arbitrator or administrative or
governmental body which would reasonably be expected to have a Material Adverse
Effect.
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SECTION VI.17 TAX RETURNS AND TAX MATTERS.
Each of the Borrower and each of its Subsidiaries has filed all federal
and state income tax returns which are required to be filed, and each has paid
all taxes as shown on said returns and on all assessments received by it to the
extent that such taxes have become due. There is no proposed, asserted or
assessed material tax deficiency against the Borrower or any of its
Subsidiaries, except those being contested in good faith and for which such
reserve as is required by GAAP has been created.
SECTION VI.18 EMPLOYEE BENEFITS.
(a) Plans Maintained. Except as provided in SCHEDULE 6.18(I) with
respect to clauses (i) and (iii) below or in SCHEDULE 6.18(II) with respect to
clauses (ii) and (iv) below, neither the Borrower nor any Controlled Group
member is a party to, contributes to or is currently obligated to contribute to
any plans, programs, agreements, policies, commitments or other arrangements
(whether or not set forth in a written document) in the following categories:
(i) Any funded employee pension benefit plan subject to Title IV of
ERISA, including (without limitation) any Multiemployer Plan, except as
disclosed to and approved by the Majority Banks,
(ii) Any material plan, program, agreement, policy, commitment or
other arrangement relating to severance or termination pay, whether or
not published or generally known,
(iii) Any material retiree health care plan (as described in
SECTION 6.18(G) hereof) and any material retiree life insurance plan,
and
(iv) Any material plan that is an excess benefit plan or a "top
hat" plan, as defined in Section 3(36) or Section 301(a) (3) of ERISA,
and is unfunded, as described in Section 4(b) (5) or Section 301(a) (3)
of ERISA.
(b) Reporting and Disclosure. With respect to each Employee Benefit
Plan, including employee welfare benefit plans not required to be listed in
SCHEDULE 6.18(I) OR SCHEDULE 6.18(II), which is subject to the reporting,
disclosure and record retention requirements set forth in Part 1 of Subtitle B
of Title I of ERISA and the regulations thereunder, each of such requirements
has been fully met on a timely basis, except where instances of failing to do so
could not, considered in the aggregate, have a Material Adverse Effect.
(c) Qualification of Plans. Except as provided on SCHEDULE 6.18(I),
each plan which is listed in SCHEDULE 6.18(I) attached hereto, and which is
intended to be qualified under Section 401(a) of the Code, has been determined
by the Internal Revenue Service in writing to be so qualified or, for amendments
not related to TRA 86, such application has been submitted and not yet denied.
To the best knowledge of the Borrower, since the Internal Revenue Service issued
its determination with respect to any such plan (or, with respect to
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pending applications, since the date such application was submitted) there has
been no occurrence (including, without limitation, a plan amendment, the
enactment of legislation or the adoption of regulations) that could cause such
plan not to be so qualified. Within the applicable remedial amendment period
described in the regulations under Section 401(b) of the Code, an application
for such a determination was or will be filed with the Internal Revenue Service
with respect to each amendment to any such plan for which a failure to do so
could reasonably be expected to have a Material Adverse Effect. Each such plan
has in all material respects been administered in accordance with its terms and
the applicable provisions of ERISA and the Code and the regulations thereunder.
(d) Contributions and Premiums. All material contributions, premiums or
other payments due from the Borrower or any other member of the Controlled Group
to (or under) any Employee Benefit Plan have been fully paid or adequately
provided for on the books and financial statements of the Borrower or other
member of the Controlled Group.
(e) Litigation and Extraordinary Claims. There are no pending or, to
the best knowledge of the Borrower, threatened claims, actions or lawsuits,
other than routine claims for benefits in the usual and ordinary course,
asserted or instituted against (i) any Employee Benefit Plan, (ii) any member of
the Controlled Group with respect to any Employee Benefit Plan, or (iii) any
fiduciary with respect to any Employee Benefit Plan, for which the Borrower may
be directly or indirectly liable, through indemnification obligations or
otherwise that, in the aggregate could reasonably be expected to have a Material
Adverse Effect.
(f) Prohibited Transactions. To the best knowledge of the Borrower,
with respect to each Employee Benefit Plan which is subject to Part 4 of
Subtitle B of Title I of ERISA, there does not now exist, nor has there existed
within the six-year period ending on the date hereof, any act or omission which
constitutes a violation of Section 406 or 407 of ERISA and is not exempted by
Section 408 of ERISA or which constitutes a violation of Section 4975(c) of the
Code and is not exempted by Section 4975(d) of the Code, except for violations
which, considered in the aggregate, would not have a Material Adverse Effect.
(g) COBRA. To the best knowledge of the Borrower, the Borrower and its
Subsidiaries are in compliance with the requirements of COBRA, except for
violations which, considered in the aggregate, would not have a Material Adverse
Effect.
SECTION VI.19 ENVIRONMENTAL MATTERS.
Based upon inquiries and inspections undertaken by or conducted under
the auspices of Responsible Officers of the Borrower and each of its
Subsidiaries, the Borrower and its Subsidiaries are not aware of any facts or
reports that would make the following representations untrue or incorrect,
except as may be disclosed in Environmental Reports furnished by the Borrower to
the Agent:
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(a)(i) The properties and operations of the Borrower and each of its
Subsidiaries comply in all respects with all applicable Environmental Laws; (ii)
none of the properties or operations of the Borrower or any of its Subsidiaries
is subject to any judicial or administrative proceeding alleging the violation
of any Environmental Law; (iii) none of the properties or operations of the
Borrower or any of its Subsidiaries is the subject of any federal or state
investigation concerning any use or release of any Hazardous Substance; (iv)
neither the Borrower nor any of its Subsidiaries, nor, to the best knowledge of
the Borrower, any predecessor of the Borrower or any of its Subsidiaries, has
filed any notice under any federal or state law indicating past or present
treatment, storage or disposal of a Hazardous Substance or reporting a spill or
release of a Hazardous Substance into the environment; (v) neither the Borrower
nor any of its Subsidiaries has any contingent liability in connection with any
release of any Hazardous Substance into the environment, and no such release
which could, under applicable law, require remediation has occurred; (vi)
neither the Borrower nor any of its Subsidiaries' operations involve the
generation, transportation, treatment, storage or disposal of Hazardous
Substances, except for the generation of Hazardous Substances in the ordinary
course of business, and except for such activities carried out through licensed
independent contractors; (vii) neither the Borrower nor any of its Subsidiaries
has disposed of any Hazardous Substance on or about any premises owned, leased
or used by the Borrower or any of its Subsidiaries and, to the best of the
knowledge of the Borrower, neither has any lessee, prior owner, or other Person;
and (viii) the existence of any surface impoundments or underground storage
tanks located in, on or about any of the premises owned, leased or used by the
Borrower or any of its Subsidiaries has been disclosed to the Agent, and any
such impoundments or tanks so disclosed do not violate any Environmental Laws;
and, in the case of clauses (i) through (viii) above, any failure of the
foregoing to be true and correct would reasonably be expected in the aggregate
to have a Material Adverse Effect.
(b) No Lien in favor of any Governmental Authority for (i) any
liability under Environmental Laws or (ii) damages arising from or costs
incurred by such Governmental Authority in response to a release of any
Hazardous Substance into the environment has been filed or attached to any of
the premises owned, leased or used by the Borrower or any of its Subsidiaries.
SECTION VI.20 INSURANCE.
SCHEDULE 6.20 attached hereto contains a complete and accurate list of
all insurance policies maintained by the Borrower and its Subsidiaries. The
Borrower and each of its Subsidiaries maintains such insurance with insurers
duly licensed in the applicable jurisdictions, in such amounts and against such
risks and losses as is reasonable for their business and properties. All such
insurance is in full force and effect and all premiums due in respect thereof
have been paid.
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SECTION VI.21 COMPLIANCE WITH LAWS.
Except as set forth in SCHEDULE 6.21 attached hereto, the Borrower and
each of its Subsidiaries are in compliance with all Governmental Requirements
applicable to their properties, assets and business with only such exceptions as
in the aggregate could not have a Material Adverse Effect. There are no
proceedings pending or, to the best of their knowledge, threatened, to terminate
or modify any material Governmental Approvals.
SECTION VI.22 STATUTORY REGULATION.
Neither the Borrower nor any of its Subsidiaries is an investment
company within the meaning of the Investment Company Act of 1940, as amended, or
is, directly or indirectly, controlled by or acting on behalf of any person
which is an investment company, within the meaning of said Act. Neither the
Borrower nor any of its Subsidiaries is subject to any state law or regulation
regulating public utilities or similar entities, or is, within the meaning of
the Public Utility Holding Company Act of 1935, as amended: (a) a holding
company; (b) a subsidiary or Affiliate of a holding company; or (c) a public
utility. Neither the Borrower nor any of its Subsidiaries is subject to
regulation under the Interstate Commerce Act or the Federal Power Act or under
any other federal or state statute or regulation limiting or placing conditions
upon their respective power or right to borrow money.
SECTION VI.23 USE OF PROCEEDS; REGULATION U.
Neither the Borrower nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any margin stock (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
of the United States). No part of the proceeds of the Loans will be used to
purchase or carry any such margin stock or to extend credit to others for the
purpose of purchasing or carrying any such margin stock, except in compliance
with such regulations. No part of the proceeds of the Loans will be used for any
purpose which violates the provisions of Regulation G, T, U or X of said Board
of Governors.
SECTION VI.24 SOLVENCY.
After giving effect to the transactions contemplated by this Agreement
and the other Loan Documents, including all of the Loans made and to be made
hereunder, the Borrower and each of its Subsidiaries are (and will be as a
consequence thereof) Solvent.
SECTION VI.25 FISCAL YEAR.
The fiscal year of the Borrower ends on March 31.
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SECTION VI.26 HEALTH CARE RELATED MATTERS.
(a) Except as disclosed on SCHEDULE 6.26 hereof, each acute care
facility or related business operated by the Borrower or any of its Subsidiaries
has: (i) where required by Applicable Law, obtained all CONs; (ii) obtained and
maintains in good standing all required Health Facility Licenses; (iii) obtained
and maintains applicable JCAHO accreditation for its acute care facilities or
related businesses; (iv) obtained and maintains Medicaid Certification and
Medicare Certification; (v) entered into and maintains in good standing its
Medicaid Provider Agreement and its Medicare Provider Agreement; (vi) is in
substantial compliance with the material conditions of participation in
Medicaid, Medicare and CHAMPUS programs and the conditions of participation in
each such program and with the indigent care conditions, if any, applicable to
each acute care facility or related business of the Borrower and its
Subsidiaries.
(b) The Medicare cost reports of each acute care facility or related
business of the Borrower and its Subsidiaries and of the home office of the
Borrower have been properly completed and duly filed with the Medicare
intermediary or other HCFA agents for all cost reporting periods.
(c) The Medicaid cost reports of each acute care facility or related
business of the Borrower and its Subsidiaries and of the home office of the
Borrower have been properly completed and duly filed with the agencies or agents
responsible for audits of same for all cost reporting periods. The status of
each audit with respect to such cost reports is described on SCHEDULE 6.26
hereto.
(d) The accounts receivable of the Borrower and its Subsidiaries have
been and will continue to be adjusted to reflect reimbursement policies of third
party payors such as Medicare, Medicaid, Blue Cross/Blue Shield, private
insurance companies, health maintenance organizations and preferred provider
organizations.
SECTION VI.27 RELATED AGREEMENTS.
All representations and warranties of the Borrower contained in any
Loan Documents are true and correct as if made on the date hereof and the
Borrower hereby adopts and affirms all such representations and warranties which
the Borrower agrees shall be incorporated by reference herein and made a part
hereof.
SECTION VI.28 YEAR 2000 COMPLIANCE.
The Borrower and each its Subsidiaries have (i) initiated a review and
assessment of all areas within its and each of its Subsidiaries' businesses and
operations that could be adversely affected by the "Year 2000 Problem" (that is,
the risk that computer applications used by such parties may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999), (ii) developed a plan and
timeline for addressing the Year 2000 Problem on a timely basis, and (iii) to
date, have implemented that plan in accordance with the timetable. Based on the
foregoing, the Borrower and each of its
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Subsidiaries believe that all computer applications that are material to its and
any of its Subsidiaries' businesses and operations are reasonably expected on a
timely basis to be able to perform properly date-sensitive functions for all
dates before and after January 1, 2000 (that is, be "Year 2000 compliant"),
except to the extent that a failure to do so could not reasonably be expected to
have Material Adverse Effect.
ARTICLE VII
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, so long as any Obligation is
outstanding or any Commitment is in effect, it will comply with and, if
applicable, cause each of its Subsidiaries to comply with the following
provisions:
SECTION VII.1 ACCOUNTING RECORDS.
The Borrower and each of its Subsidiaries shall maintain adequate books
and accounts in accordance with sound business practices and GAAP consistently
applied. In the event of any changes in GAAP or in the application of GAAP to
the Borrower and its Subsidiaries, the parties shall, unless they agree
otherwise, continue to determine the compliance of the Borrower with the
covenants herein set forth and otherwise interpret the provisions of this
Agreement based on GAAP prior to any such changes.
SECTION VII.2 FINANCIAL STATEMENTS AND NOTICES.
The Borrower shall furnish the following financial statements,
information and notices:
(a) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, within forty-five (45) days after the end of each month,
commencing with the month ending May 31, 1999: an unaudited monthly Board of
Director package which should include, but not be limited to, (i) a statement of
revenues and EBITDA and EBITDAR, (ii) a status report with respect to any
negotiations regarding properties for sale, and (iii) a statement of actual
versus budgeted Capital Expenditures based upon the Capital Expenditures Budget
for such fiscal year; provided, however that after Borrower's first mandatory
permanent reduction of the Loans in the principal amount of Twelve Million
($12,000,000) in accordance with SECTION 2.3(C)(IV) hereof, Borrower shall only
be required to deliver such Capital Expenditure statements within forty-five
(45) days after the end of each fiscal quarter of the Borrower. All such
statements shall be prepared on a consolidated and consolidating basis for the
Borrower and its Subsidiaries, in reasonable detail, subject to year-end audit
adjustments and without footnotes, shall include appropriate comparisons to the
same period for the prior year, as well as actual versus budgeted comparisons,
and shall be certified by the Chief Financial Officer of the Borrower to have
been prepared in accordance with GAAP consistently applied, subject to year-end
audit adjustments;
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(b) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, within forty-five (45) days after the end of each fiscal
quarter of the Borrower, commencing with the fiscal quarter ending June 30,
1999, the Company's most recent report on Form 10-Q filed with the Securities
and Exchange Commission. All such statements shall be prepared on a consolidated
and consolidating basis for the Borrower and its Subsidiaries, in reasonable
detail, subject to year-end audit adjustments and without footnotes, shall
include appropriate comparisons to the same period for the prior year, and shall
be certified by the Senior Vice President, Finance and Administration, of the
Borrower to have been prepared in accordance with GAAP consistently applied,
subject to year-end audit adjustments;
(c) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, within ninety (90) days after the close of each fiscal
year of the Borrower, commencing with the fiscal year ending March 31, 1999, for
the Borrower and its Subsidiaries on a consolidated and consolidating basis the
Borrower's most recent report on Form 10-K filed with the Securities and
Exchange Commission. All statements required by this SECTION 7.2(C) shall
include appropriate comparisons to the prior fiscal year. Such consolidated
financial statements shall be audited by KPMG Peat Marwick LLP or another
independent certified public accounting firm acceptable to the Majority Banks
and shall include a report of such accounting firm, which report shall be
unqualified and without explanatory or similar paragraphs and shall state that
such financial statements fairly present the financial position of the Borrower
and its Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated in conformity with
GAAP, consistently applied. Such accounting firm shall also certify to the Agent
and the Banks that in the course of the regular annual examination of the
business of the Borrower and its Subsidiaries, which examination was conducted
by such accounting firm in accordance with generally accepted auditing
standards, such accounting firm has obtained no knowledge that an Event of
Default or an Incipient Default has occurred and is continuing as of the date of
certification, or if, in the opinion of such accounting firm, an Event of
Default or an Incipient Default has occurred and is continuing, a statement as
to the nature thereof. Such accounting firm shall also prepare a letter to
management of the Borrower in connection with the preparation of such audit
report which the Borrower shall deliver to the Agent and each Bank within five
Banking Days of receipt thereof;
(d) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, (i) contemporaneously with each monthly, quarterly and
year-end financial report required by the foregoing SUBPARAGRAPHS (A), (B) AND
(C) , a certificate of a Responsible Officer (A) stating that, to the best of
such officer's knowledge after due inquiry, no Event of Default or Incipient
Default exists on the date of such certificate, or if any Event of Default or
Incipient Default then exists, setting forth the details thereof and the action
that the Borrower is taking or proposes to take with respect thereto, (B)
stating whether, since the date of the most recent financial statements
previously delivered pursuant to the foregoing SUBPARAGRAPHS (A), (B) OR (C),
there has been a change in the generally accepted accounting principles applied
in preparing the financial statements then being delivered from those applied in
preparing the most recent
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audited financial statements so delivered which is material to the financial
statements then being delivered, (C) furnishing calculations demonstrating
compliance with the covenants contained in SECTION 7.18 hereof (it being
understood that monthly compliance statements are required with respect to the
covenants set forth in SECTIONS 7.18 (IV) (V) AND (VI) and quarterly compliance
statements are required with respect to all other covenants set forth in SECTION
7.18), and (D) attaching management's summary of the results contained in such
financial statements, and (ii) contemporaneously with each such monthly,
quarterly and annual financial report, a certificate of a Responsible Officer
furnishing calculations demonstrating compliance with the covenant set forth in
SECTION 8.11 hereof;
(e) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, within forty-five (45) days after the end of each fiscal
quarter of the Borrower, commencing with the fiscal quarter ending June 30,
1999, a written report satisfactory to the Agent describing the status of the
environmental compliance issues relating to the Puget Sound Hospital.
(f) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, within forty-five (45) days after the end of each fiscal
quarter of the Borrower, commencing with the fiscal quarter ending June 30,
1999, a status report regarding the Year 2000 Problem in form satisfactory to
Agent, including without limitation, evidence of the complete and successful
conversion of substantially all of Borrower's and its Subsidiaries' systems to
systems which are Year 2000 compliant and will not be affected by any Year 2000
Problem.
(g) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, contemporaneously with each six (6) month and year-end
financial report required by the foregoing SUBPARAGRAPHS (B) AND (C), an
addendum to SCHEDULE 6.2 as to the identity of, and jurisdictions of
incorporation or organization of, the Borrower's Subsidiaries to the extent that
such information set forth in SCHEDULE 6.2 has changed since the Closing Date or
the date of the most recent addendum thereto;
(h) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, the information required under the Security Agreements
with respect to (i) changes in the executive offices of the Borrower or any
Subsidiary or locations at which records with respect to the accounts receivable
of the Borrower or any Subsidiary are kept, as specified by Section 11(a)
thereof, and (ii) changes in or additions to the locations at which the
inventory and equipment of the Borrower and its Subsidiaries are kept, as
specified by Section 9(a) of the Security Agreements;
(i) To the Agent, upon the creation or acquisition of any new
Subsidiary or of any investment that results in a new Subsidiary, a Security
Agreement, a Subsidiary Guaranty and (to the extent applicable) one or more
Mortgages and a Subsidiary Note, all duly executed by such
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new Subsidiary, and a Stock Pledge Agreement duly executed by the Borrower or
its applicable Subsidiary, as the case may be;
(j) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, contemporaneously with each year-end financial report
required by the foregoing SUBPARAGRAPH (C) , a schedule identifying all
insurance then in effect and certificates evidencing such insurance;
(k) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, promptly after they are released, sent, made available or
filed, copies of all press releases, material reports, proxy statements and
financial statements that the Borrower sends or makes available to its
stockholders generally and all registration statements and reports that the
Borrower files with the Securities and Exchange Commission or any other
governmental official, agency or authority; copies of all such reports that
include the information required to be provided pursuant to SECTION 7.2 (B), or
(C) shall to that extent be deemed to satisfy such requirements;
(l) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, promptly but in no event later than one (1) Banking Day
after a Responsible Officer of the Borrower obtains knowledge of (i) the
occurrence of an Event of Default or an Incipient Default, or (ii) any default
or event of default as defined in any evidence of Indebtedness in excess of One
Million Dollars ($1,000,000) or under any agreement, indenture or other
instrument under which such Indebtedness has been created, whether or not such
Indebtedness is accelerated or such default waived, notification thereof, and,
within five (5) calendar days after obtaining such knowledge, a statement of a
Responsible Officer setting forth details thereof and the action which the
Borrower proposes to take with respect thereto;
(m) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, as soon as available, any written report involving the
internal controls of the Borrower and its Subsidiaries submitted to the Borrower
by its independent public accountants in connection with their annual or any
interim special audit of the financial condition of the Borrower and its
Subsidiaries;
(n) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, promptly but in no event later than five (5) calendar days
after a Responsible Officer learns thereof, written notice of any actual or
threatened claim, litigation, suit, investigation, proceeding or dispute against
or affecting the Borrower or any of its Subsidiaries which: (i) may have a
Material Adverse Effect; (ii) involves a monetary amount in excess of One
Million Dollars ($1,000,000) and is not covered by insurance; (iii) is
reasonably expected to result in a strike, work stoppage, boycott, shutdown or
other labor disruption against or involving the Borrower or any of its
Subsidiaries which could reasonably be expected to have a Material Adverse
Effect; (iv) could reasonably be expected materially to limit, prohibit or
restrict the manner in which the Borrower or any of its Subsidiaries currently
conducts its business; or (v)
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concerns any alleged violation by the Borrower or any of its Subsidiaries, or
any of their respective predecessors, of any Environmental Law, where there
exists a reasonable possibility that such violation could materially affect any
of the properties or the operations of the Borrower or such Subsidiary or any
alleged material noncompliance of any of the properties or the operations of the
Borrower or such Subsidiary therewith;
(o) To the Agent, as soon as possible, and in any event within twenty
(20) calendar days, after a Responsible Officer learns that any of the following
events has occurred, a statement describing such event and any action that the
Borrower proposes to take with respect thereto: (i) any Reportable Event with
respect to a Pension Plan; (ii) the institution of proceedings by the PBGC to
terminate any Pension Plan or to have a trustee appointed to administer such
plan, or receipt of notice of any intention by the PBGC to do so; (iii) the
filing of a request for a minimum funding waiver by the Borrower or a member of
the Controlled Group under Section 412 of the Code with respect to any Pension
Plan or any employee pension benefit plan (as defined in Section 3(2) of ERISA)
maintained by any member of the ERISA Affiliated Group; or (iv) the receipt by
the Borrower or any other member of the Controlled Group of a material demand
for withdrawal liability under Section 4219 or 4202 of ERISA;
(p) To the Agent, as soon as possible, and in any event within ten (10)
days after receipt of a written request from the Agent or the Majority Banks:
(i) a copy of any Employee Benefit Plan or summary description of such plan;
(ii) a copy of any report, description or other document filed with any
governmental agency with respect to any Employee Benefit Plan or any plan (as
defined in Section 3(3) of ERISA) maintained by the Borrower or any ERISA
Affiliate; or (iii) a copy of any notice, determination letter, ruling or
opinion that the Borrower or any other Controlled Group member receives from any
governmental agency with respect to any Employee Benefit Plan;
(q) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, prior to commencement of each fiscal year of the Borrower,
a copy of the Borrower's annual budget for such fiscal year;
(r) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, not later than forty-five (45) calendar days after the end
of each month, commencing with the month ending May 31, 1999: (i) an accounts
receivable aging report as of the end of the relevant month; and (ii) a report
detailing the monthly utilization trends of each of the Borrower's and its
Subsidiary's hospitals as of the end of the relevant month;
(s) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, not later than five (5) calendar days after the end of
each week, commencing with the week ending May 21, 1999, a weekly update of the
actual cash position of the Borrower, provided however, that after Borrower's
first mandatory permanent reduction of the Loans in the principal amount of
Twelve Million Dollars ($12,000,000) in accordance with SECTION 2.3(C)(IV)
hereof, Borrower shall no longer be required to deliver such weekly updates; and
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(t) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, within a reasonable time after a request therefor, such
other information as the Agent or the Majority Banks may reasonably request.
SECTION VII.3 INSPECTION OF PROPERTY BOOKS AND RECORDS.
(a) The Borrower and each of its Subsidiaries shall permit the Agent or
any of the Banks (or any representative thereof), at such reasonable times and
intervals as the Agent or Banks may designate upon reasonable notice, at their
own expense, by and through the representatives of the Agent or any of the
Banks, to inspect, audit and examine their respective books and records, to make
copies thereof, to discuss their respective affairs, finances and accounts with
their respective officers and independent public accountants, and to visit and
inspect their respective properties; provided, however, that when an Event of
Default exists, representatives of the Agent or any of the Banks may visit and
inspect at the expense of the Borrower such properties at any time during
business hours and without advance notice.
(b) The Borrower and its Subsidiaries shall extend their cooperation
and assistance and comply with the requests of the Agent or the Majority Banks
or their respective representatives in connection with any audit regarding the
Collateral and will furnish any information requested in respect thereof,
including, without limitation, appraisals of the Collateral, lien search reports
and physical counts. Upon the occurrence of an Incipient Default, the Borrower
shall, at the request of the Agent or the Majority Banks, pay the reasonable
fees and expenses of an accounting firm selected by the Majority Banks to
conduct examinations of the Accounts of the Borrower and its Subsidiaries from
time to time. The Borrower shall also pay all reasonable out-of-pocket expenses
of the Agent in connection with any other audit or examination of the Collateral
hereunder.
SECTION VII.4 MAINTENANCE OF EXISTENCE, LICENSES, PERMITS, ETC.
The Borrower and each of its Subsidiaries shall preserve and maintain
their respective existences and all of their material licenses, permits,
privileges and franchises and other rights necessary or desirable in the normal
course of their businesses, and will use reasonable efforts, in the ordinary
course and consistent with past practice, to preserve their respective business
organization and preserve the goodwill and business of the patients, physicians,
third-party payors, customers, suppliers and others having business relations
with them, except where the failure to do so would not have a Material Adverse
Effect; provided, however, that the foregoing shall not preclude the merger of
any Subsidiary of the Borrower into another Subsidiary of the Borrower if
permitted under SECTION 8.1 hereof.
SECTION VII.5 TAX RETURNS.
Each of the Borrower and its Subsidiaries shall file all federal and state
income tax returns which are required to be filed.
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SECTION VII.6 QUALIFICATIONS TO DO BUSINESS.
The Borrower and each of its Subsidiaries shall qualify to do business and shall
remain in good standing in each jurisdiction in which the nature of their
business requires them to be so qualified, except where the failure to so
qualify could not have a Material Adverse Effect.
SECTION VII.7 COMPLIANCE WITH LAWS.
The Borrower and its Subsidiaries shall comply with all Governmental
Requirements, except where the failure to do so could not have a Material
Adverse Effect.
SECTION VII.8 COMPLIANCE WITH AGREEMENTS.
The Borrower and its Subsidiaries shall comply in all respects with the
terms of each agreement to which any of them is a party, except in such
instances where any failure to so comply would not, in the aggregate, have a
Material Adverse Effect.
SECTION VII.9 INSURANCE.
The Borrower and its Subsidiaries shall maintain in full force and
effect insurance of such types and in such amounts as are customarily carried in
their respective lines of business, including, but not limited to, fire, hazard,
public liability, professional liability, property damage, products liability
and workers' compensation insurance. All such insurance policies which insure
real or personal property shall include a standard form lender's loss payee
endorsement, naming the Agent as loss payee. All such insurance policies which
insure liability shall name the Agent as additional insureds for the benefit of
the Agent and each Bank. The Borrower shall deliver or cause to be delivered to
the Agent, as the Agent may from time to time request, schedules identifying all
insurance then in effect with respect to the Borrower and its Subsidiaries and
certificates evidencing such insurance.
SECTION VII.10 FACILITIES.
The Borrower and its Subsidiaries shall keep the material properties
(in the aggregate) used in their respective businesses in good repair, working
order and condition, and from time to time shall make necessary repairs or
replacements thereto so that their property shall be maintained adequately for
its intended use.
SECTION VII.11 TAXES AND OTHER LIABILITIES.
The Borrower and its Subsidiaries shall pay and discharge when due any
and all material indebtedness, obligations, liabilities, assessments and real
and personal property taxes, including, but not limited to, federal and state
income and personal and real property taxes, except as may be subject to good
faith contest or as to which a bona fide dispute may arise; provided, however,
that adequate reserves in accordance with GAAP or other provision is made to the
satisfaction of
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the Majority Banks for prompt payment thereof in the event that it is found that
any of the above are due and owing.
SECTION VII.12 GOVERNMENTAL APPROVALS.
Except where the failure to do so could not have a Material Adverse
Effect, the Borrower and its Subsidiaries shall apply for, diligently pursue,
and obtain or cause to be obtained, and shall thereafter maintain in full force
and effect all Governmental Approvals that shall now or hereafter be necessary
under any Governmental Requirement (a) for land use, public and employee health
and safety, pollution or protection of the environment, and (b) for the
operation of the business of the Borrower and its Subsidiaries. The Borrower
shall promptly notify the Agent in the event of, and provide the Agent with a
copy of all notices of, any denial, suspension, or revocation of any material
Governmental Approvals.
SECTION VII.13 COMPLIANCE WITH GOVERNMENTAL APPROVALS AND GOVERNMENTAL
REQUIREMENTS.
Except where the failure to do so could not have a Material Adverse
Effect, the Borrower and each of its Subsidiaries shall comply with all terms
and conditions of all Governmental Approvals and with all other limitations,
restrictions, obligations, schedules, timetables and reporting requirements in
any Governmental Requirements in all material respects.
SECTION VII.14 COMPLIANCE WITH ENVIRONMENTAL LAWS.
The Borrower shall, and shall cause each of its Subsidiaries to,
conduct its operations and keep and maintain its property in substantial
compliance with all Environmental Laws except where the failure to do so would
not have a Material Adverse Effect.
SECTION VII.15 PREVENT CONTAMINATION.
The Borrower and its Subsidiaries shall (a) conduct their operations in
such a way as to prevent material contamination of any part of their respective
properties by any Hazardous Substance; (b) manage all Hazardous Substances in a
manner that does not require a Hazardous Waste Facility Permit, and in
compliance in all material respects with all Governmental Requirements and
Governmental Approvals; and (c) not intentionally or recklessly, and endeavor
not to unintentionally, and not permit any other Person to, emit, release or
discharge into air, soil, surface water or groundwater, any Hazardous Substance
in excess of permitted levels or reportable quantities, or other concentrations,
standards, or limitations under any Governmental Requirements or Governmental
Approvals in the case of each of the foregoing clauses (a) through (c) if the
failure to do so would have a Material Adverse Effect.
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SECTION VII.16 TAX QUALIFICATION.
For any Employee Benefit Plan which is intended to be qualified under
Section 401(a) of the Code, the Borrower shall, or shall use its best efforts to
cause the members of the Controlled Group to:
(a) Use its best efforts to seek and receive determination letters from
the Internal Revenue Service stating that such plan, or any material amendment
to such plan, meets the requirements for qualification under Section 401(a) of
the Code, unless there is no reasonable possibility that the failure to do so
would have a Material Adverse Effect;
(b) Use its best efforts to cause such plan to meet such requirements
in operation and to be administered in accordance with the requirements of the
Code and ERISA, unless the failure to do so could not reasonably be expected to
result in a liability described in SECTION 9.1(H) hereof; and
(c) Use its best efforts to refrain from taking any action that would
cause such plan to lose its qualification under Section 401(a) of the Code or to
violate the requirements of the Code or ERISA in any material respect.
SECTION VII.17 FUNDING.
The Borrower shall, and shall use its best efforts to cause each other
member of the Controlled Group to, make all material contributions that it is
required to make by law or by any plan prior to the earliest date when statutory
Liens could be imposed under the Code or ERISA on any assets of the Borrower or
such member of the Controlled Group in order to satisfy payment of such
contributions. The Borrower shall not, and shall use its best efforts to not
permit any other member of the Controlled Group to, allow or suffer any material
statutory Lien to be placed upon its assets under the Code or ERISA.
SECTION VII.18 FINANCIAL TESTS; CALCULATION ASSUMPTIONS.
(a) Subject to SECTION 7.18(B) hereof, the Borrower shall:
(i) Maintain the following ratio of Funded Indebtedness to EBITDAR
for each of the applicable quarters ending during each of the periods
set forth below, provided however, that for purposes only of the first
calculation of compliance with this SECTION 7.18(A)(I), EBITDAR shall
be calculated on an adjusted annualized rolling three month basis from
the most recent month end:
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PERIOD RATIO
------ -----
Earlier of any mandatory reduction pursuant <7.25x
to Section 2.3(c)(iv) hereof and December 30, 1999 -
December 31, 1999 to and <6.50x
including June 29, 2000 -
June 30, 2000 to and <6.0x
including March 30, 2001 -
March 31, 2001 to and <5.0x
including June 29, 2002 -
June 30, 2002 and thereafter <4.5x
-
Borrower shall not be required to comply with this SECTION 7.18(A)(I) until the
Agent's receipt of the mandatory permanent reduction in the amount of Twelve
Million Dollars ($12,000,000), payable in accordance with SECTION 2.3(C)(IV)
hereof.
(ii) Maintain the following Fixed Charge Coverage Ratio for
each of the applicable quarters ending during each of the periods set
forth below:
PERIOD RATIO
------ -----
March 31, 1999 to and 1.10x
including December 30, 1999
December 31, 1999 to and 1.20x
including December 30, 2000
December 31, 2000 and thereafter 1.50x
(iii) Prior to the Revolving Termination Date, maintain a
minimum Net Worth in an amount not less than (A) the actual Net Worth
as of March 31, 1999, plus (B) ninety-percent (90%) of Consolidated Net
Income during the period from and including April 1, 1999 through and
including the date of calculation, plus (C) One hundred percent (100%)
of the aggregate amount of all increases in the stated capital and any
additional paid in capital amounts of the Borrower resulting from the
issuance of equity securities or other capital investments during such
period, minus (D) restructuring charges in an amount not to exceed Two
Million and Two Hundred Thousand Dollars ($2,200,000), and (E) any
gains and losses associated with the sale of properties in an amount
not to exceed Thirty Million Dollars ($30,000,000).
(iv) Have, at the end of each month set forth below, EBITDAR
for the month then ended of not less than the following, provided that
if in any month the amount of such EBITDAR exceeds the amount
designated below as "budget" EBITDAR, Borrower may carryover such
excess amount to the immediately succeeding month in calculating
"required" EBITDAR, provided that such carryover may only be used in
such succeeding month and for purposes of future carryovers shall be
deemed to have been applied first.
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MONTH BUDGET REQUIREMENT
----- ------ -----------
April-99 $1,341,000 $1,072,000
May-99 $1,084,000 $867,000
June-99 $892,000 $714,000
July-99 $1,472,000 $1,177,000
August-99 $1,500,000 $1,200,000
September-99 $1,704,000 $1,363,000
October-99 $1,451,000 $1,160,000
November-99 $1,650,000 $1,320,000
December-99 $1,717,000 $1,373,000
January-00 $1,498,000 $1,198,000
February-00 $1,780,749 $1,425,000
Upon the Agent's timely receipt of the mandatory permanent reduction in the
amount of Twelve Million Dollars ($12,000,000), payable in accordance with
SECTION 2.3(C)(IV) hereof, Borrower shall not be required to comply with this
SECTION 7.18(A)(IV).
(v) Prior to the Revolving Termination Date, not exceed the
following Accounts Receivable --Days Outstanding, such calculation to
be determined on a monthly basis as of each month's end:
MONTH COVENANT LEVEL PROJECTED (QUARTERLY)
----- -------------- ---------------------
May-99 80
June-99 80 76.4
July-99 80
August-99 80
September-99 80 76.4
October-99 80
November-99 80
December-99 76 72.8
January-00 76
February-00 76
March-00 72 67.7
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MONTH COVENANT LEVEL PROJECTED (QUARTERLY)
----- -------------- ---------------------
April-00 72
May-00 72
June-00 72 67.1
July-00 72
August-00 72
September-00 70 66.1
October-00 70
November-00 70
December-00 68 63.0
January-01 68
February-01 68
March-01 and thereafter 63 58.7
(vi) Prior to the Revolving Termination Date, not exceed the
following Accounts Payable--Days Outstanding, such calculation to be
determined on a monthly basis as of each month's end:
MONTH COVENANT LEVEL PROJECTED (RANGE)
----- -------------- ----------------
Closing-Maturity Capped at 45 39-42 days
(b) For purposes of calculating the financial ratios set forth in
SECTION 7.18(A) hereof, the following assumptions shall be made:
(i) In calculating Consolidated Net Income as a component of EBITDA
and EBITDAR for purposes of calculating compliance with the covenants
set forth in and hereof:
(A) Corporate Overhead Expenses: (I) for each of the months of
January 1999 through and including November 30, 2002, the amount of
corporate overhead expenses included in the calculation of
Consolidated Net Income shall be the amount of corporate overhead
expenses actually incurred during the six (6) month period
preceding and including such month multiplied by two (2); and
(B) Interest Expense: (I) for each of the months of January
1999 through and including November 30, 2002, the amount of
Interest Expense shall be the amount of Interest Expense actually
incurred during the six (6) month period preceding and including
such month multiplied by two (2).
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(ii) For purposes of calculating compliance with the covenants set
forth in SECTION 7.18(A) hereof, prior to the Revolving Termination
Date, EBITDAR of the Borrower and its Subsidiaries for any twelve (12)
month period shall be calculated on the basis of EBITDAR of the
Borrower and its Subsidiaries on an adjusted annualized rolling two (2)
quarter basis; provided that for purposes of calculating EBITDAR for:
(A) all periods, any gains and losses associated with the sale of
properties shall be excluded in an amount not to exceed Thirty Million
Dollars ($30,000,000), (B) the quarter ending September 30, 1999,
restructuring charges in an amount not to exceed Two Million and Two
Hundred Thousand Dollars ($2,200,000) shall be excluded.
(iii) With respect to any Partial Subsidiary, for purposes of
calculating EBITDA, EBITDAR and Net Worth, the actual financial results
of such Partial Subsidiary shall be reduced by any Distribution made to
Minority Holders in such Partial Subsidiary.
SECTION VII.19 HEALTH CARE RELATED MATTERS.
The Borrower shall, and shall cause each of its Subsidiaries to, at all
times:
(a) comply with all applicable CON requirements in jurisdictions where
the Borrower and its Subsidiaries operate;
(b) maintain in good standing all required Health Facility Licenses for
the operation of each of the acute care facilities or related businesses
operated by the Borrower and its Subsidiaries;
(c) maintain applicable JCAHO accreditation of each of the acute care
facilities or related businesses operated by the Borrower and its Subsidiaries;
provided that if any such accreditation becomes conditional, the Borrower and
its Subsidiaries will cure or otherwise address the reasons for such conditional
accreditation within twelve months of receiving notice of such status;
(d) maintain Medicaid Certification and Medicare Certification
presently in effect or hereafter obtained with respect to each acute care
facility or related business operated by the Borrower and its Subsidiaries; and
(e) maintain each Medicaid Provider Agreement and each Medicare
Provider Agreement presently in effect or hereafter entered into with respect to
each acute care facility or related business operated by the Borrower and its
Subsidiaries.
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SECTION VII.20 CONCENTRATION ACCOUNT.
The Borrower previously has established the Concentration Account and
shall maintain the Concentration Account at all times prior to the Final
Maturity Date. All other bank accounts maintained by the Borrower and its
Subsidiaries (other than accounts maintained exclusively for the purpose of
making disbursements) shall be and at all times remain subject to instructions
to transfer all funds out of such accounts into the Concentration Account on a
one or two day delay basis. SCHEDULE 7.20 sets forth a current list of all bank
accounts maintained by the Borrower and its Subsidiaries, and the Borrower will
inform Agent promptly of any changes to the information contained in such
schedule.
SECTION VII.21 OPERATING LEASES.
Neither the Borrower nor any of its Subsidiaries shall create, incur,
assume, or suffer to exist, any obligation for the payment of rent or hire for
property or assets of any kind whatsoever, whether real or personal, under
leases or lease agreements (other than Capitalized Lease Obligations and
Hospital Operating Leases) which would cause the aggregate amount of all
payments made by the Borrower and its Subsidiaries pursuant to such leases or
lease agreements to exceed five percent (5%) of Net Revenues during any fiscal
year. Any such leases referred to in this SECTION 7.21 shall not be deemed to
constitute Indebtedness and shall not be subject to SECTION 8.6 hereof.
SECTION VII.22 SUBSIDIARY CONTROL DOCUMENTS.
The Borrower shall provide the Agent with true and correct copies of
all shareholders' agreements and other agreements to be entered into with any
other Persons proposing to purchase Equity Interests in any Subsidiary, which
agreements shall not, in the sole judgement of the Agent, provide to such
Persons any special voting rights or other special protections not required to
be granted under the applicable state statutes if those rights or protections
could interfere with the Banks' ability (following any foreclosure on the Equity
Interests in such Subsidiary pledged to the Banks) to (i) remove, elect and
maintain a majority of members of the Board of Directors or other governing body
of such Subsidiary, or (ii) dissolve, merge, consolidate or recapitalize such
Subsidiary into the Borrower or any other Person.
ARTICLE VIII
NEGATIVE COVENANTS
The Borrower covenants and agrees that so long as any Obligation is
outstanding or the Commitment is in effect, it will comply with and, if
applicable, cause each of its Subsidiaries to comply with the following
covenants:
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SECTION VIII.1 MERGERS.
Neither the Borrower nor any of its Subsidiaries shall enter into any
merger, consolidation, reorganization or recapitalization, or any agreement to
do any of the foregoing, except that any Subsidiary of the Borrower may be
merged into the Borrower or another Subsidiary of the Borrower.
SECTION VIII.2 CHANGE OF BUSINESS.
Neither the Borrower nor any of its Subsidiaries shall change the
nature of its business or engage in any other business other than the businesses
which are substantially similar to the lines of business in which the Borrower
and its Subsidiaries are engaged as of the date hereof.
SECTION VIII.3 DISTRIBUTIONS.
Subject to SECTION 8.13 hereof, neither the Borrower nor any of its
Subsidiaries shall, directly or indirectly, make or declare any Distribution or
set aside assets for a sinking or similar fund for the purchase of, or redeem,
purchase, retire or otherwise acquire, any Equity Interests of the Borrower or
such Subsidiary, or make any other Distribution in respect thereof, whether in
cash or other property, except (a) to the extent otherwise permitted under
SECTION 6.2(C) hereof; and (b) the Borrower may make Distributions to any of its
Subsidiaries and any of its Subsidiaries may make Distributions to the Borrower
or any of its other Subsidiaries.
SECTION VIII.4 ACCOUNTING POLICIES.
Except in order to comply with GAAP, the Borrower shall not materially
change any of its accounting policies or its fiscal year or the fiscal year of
any of its Subsidiaries.
SECTION VIII.5 INVESTMENTS.
Neither the Borrower nor any of its Subsidiaries shall make any
Investment, except Investments (a) constituting seller financing undertaken on
commercially reasonable terms, which Investments shall not in the aggregate
exceed Two Hundred Fifty Thousand Dollars ($250,000); (b) in connection with a
purchase of land, which shall not exceed a purchase price of One Million Five
Hundred Thousand Dollars ($1,500,000), provided, however, that the Borrower,
working with the Agent, on behalf of the Banks, shall grant a first lien on such
property in such form and substance satisfactory to the Agent; (c) made in
accordance with the Borrower's corporate investment policy attached to the
Original Agreement as SCHEDULE 8.5; and (d) made in connection with the Employee
Stock Purchase Program, which Investments shall not in the aggregate exceed Two
Million Dollars ($2,000,000) of which the cash portion of such Investments shall
not exceed Three Hundred Thousand Dollars ($300,000).
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SECTION VIII.6 LIENS.
Neither the Borrower nor any of its Subsidiaries shall mortgage,
pledge, grant or permit to exist a security interest in, or Lien upon, any of
their respective assets of any kind now owned or hereafter acquired, or any
income or profits therefrom, except for Permitted Encumbrances.
SECTION VIII.7 GUARANTIES.
Neither the Borrower nor any of its Subsidiaries shall become liable,
directly or indirectly, for any Guaranty except: (a) endorsements for collection
or deposit in the ordinary course of business; (b) obligations entered into in
connection with the acquisition of services, supplies and equipment in the
ordinary course of business not exceeding (i) Two Hundred Fifty Thousand Dollars
($250,000) multiplied by (ii) the number of acute care facilities owned by the
Borrower and its Subsidiaries; (c) obligations of the Borrower with respect to
Letters of Credit; (d) obligations of the Borrower or its Subsidiaries arising
from physician income maintenance agreements and physician recruitment
activities not exceeding (i) One Million Two Hundred Thousand Dollars
($1,200,000) multiplied by (ii) the number of acute care facilities owned by the
Borrower and its Subsidiaries; (e) Guaranties by the Borrower of any obligations
of its Subsidiaries; (f) the Subsidiary Guaranties; and (g) Guaranties by any
Subsidiary of the obligations of any Wholly-Owned Subsidiaries.
SECTION VIII.8 INDEBTEDNESS.
Neither the Borrower nor any of its Subsidiaries shall incur, create,
assume or permit to exist any Indebtedness except: (a) the Obligations; (b)
Indebtedness where payment is secured by a Permitted Encumbrance; (c) taxes,
assessments and governmental charges or levies which are not delinquent or which
are being contested in good faith and for which, in accordance with GAAP,
adequate reserves have been set aside on the books of the Borrower or the
affected Subsidiary of the Borrower; (d) current liabilities incurred in
connection with the obtaining of goods or services in the ordinary course of
business; (e) Indebtedness owing from the Borrower to a Wholly-Owned Subsidiary
of the Borrower, from any Subsidiary of the Borrower to the Borrower or from one
Subsidiary of the Borrower to any Wholly-Owned Subsidiary of the Borrower, and
all Indebtedness arising between the Borrower and its Subsidiaries, or between
any Subsidiary and any other subsidiary, in connection with Concentration
Account activities; (f) Indebtedness incurred in connection with Rate Contracts;
(g) Guaranties permitted under SECTION 8.7 hereof; (h) Indebtedness existing on
the date hereof, as shown on SCHEDULE 8.8 attached hereto; and (i) Indebtedness
incurred pursuant to Sale-Leaseback Transactions, provided that the present
value of the aggregate payments to be made by the Borrower and its Subsidiaries
pursuant to all such Sale-Leaseback Transactions shall not exceed One Million
Dollars ($1,000,000).
SECTION VIII.9 SALE OF ASSETS.
Other than (a) sales of readily marketable securities, (b) sales of
inventory and other property in the ordinary course of business subject to
SECTION 2.3(C)(II) hereof, (c) sales,
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transfers, leases or other dispositions of assets between or among the Borrower
and any of its Subsidiaries and (d) sales of any other assets not described in
the preceding clauses (a) through (c) during any calendar year that are obsolete
or no longer useful in Borrower=s business and having a value not exceeding
$250,000 in any single transaction or $500,000 in the aggregate in any calendar
year, neither the Borrower nor any of its Subsidiaries shall sell, transfer or
otherwise dispose of any of its respective assets (including, but not limited
to, transfers or dilution of its Equity Interests in any Subsidiary).
SECTION VIII.10 SALE-LEASEBACK TRANSACTIONS.
Neither the Borrower nor any of its Subsidiaries shall enter into any
Sale-Leaseback Transaction, except as permitted under SECTION 8.8(J) hereof.
SECTION VIII.11 CAPITAL EXPENDITURES.
The Borrower and its Subsidiaries shall not during any fiscal year make
Capital Expenditures other than in the amounts and for the purposes identified
in the Capital Expenditures Budget attached hereto as SCHEDULE 8.11, provided
however Borrower may make Capital Expenditures for items not identified in the
Capital Expenditure Budget and/or in excess of the amounts set forth therein up
to an aggregate amount not to exceed $250,000 in any fiscal year. Borrower may
reallocate Capital Expenditures from one hospital to another hospital up to an
aggregate amount of $250,00 in any fiscal year.
SECTION VIII.12 TRANSACTIONS WITH AFFILIATES.
The Borrower shall not, and shall not permit its Subsidiaries to, enter
into any agreement or transaction with an Affiliate of the Borrower except in
the ordinary course of and pursuant to the reasonable requirements of the
Borrower's or such Subsidiary's business and upon fair and reasonable terms that
are (a) approved by the Borrower's or such Subsidiary's board of directors, (b)
fully disclosed to Agent, (c) no less favorable to the Borrower or such
Subsidiary than it would obtain in a comparable arms length transaction with a
Person not an Affiliate of the Borrower, and (d) on terms consistent with the
business relationship of the Borrower or such Subsidiary and such Affiliate
prior to the date hereof, if any. Nothing contained in this Agreement shall
prohibit increases in compensation and benefits for officers and employees of
the Borrower or its Subsidiaries which are customary in the industry or
consistent with the past business practice of the Borrower or such Subsidiary,
or payment of customary directors' fees and indemnities.
SECTION VIII.13 RESTRICTIVE AGREEMENTS.
The Borrower shall not and shall not permit any of its Subsidiaries to
enter into any agreement which restricts the ability or right of any such
Subsidiary to make payments to the Borrower or another Subsidiary of the
Borrower by way of dividends, distributions, returns of capital, advances,
reimbursement or otherwise.
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SECTION VIII.14 PREPAYMENTS.
Neither the Borrower nor any of its Subsidiaries shall prepay any
Indebtedness which is subordinated to the Obligations, provided that nothing
herein shall preclude the Borrower or any Subsidiary from effecting any
conversion of any such Indebtedness into common Capital Stock.
SECTION VIII.15 CERTAIN ERISA PAYMENTS.
Neither the Borrower nor its Subsidiaries shall make any payment of any
material liability arising under ERISA or under the Code of any Controlled Group
member which is not a Subsidiary of the Borrower.
SECTION VIII.16 COMPLIANCE WITH ERISA.
The Borrower shall not, directly or indirectly, and the Borrower shall
use its best efforts to prevent any Controlled Group member from directly or
indirectly undertaking to:
(a) Maintain, become a party to, contribute to or become or be
obligated to contribute to a Pension Plan, if such maintenance or contribution
would result in material unfunded liabilities in excess of One Hundred Thousand
Dollars ($100,000) immediately following such action;
(b) Maintain, become a party to, contribute to or become obligated to
contribute to a material plan maintained outside of the United States primarily
for the benefit of persons substantially all of whom are nonresident aliens, as
described in Section 4(b) (4) of ERISA; or
(c) Maintain, become a party to, contribute to or being obligated to
contribute to or otherwise provide material health care or material life
insurance benefits to retirees or survivors of employees.
SECTION VIII.17 CREATION OF SUBSIDIARIES.
The Borrower will not, nor will it permit any of its Subsidiaries to,
create any Subsidiary, unless (a) such newly created Subsidiary is organized
under the laws of a jurisdiction within the United States of America, (b) such
newly created Subsidiary executes at the time of its creation a Subsidiary
Guaranty, a Security Agreement and (to the extent applicable) a Subsidiary Note,
one or more Mortgages with respect to its ownership or leasehold interest in
real property owned by such Subsidiary at the time of its creation and such
agreements and other documents necessary or desirable to grant the Banks a
fully-perfected, first priority security interest in the Equity Interests held
by the Borrower or its Subsidiary, (c) the Borrower or its existing Subsidiary
(as applicable) and such newly created Subsidiary take all steps required and
execute all additional documents (including UCC-1 financing statements)
necessary to perfect the security interest of the Agent in the Equity Interests
of such newly
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created Subsidiary and the assets of such newly created Subsidiary and (d) no
Event of Default or Incipient Default exists immediately prior to or after the
creation of such newly created Subsidiary.
SECTION VIII.18 FUNDAMENTAL CHANGES.
The Borrower will not, nor will it permit any of its Subsidiaries to
(a) amend or restate any of the organizational documents of such Person, or (b)
hold itself out as doing business under any tradename or assumed or fictitious
name that would require additional filings by the Banks under the provisions of
the Uniform Commercial Code in order to maintain the perfection of the Banks'
security interests.
ARTICLE IX
EVENTS OF DEFAULT
SECTION IX.1 EVENTS OF DEFAULT.
Each of the following shall constitute an Event of Default under this
Agreement:
(a) Payments. The Borrower shall fail to pay when due (i) any
installment of principal or interest due hereunder or on the Notes or (ii) any
reimbursement obligation with respect to any Letter of Credit, or the Borrower
shall fail to pay not later than two (2) Banking Days after the date when due
any other sum payable hereunder or under any of the other Loan Documents;
(b) Certain Covenants in This Agreement and Other Loan Documents. The
Borrower shall default in the performance of any of its agreements set forth in
SECTION 7.2, SECTION 7.18 OR SECTION 7.20 hereof or in ARTICLE VIII hereof, or
the Borrower or any of its Subsidiaries shall default in the performance of any
other agreements set forth herein or in any of the other Loan Documents and such
default is not capable of being cured; provided that, in the case of a default
under SECTION 7.18 hereof, such default shall not become an Event of Default
until thirty (30) days shall have expired from the date of occurrence of such
default;
(c) Other Covenants and Agreements. The Borrower or any of its
Subsidiaries shall default in the performance of any of their respective
agreements set forth in any provision herein not constituting an Event of
Default under any other clause of this SECTION 9.1 or in the Subsidiary
Guaranties or any of the other Loan Documents and such default, although capable
of being cured, is not cured within thirty (30) days of its occurrence;
(d) Representations and Warranties. Any representation, warranty or
certification made by the Borrower or its Subsidiaries, or any officer of the
Borrower or its Subsidiaries, in
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any of the Loan Documents shall be untrue in any material respect on any date as
of which the facts set forth are stated or certified;
(e) Monetary Judgment. A judgment shall be entered against the Borrower
or any of its Subsidiaries, the uninsured or unbonded portion of which is in
excess of Seven Hundred Fifty Thousand Dollars ($750,000), and such judgment
shall remain unstayed, unvacated, undischarged or unsatisfied for thirty (30)
days;
(f) Non-Monetary Judgments. Any final non-monetary judgment, order or
decree shall be rendered against the Borrower or any of its Subsidiaries which
may have a Material Adverse Effect, and either (i) enforcement proceedings shall
have been commenced by any Person upon such judgment or order or (ii) there
shall be any period of thirty (30) days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall not be
in effect, unless such judgment, order or decree shall, within such thirty-day
period, be vacated or discharged (other than by satisfaction thereof);
(g) Liens for Pension Contributions. Any statutory Lien shall have been
placed upon the assets of the Borrower or any member of the Controlled Group
under the Code or ERISA in an amount in excess of Two Hundred Fifty Thousand
Dollars ($250,000);
(h) ERISA. (i) An Employee Benefit Plan that is intended to be
qualified under Section 401(a) of the Code shall lose its qualification, and the
resulting loss or cost to the Borrower or any other member of the Controlled
Group can reasonably be expected to exceed One Million Dollars ($1,000,000);
(ii) the commencement or increase of contributions to, the adoption of, or the
amendment of a Pension Plan by, the Borrower or any other Controlled Group
member shall result in a net increase in unfunded liabilities to the Borrower or
any other Controlled Group member in the aggregate in excess of One Million
Dollars ($1,000,000) immediately following such action; (iii) any termination of
a single employer Employee Benefit Plan (as defined in Section 4001(a) (15) of
ERISA, but also including a plan amendment described in Section 4041(e) of
ERISA) or any complete or partial withdrawal from a Multiemployer Plan shall
occur, or steps shall have been taken by any Person that make it reasonable to
expect that such termination or withdrawal will occur, and such termination or
withdrawal could reasonably be expected to result in liability of the Borrower
or any member of the Controlled Group to the PBGC, to a trustee or to such
Multiemployer Plan in the aggregate amount of One Million Dollars ($1,000,000)
or more; (iv) the Borrower or any member of the Controlled Group shall apply
under Section 412 of the Code for a waiver of the minimum funding standard; or
(v) the Borrower or any member of the Controlled Group shall incur liability
attributable to the participation of a member of the ERISA Affiliated Group
(other than the Borrower or a member of the Controlled Group) in an employee
benefit plan (as defined in Section 3(3) of ERISA) and such liability will or
can reasonably be expected to have a Material Adverse Effect;
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(i) Cross-Default. The Borrower or any of its Subsidiaries shall
default (unless waived) in the payment when due, whether by acceleration or
otherwise, of any amount, of principal or interest due in respect of
Indebtedness in an aggregate principal amount greater than Five Hundred Thousand
Dollars ($500,000), or any Guaranty of such Indebtedness, or default (unless
waived) in the performance or observance (subject to any applicable grace
period) of any agreement, covenant or condition with respect to any such
Indebtedness or Guaranty if the effect of such default is to accelerate the
maturity of any such Indebtedness or to permit the holder or holders of any such
Indebtedness or Guaranty, or any trustee or agent for such holders, to cause
such Indebtedness to become due and payable prior to its expressed maturity or
to call upon such Guaranty in advance of nonpayment of the guaranteed
Indebtedness;
(j) Bankruptcy. (i) The Borrower or any of its Subsidiaries shall
institute a voluntary case seeking liquidation or reorganization under Chapter 7
or Chapter 11, respectively, of the United States Bankruptcy Code, or shall
consent to the institution of an involuntary case thereunder against it; or the
Borrower or any of its Subsidiaries shall file a petition initiating or shall
otherwise institute any similar Insolvency Proceeding under any other applicable
federal or state law, or shall consent thereto; or (ii) the Borrower or any of
its Subsidiaries shall apply for, or by consent or acquiescence there shall be
an appointment of, a receiver, liquidator, sequestrator, trustee or other
officer with similar powers; or the Borrower or any of its Subsidiaries shall
make an assignment for the benefit of creditors; or (iii) the Borrower or any of
its Subsidiaries shall admit in writing its inability to pay its debts generally
as they become due; or, if an involuntary case shall be commenced seeking the
liquidation or reorganization of the Borrower or any of its Subsidiaries under
Chapter 7 or Chapter 11, respectively, of the United States Bankruptcy Code, or
any similar proceeding shall be commenced against the Borrower or any of its
Subsidiaries under any other applicable federal or state law, and (A) the
petition commencing the involuntary case is not timely controverted, or (B) the
petition commencing the involuntary case is not dismissed within forty-five (45)
days of its filing, or (C) an interim trustee is appointed to take possession of
all or a portion of the property and/or to operate all or any part of the
business of the Borrower or such Subsidiary, or (D) an order for relief shall
have been issued or entered therein; or (iv) a decree or order of a court having
jurisdiction in the premises for the appointment of a receiver, liquidator,
sequestrator, trustee or other officer having similar powers over the Borrower
or any of its Subsidiaries, or of all or a part of the property of the Borrower
or any of its Subsidiaries, shall have been entered; or (v) any other similar
relief shall be granted against the Borrower or any of its Subsidiaries under
any applicable federal or state law;
(k) Stock Ownership. Welsh Carson shall cease to hold and control (on
an aggregate basis) a majority of the Capital Stock of the Borrower;
(l) Invalidity of Loan Documents. Any of the Loan Documents shall cease
for any reason to be in full force and effect or any party thereto (other than
the Agent or the Banks) shall purport to disavow its obligations thereunder,
shall declare that it does not have any further obligation thereunder or shall
contest the validity or enforceability thereof;
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(m) Impairment of Collateral. A judgment creditor of the Borrower or
its Subsidiaries shall obtain possession of any of the Collateral having a book
value in excess of Five Hundred Thousand Dollars ($500,000) by any means,
including, but not limited to, levy, distraint, replevin or self-help, or the
Agent's or the Banks' security interest in, or Lien on, any portion of the
Collateral shall become impaired or otherwise unenforceable;
(n) Change of Control. A Change of Control shall occur;
(o) Change of Management. Thomas Singleton shall cease to act under any
circumstances as President and Chief Executive Officer of the Borrower
performing duties essentially the same as those performed on the Closing Date,
and such cessation shall continue for fifteen (15) days; or
(p) Material Adverse Change; Material Adverse Effect. The Agent shall
have determined in good faith that (i) a Material Adverse Change or Material
Adverse Effect has occurred, or (ii) the prospect of payment or performance of
any Obligation of the Borrower hereunder or under any Loan Document is
materially impaired.
SECTION IX.2 REMEDIES.
If an Event of Default shall have occurred and until such Event of
Default is waived in writing by the Majority Banks, or all of the Banks as may
be required by SECTION 11.3 hereof:
(a) With the exception of an Event of Default specified in SECTION
9.1(J), the Agent, at the direction of the Majority Banks, shall (i) terminate
the Commitment and the Letter of Credit Commitment and/or (ii) declare the
principal of and interest on the Loans, the Notes, the Subsidiary Notes and all
other Obligations to be forthwith due and payable without presentment, demand,
protest, or notice of any kind, all of which are hereby expressly waived,
anything in this Agreement, the Notes or the Subsidiary Notes to the contrary
notwithstanding, or both.
(b) Upon the occurrence and continuance of an Event of Default
specified in SECTION 9.1(J) such principal, interest and other Obligations shall
thereupon and concurrently therewith become due and payable, and the Commitment
and the Letter of Credit Commitment shall forthwith terminate, all without any
action by the Agent or the Banks or the Majority Banks or the holders of the
Notes and the Subsidiary Notes, and without presentment, demand, protest, or
other notice of any kind, all of which are expressly waived, anything in this
Agreement, the Notes or the Subsidiary Notes to the contrary notwithstanding.
(c) The Agent, with the concurrence of the Majority Banks, shall
exercise all of the post-default rights granted to it and to the Issuing Bank
and the Banks under the Loan Documents or under Applicable Law. The Agent, for
the benefit of itself, the Issuing Bank and the Banks, shall have the right to
the appointment of itself as attorney-in-fact or of a receiver and
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hereby waives any objection the Borrower may have thereto or the right to have a
bond or other security posted by the Agent, the Issuing Bank or the Banks in
connection therewith.
(d) In regard to all Letters of Credit with respect to which
presentment for honor shall not have occurred at the time of any acceleration of
the Obligations pursuant to the provisions of this SECTION 9.2, the Borrower
shall promptly upon demand by the Agent deposit in the Letter of Credit Reserve
Account an amount equal to one hundred five percent (105%) of the aggregate then
undrawn and unexpired amount of the Letter of Credit Obligations with respect to
such Letters of Credit. Amounts held in the Letter of Credit Reserve Account
shall be applied by the Agent to the payment of drafts drawn under such Letters
of Credit, and after all such Letters of Credit shall have expired or been fully
drawn upon, if any, any amounts remaining on deposit in the Letter of Credit
Reserve Account shall be applied to repay any other Obligations of the Borrower
in the manner set forth in SECTION 2.5 hereof. Pending the application of such
deposit, the Agent shall, to the extent reasonably practicable, invest such
deposit in an interest bearing open account or similar available savings deposit
account and all interest accrued thereon shall be held in the Letter of Credit
Reserve Account as additional security. Except as expressly provided above,
presentment, demand, protest and all other notices of any kind are hereby
expressly waived by the Borrower.
(e) The rights and remedies of the Agent and the Banks hereunder shall
be cumulative and not exclusive.
ARTICLE X
THE AGENT
SECTION X.1 APPOINTMENT AND AUTHORIZATION.
Each Bank hereby irrevocably appoints, designates and authorizes the
Agent to take such action on its behalf under the provisions of this Agreement
and each other Loan Document and to exercise such powers and perform such duties
as are expressly delegated to it by the terms of this Agreement or any other
Loan Document, together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in this
Agreement or in any other Loan Document, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Bank, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
SECTION X.2 DELEGATION OF DUTIES.
The Agent may execute any of its duties under this Agreement or any
other Loan Document by or through agents, employees or attorneys-in-fact and
shall be entitled to advice of
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counsel concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agent or attorney-in-fact
that has been selected with reasonable care.
SECTION X.3 LIABILITY OF AGENT.
Neither the Agent, nor any of its Affiliates, nor any of their
respective officers, directors, employees, agents, or attorneys-in-fact
(collectively, the "Agent-Related Persons") shall (a) be liable for any action
taken or omitted to be taken by any of them under or in connection with this
Agreement (except for their own gross negligence or willful misconduct) or (b)
be responsible in any manner to any of the Banks for any recital, statement,
representation or warranty made by the Borrower or any of its Subsidiaries or
any officer thereof contained in this Agreement or in any other Loan Document,
or in any certificate, report, statement or other document referred to or
provided for in, or received by the Agent under or in connection with, this
Agreement or any other Loan Document, or for the value of any Collateral or the
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of the Borrower or any
other party to any Loan Document to perform its obligations hereunder or
thereunder. No Agent-Related Person shall be under any obligation to any Bank to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower or any
of its Subsidiaries.
SECTION X.4 RELIANCE BY AGENT.
(a) The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any writing, resolution, notice, consent, certificate, affidavit,
letter, facsimile or telephone message, statement or other document or
conversation believed by the Agent to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including counsel to the Borrower or any of its
Subsidiaries), independent accountants and other experts selected by the Agent.
The Agent shall be fully justified in failing or refusing to take any action
under this Agreement or any other Loan Document unless the Agent shall first
receive such advice or concurrence of the Majority Banks as the Agent shall deem
appropriate and, if the Agent so requests, the Agent shall first be indemnified
to its satisfaction by the Banks against any and all liability and expense which
may be incurred by the Agent by reason of taking or continuing to take any such
action. The Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement or any other Loan Document in
accordance with a request or consent of the Majority Banks and such request and
any action taken or failure to act pursuant thereto shall be binding upon all of
the Banks.
(b) For purposes of determining compliance with the conditions
specified in SECTION 5.1 AND SECTION 5.2 hereof, each Bank shall be deemed to
have consented to, approved or accepted or to be satisfied with each document or
other matter required thereunder to be
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consented to or approved by or acceptable or satisfactory to the Agent (provided
that the Banks shall have been provided with a copy of such document or a
writing setting forth the particulars of such matter) unless an officer of the
Agent responsible for the transactions contemplated by the Loan Documents shall
have received notice from a Bank prior to the extension of a Borrowing
specifying its objection thereto and either such objection shall not have been
withdrawn by notice to the Agent to that effect or such Bank shall not have made
available to the Agent the Bank's ratable portion of such Borrowing.
SECTION X.5 NOTICE OF DEFAULT.
The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Incipient Default or Event of Default, except with respect to
defaults in the payment of principal, interest and fees payable to the Agent for
the account of the Banks, unless the Agent shall have received written notice
from a Bank or the Borrower referring to this Agreement, describing such
Incipient Default or Event of Default and stating that such notice is a "notice
of default." In the event that the Agent receives such a notice, the Agent shall
give notice thereof to the Banks. The Agent shall take such action with respect
to such Incipient Default or Event of Default as shall be requested by the
Majority Banks in accordance with ARTICLE IX; provided, however, that unless and
until the Agent shall have received any such request, the Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with
respect to such Incipient Default or Event of Default as the Agent shall deem
advisable in the best interests of the Banks.
SECTION X.6 CREDIT DECISION.
Each Bank expressly acknowledges that none of the Agent-Related Persons
has made any representation or warranty to it and that no act by the Agent
hereinafter taken, including any review of the affairs of the Borrower and its
Subsidiaries, shall be deemed to constitute any representation or warranty by
the Agent to any Bank. Each Bank represents to the Agent that it has,
independently and without reliance upon the Agent and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition and creditworthiness of the Borrower and its Subsidiaries and
made its own decision to enter into this Agreement and extend credit to the
Borrower hereunder. Each Bank also represents that it will, independently and
without reliance upon the Agent and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations, property, financial
and other condition and creditworthiness of the Borrower and its Subsidiaries.
Except for notices, reports and other documents expressly required to be
furnished to the Banks by the Agent hereunder, the Agent shall not have any duty
or responsibility to provide any Bank with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition or creditworthiness of the Borrower and its Subsidiaries which may
come into the possession of any of the Agent-Related Persons.
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SECTION X.7 INDEMNIFICATION.
The Banks agree to indemnify the Agent and each Agent-Related Person
(to the extent not reimbursed by or on behalf of the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to the
respective amounts of their outstanding Loans, or, if no Loans are outstanding,
their outstanding Commitment Percentages, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses and disbursements of any kind whatsoever which may at any time
(including at any time following the repayment of the Loans) be imposed on,
incurred by or asserted against any such person in any way relating to or
arising out of this Agreement, any other Loan Documents or any document
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by any such person
under or in connection with any of the foregoing; provided, however, that no
Bank shall be liable for the payment to the Agent or such Agent-Related Person
of any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting solely
from such person's gross negligence or willful misconduct. Without limitation of
the foregoing, each Bank shall reimburse the Agent promptly upon demand for its
ratable share of any costs or out-of-pocket expenses (including attorneys' fees
and the allocated cost of in-house counsel) incurred by the Agent in connection
with the preparation, execution, delivery, administration, modification,
amendment or enforcement (whether through negotiations, legal proceedings or
otherwise) of, or legal advice in respect of rights or responsibilities under,
this Agreement, any other Loan Document, or any document contemplated by or
referred to herein to the extent that the Agent is not reimbursed for such
expenses by or on behalf of the Borrower.
SECTION X.8 AGENT IN INDIVIDUAL CAPACITY.
The Agent and its Affiliates may make loans to, issue letters of credit
for the account of, accept deposits from and generally engage in any kind of
business with the Borrower or any of its Subsidiaries as though the Agent were
not the Agent hereunder and without notice to the Banks. With respect to its
Loans, the Agent shall have the same rights and powers under this Agreement as
any other Bank and may exercise the same as though it were not the Agent, and
the terms "Bank" and "Banks" shall include the Agent in its individual capacity.
SECTION X.9 SUCCESSOR AGENT.
The Agent may, and at the request of the Majority Banks shall, resign
as Agent upon thirty (30) days' notice to the Banks. The new Agent shall succeed
to all the rights, powers and duties of the Agent hereunder, including the
rights, powers and duties of the Agent as the Agent. If no successor Agent is
appointed prior to the effective date of the resignation of the Agent, the Agent
shall appoint, after consulting with the Banks and the Borrower, a successor
agent from among the Banks. Upon the acceptance of its appointment as successor
Agent hereunder, such successor Agent shall succeed to all the rights, powers
and duties of the prior Agent, and the
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retiring Agent's rights, powers and duties as such shall be terminated. After
any retiring Agent's resignation hereunder as such, the provisions of this
ARTICLE X and SECTION 11.6, SECTION 11.7 and SECTION 11.8 hereof shall inure to
the benefit of such Agent as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement.
ARTICLE XI
MISCELLANEOUS
SECTION XI.1 SUCCESSORS AND ASSIGNS AND SALE OF INTERESTS.
(a) The terms and provisions of this Agreement shall be binding upon,
and, subject to the provisions of this SECTION 11.1, the benefits hereof shall
inure to, the parties hereto and their respective successors and assigns;
provided, however, that the Borrower may not assign this Agreement or any of the
rights, duties or obligations of the Borrower hereunder without the prior
written consent of all of the Banks.
(b) Any Bank (an "Assignor"), with the written consent of the Borrower,
which shall not be unreasonably withheld, and with the written consent of the
Agent, which shall not be unreasonably withheld, and upon three (3) Banking
Days' written notice to the Agent, may at any time assign and delegate to any
Person, or, with notice to the Borrower and the Agent but without the consent of
either the Borrower or the Agent, may assign and delegate to any of its wholly
owned Affiliates (each an "Assignee") all or any part of the Loans or the
Commitments or any other rights or obligations of such Bank hereunder in a
minimum amount of Five Million Dollars ($5,000,000), representing the principal
amount of the Loans assigned plus the amount of the Commitment Percentage so
assigned multiplied by the Total Commitment Amount; provided, however, that the
Borrower and the Agent may continue to deal solely and directly with such Bank
in connection with the interests so assigned to an Assignee until (i) written
notice of such assignment, together with payment instructions, addresses and
related information with respect to the Assignee, shall have been given to the
Borrower and the Agent by such Bank and the Assignee and (ii) such Bank and its
Assignee shall have delivered to the Borrower and the Agent an Assignment and
Acceptance in substantially the form of EXHIBIT 11.1 hereto (an "Assignment and
Acceptance") together with any Note or Notes subject to such assignment; and
(iii) the processing fee of Three Thousand Five Hundred Dollars ($3,500) shall
have been paid to the Agent. Notwithstanding the foregoing, (I) any Bank may at
any time, with notice to the Borrower and the Agent but without the consent of
either the Borrower or the Agent, assign and delegate all or any part of the
Loans or the Commitments or any other rights or obligations of such Bank
hereunder to any Federal Reserve Bank as collateral security pursuant to
Regulation A of the Board of Governors of the Federal Reserve System and any
Operating Circular issued by such Federal Reserve Bank, so long as such
assignment does not relieve such Bank from its obligations hereunder, and (II)
the consent of the Borrower shall not be required to any
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<PAGE> 92
assignment made following an Event of Default (unless such Event of Default is
subsequently waived as provided in SECTION 9.2).
(c) From and after the date that the Agent notifies the Assignor that
it has received the Assignment and Acceptance, (i) the Assignee thereunder shall
be a party hereto and, to the extent that rights and obligations hereunder have
been assigned to it pursuant to such Assignment and Acceptance, shall have the
rights and obligations of a Bank under the Loan Documents and (ii) the Assignor
Bank shall, to the extent that rights and obligations hereunder have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Loan Documents.
(d) Within five (5) Banking Days after its receipt of notice by the
Agent that it has received an executed Assignment and Acceptance, the Borrower
shall execute and deliver to the Agent new Notes evidencing such Assignee's
assigned Loans and Commitment Amount and, if the Assignor has retained a portion
of its Loans and its Commitment Amount, replacement Notes in the Commitment
Amount retained by the Assignor (such Notes to be in exchange for, but not in
payment of, the Notes held by such Bank). Immediately upon each Assignee's
making its payment under the Assignment and Acceptance, this Agreement shall be
deemed to be amended to the extent, but only to the extent necessary to reflect
the addition of the Assignee and the resulting adjustment of the Assignor's
Commitment Amount arising therefrom. The Commitment Amount allocated to each
Assignee shall reduce the Commitment Amount of the Assignor pro tanto.
(e) Any Bank may at any time sell to one or more banks or other
entities (a "Participant") participating interests in any Loans, the Commitment
Amount of that Bank or any other interest of that Bank hereunder in a minimum
amount of Five Million Dollars ($5,000,000); provided, however, that (i) the
Bank's obligations under this Agreement shall remain unchanged, (ii) the selling
Bank shall remain solely responsible for the performance of such obligations,
(iii) the Borrower and the Agent shall continue to deal solely and directly with
the selling Bank in connection with such Bank's rights and obligations under
this Agreement, and (iv) no Bank shall transfer or grant any participating
interest under which the Participant shall have rights to approve any amendment
to, or any consent or waiver with respect to this Agreement except to the extent
such amendment, consent or waiver would require unanimous consent as described
in clauses (a) through (f) of SECTION 11.3 hereof. In the case of any such
participation, the Participant shall not have any rights under this Agreement,
or any of the other Loan Documents, and all amounts payable by the Borrower
hereunder shall be determined as if such Bank had not sold such participation,
except that if amounts outstanding under this Agreement are due and unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall be deemed to have the
right of set-off in respect of its participating interest in amounts owing under
this Agreement to the same extent as if the amount of its participating interest
were owing directly to it as a Bank under this Agreement.
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<PAGE> 93
SECTION XI.2 NO IMPLIED WAIVER.
No delay or omission to exercise any right, power or remedy accruing to
the Agent or any Bank upon any breach or default of the Borrower under this
Agreement or under any of the other Loan Documents shall impair any such right,
power or remedy of the Agent or any Bank, nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default occurring thereafter, nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring theretofore or thereafter.
SECTION XI.3 AMENDMENTS AND WAIVERS.
No amendment or waiver of any provision of this Agreement or any other
Loan Document, and no consent with respect to any departure by the Borrower
therefrom, shall be effective unless the same shall be in writing and signed by
the Majority Banks, and then such waiver shall be effective only in the specific
instance and for the specific purpose for which given; provided, however, that
no such waiver, amendment or consent shall, unless in writing and signed by all
the Banks, do any of the following:
(a) increase the Commitment Amount of any Bank or subject any Bank to
any additional obligations;
(b) postpone or delay any date fixed for any payment of principal,
interest, fees or other amounts due hereunder or under any Loan Document;
(c) reduce the principal of, or the rate of interest specified herein
on any Loan, or of any fees or other amounts payable hereunder or under any Loan
Document;
(d) change the definition of "Majority Banks" or the percentage of the
aggregate Commitment Percentages or of the aggregate unpaid principal amount of
the Loans which shall be required for the Banks or any of them to take any
action hereunder;
(e) amend this SECTION 11.3; or
(f) release any portion of the Collateral from the Liens created by any
of the Loan Documents unless pursuant to a bona fide arms' length transaction
not with an Affiliate of the Borrower, which transaction either (i) is permitted
by this Agreement or (ii) if such transaction requires the consent of the
Majority Banks, has been so consented to;
and, provided, further, that (y) no amendment, waiver or consent shall, unless
in writing and signed by the Agent in addition to the Majority Banks, affect the
rights or duties of the Agent under this Agreement, and (z) the definition of
"Majority Banks" or the percentage of the aggregate Commitment Percentages or of
the aggregate principal amount of the Loans which
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<PAGE> 94
shall be required for the Banks or any of them to take any action here-under may
be changed without the consent of the Borrower.
SECTION XI.4 REMEDIES CUMULATIVE.
All rights and remedies, either under this Agreement, by law or
otherwise afforded to the Agent or the Banks shall be cumulative and not
exclusive, and any single or partial exercise of any power or right hereunder or
thereunder does not preclude other or further exercise thereof, or the exercise
of any other power or right.
SECTION XI.5 SEVERABILITY.
Any provision of this Agreement, the Notes or any of the other Loan
Documents which is prohibited or unenforceable in any jurisdiction, shall be,
only as to such jurisdiction, ineffective to the extent of such prohibition or
unenforceability, but all the remaining provisions of this Agreement, the Notes
and the other Loan Documents shall remain valid.
SECTION XI.6 COSTS, EXPENSES AND ATTORNEYS' FEES.
The Borrower shall reimburse the Agent for all reasonable costs and
expenses, including, but not limited to, reasonable attorneys' and other
professionals' fees and expenses (including the allocated cost of the Agent's
internal counsel) and appraisal, audit, review, travel, search and filing fees
and expenses, expended or incurred by the Agent in connection with the
preparation, negotiation and execution of this Agreement, in connection with the
initial Borrowing, in amending this Agreement or extending any waiver or consent
hereunder, or in any transaction referred to in SECTION 11.1(B) hereof, and
shall reimburse the Agent and the Banks for all costs and expenses, including,
but not limited to, reasonable attorneys' fees and expenses (including the
allocated cost of the Agent's internal counsel), expended or incurred by the
Agent or any Bank in collecting any sum which becomes due under the Notes or
under this Agreement or any of the other Loan Documents, or in the protection,
perfection, preservation and enforcement of any and all rights of the Agent or
any Bank in connection with the Loan Documents, including, without limitation,
the fees and costs incurred in any out-of-court work-out or a bankruptcy or
reorganization proceeding. This obligation on the part of the Borrower shall
survive the expiration or termination of this Agreement, with or without
occurrence of the Closing Date.
SECTION XI.7 GENERAL INDEMNIFICATION.
The Borrower shall indemnify and hold each Bank, the Agent and each of
their directors, officers, employees, Affiliates, attorneys and agents
(collectively referred to herein as the "Bank Indemnitees") harmless from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any kind
or nature whatsoever (including, without limitation, any expenses (including
reasonable attorneys' fees and the allocated cost of in-house counsel) incurred
by any such Bank Indemnitee in
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<PAGE> 95
connection with any investigation or discovery served upon such Bank Indemnitee
in connection with any such matter, whether or not any such Bank Indemnitee
shall be designated a party thereto) which may be imposed on, incurred by or
asserted against such Bank Indemnitees by any Person other than the Bank with
which such Bank Indemnitee is affiliated (whether direct, indirect or
consequential and whether based on any federal or state laws or other statutory
regulations, including, without limitation, securities, environmental and
commercial laws and regulations, under common law or at equitable cause, or on
contract or otherwise) in any manner relating to or arising out of this
Agreement, the Agent's Fee Letter, the Banks' Closing Fee Letter, any other Loan
Documents, or any act, event or transaction related or attendant thereto; the
making of Loans hereunder; the management of the Loans (including any liability
under federal, state or local environmental laws or regulations); or the use or
intended use of the proceeds of the Loans (collectively, the "Indemnified
Matters"); provided, however, that the Borrower shall have no obligation to any
Bank Indemnitee under this SECTION 11.7 with respect to Indemnified Matters to
the extent such Indemnified Matters were caused by or resulted from the gross
negligence or willful misconduct of a Bank Indemnitee. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it violates any law or public policy, the
Borrower shall contribute to the payment and satisfaction of all Indemnified
Matters incurred by the Bank Indemnitees the maximum portion which the Borrower
is permitted to pay and satisfy under applicable law. This indemnification shall
survive repayment by the Borrower of all Loans made under this Agreement and the
termination of this Agreement, with or without occurrence of the Closing Date.
SECTION XI.8 ENVIRONMENTAL INDEMNIFICATION.
The Borrower hereby agrees to indemnify, defend and hold harmless each
Bank Indemnitee, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, charges, expenses
or disbursements (including attorneys' fees and the allocated cost of in-house
counsel), which may be incurred by or asserted against such Bank Indemnitee in
connection with or arising out of any pending or threatened investigation,
litigation or proceeding, or any action taken by any Person, with respect to any
Environmental Claim arising out of or related to any property subject to a
mortgage in favor of the Agent or any Bank. No action taken by legal counsel
chosen by the Agent or any Bank in defending against any such investigation,
litigation or proceeding or requested remedial, removal or response action shall
vitiate or any way impair the Borrower's obligations and duties hereunder to
indemnify and hold harmless the Agent and each Bank. In no event shall site
visit, observation, or testing by the Agent or any Bank be a representation that
Hazardous Materials are or are not present in, on, or under the site, or that
there has been or shall be compliance with any law, regulation, or ordinance
pertaining to Hazardous Materials or any other applicable governmental law.
Neither the Borrower nor any other party is entitled to rely on any site visit,
observation, or testing by the Agent or any Bank. Neither the Agent nor any Bank
owes any duty of care to protect the Borrower or any other party against, or to
inform the Borrower or any other party of, any Hazardous Materials or any other
adverse condition affecting any site or property.
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<PAGE> 96
Neither the Agent nor any Bank shall be obligated to disclose to the Borrower or
any other party any report or findings made as a result of, or in connection
with, any site visit, observation, or testing by the Agent or any Bank. This
indemnification shall survive repayment of all Loans made under this Agreement
and the termination of this Agreement, with or without occurrence of the Closing
Date.
SECTION XI.9 NOTICES.
Any notice which the Borrower, the Agent, the Issuing Bank or any of
the Banks may be required or may desire to give to the other parties under any
provision of this Agreement shall be in writing by electronic facsimile
transmission and shall be deemed to have been given or made when transmitted and
addressed to the Issuing Bank and any Bank at the address set forth on the
signature pages hereto or to the Agent or the Borrower as follows:
To the Borrower: New American Healthcare Corporation
109 Westpark Drive, Suite 440
Brentwood, Tennessee 37027
Attention: Mr. Dana C. McLendon, Jr.
Senior Vice President
Telephone: (615) 221-5070
Facsimile: (615) 221-5009
Copy to: John Brittingham, Esq.
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
Telephone: (615) 251-1064
Facsimile: (615) 251-1059
To the Agent: Toronto Dominion (Texas), Inc.
909 Fannin Street, Suite 1700
Houston, Texas 77010
Attention: Manager, Agency
Telephone: (713) 653-8200
Facsimile: (713) 951-9921
Copy to: The Toronto-Dominion Bank
31 West 52nd Street
New York, New York 10019-8101
Attention: Mr. Michael Wellington
Telephone: (212) 827-6902
Facsimile: (212) 827-7250
89
<PAGE> 97
Copy to: Jesse H. Austin, III, Esq.
Paul, Hastings, Janofsky & Walker LLP
600 Peachtree, Suite 2400
Atlanta, GA 30308-2222
Telephone: (404)815-2208
Facsimile: (404) 815-2424
Any party may change the address to which all notices, requests and other
communications are to be sent to it by giving written notice of such address
change to the other parties in conformity with this paragraph, but such change
shall not be effective until notice of such change has been received by the
other parties.
SECTION XI.10 ENTIRE AGREEMENT.
This Agreement, together with the exhibits to this Agreement and all of
the other Loan Documents, is intended by the Borrower, the Agent and the Banks
as a final expression of their agreement and, together with all of the other
Loan Documents, is intended as a complete statement of the terms and conditions
of their agreement. This Agreement and the other Loan Documents contain all of
the agreements and understandings between or among the Borrower, the Agent and
the Banks concerning the Loans and the other transactions contemplated hereby.
SECTION XI.11 GOVERNING LAW AND CONSENT TO JURISDICTION.
The validity, construction and effect of this Agreement, the Notes and
all of the other Loan Documents shall be governed by the laws of the State of
New York, without regard to its laws regarding choice of applicable law, but
giving effect to federal laws applicable to national and federally insured
banks. All judicial proceedings brought against the Borrower with respect to
this Agreement, the Notes or any of the other Loan Documents may be brought in
any state or federal court of competent jurisdiction in the State of New York,
and the Borrower accepts for itself and its assets and properties, generally and
unconditionally, the nonexclusive jurisdiction of the aforesaid courts. The
Borrower waives, to the fullest extent permitted by applicable law, any
objection (including, without limitation, any objection to the laying of venue
or based on the grounds of forum non conveniens) which it may now or hereafter
have to the bringing of any such action or proceeding in any such jurisdiction.
Nothing herein shall limit the right of a Bank or the Agent to bring proceedings
against the Borrower in the court of any other jurisdiction.
SECTION XI.12 COUNTERPARTS.
This Agreement may be executed in any number of counterparts each of
which shall be an original with the same effect as if the signatures thereto and
hereto were upon the same instrument.
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<PAGE> 98
SECTION XI.13 WAIVER OF JURY TRIAL.
THE BORROWER WAIVES ANY RIGHT TO TRIAL BY JURY WITH REGARD TO ANY
ACTION OF ANY TYPE OR NATURE WHATSOEVER UNDER OR CONCERNING THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS OR IN ANY WAY RELATED TO THE LOANS OR THE
ADMINISTRATION OR ENFORCEMENT THEREOF.
SECTION XI.14 HEADINGS.
Captions, headings and the table of contents in this Agreement are for
convenience only and are not to be deemed part of this Agreement.
SECTION XI.15 EFFECT OF AMENDMENT AND RESTATEMENT.
Upon the execution and delivery of this Agreement, the obligations of
the Borrower to repay or perform the obligations under the Original Agreement
and the First Amended and Restated Credit Agreement shall continue in full force
and effect and the liens, mortgages and security interests securing payment
thereof shall be continuing, but shall now be governed by the terms of this
Agreement, and any other agreements and document herein referenced, as the case
may be. The execution and delivery of this Agreement and any other agreements or
documents executed and delivered concurrently herewith shall not be construed as
a novation of the obligations outstanding under the Original Agreement and the
First Amended and Restated Credit Agreement.
(The next page is the commencement of the signature pages.)
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<PAGE> 99
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement by its duly authorized officers as of the date and year first above
written.
BORROWER: NEW AMERICAN HEALTHCARE CORPORATION
By:
--------------------------------------------
Dana C. McLendon, Jr., Senior Vice President
ISSUING BANK: THE TORONTO-DOMINION BANK,
as Issuing Bank
By:
--------------------------------------------
Jano Mott, Vice President
AGENT/BANK: TORONTO DOMINION (TEXAS), INC.,
as Agent and as a Bank
By:
--------------------------------------------
Jano Mott, Vice President
Commitment Percentage: 30.1886792453%
--------------
OTHER BANKS: NATIONSBANK, N.A.
By:
--------------------------------------------
Kevin Wagley
Its:
--------------------------------------------
Commitment Percentage: 18.8679245283%
--------------
FIRST UNION NATIONAL BANK
By:
--------------------------------------------
Valerie Cline
Its:
--------------------------------------------
Commitment Percentage: 11.3207547170%
--------------
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<PAGE> 100
FIRST AMERICAN NATIONAL BANK
By:
--------------------------------------------
Sandy Hamrick, Senior Vice President
Commitment Percentage: 9.4339622642%
--------------
NATIONAL CITY BANK OF KENTUCKY
By:
--------------------------------------------
Deroy Scott, Vice President
Commitment Percentage: 11.3207547170%
--------------
BANK ONE, N.A.
By:
--------------------------------------------
C. L. Turner
Its:
--------------------------------------------
Commitment Percentage: 11.3207547170%
--------------
AMSOUTH BANK
By:
--------------------------------------------
Cathy M. Wind, Vice President
Commitment Percentage: 7.5471698113%
--------------
93
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
State of
Name of Subsidiary Incorporation Doing Business As
- ------------------ ------------- -----------------
<S> <C> <C>
NAHC Financial, Inc. TN -----
NAHC Limited Partnership TN -----
NAHC Management Company, Inc. TN -----
NAHC Georgia Holdings, Inc. TN Memorial Hospital of Adel
NAHC of Georgia, Inc. GA -----
NAHC of Iowa, Inc. TN Davenport Medical Center
NAHC of Mississippi, Inc. TN Crosby Memorial Hospital
NAHC of Missouri, Inc. TN Doctors Hospital
NAHC of Oregon, Inc. TN Woodland Park Hospital
NAHC II of Oregon, Inc. TN Eastmoreland Hospital
NAHC III of Oregon, Inc. OR -----
NAHC of Tennessee, Inc. TN Delta Medical Center
NAHC of Texas, Inc. TN Memorial Hospital of Center
NAHC II of Texas, Inc. TN Dolly Vinsant Memorial Hospital
NAHC of Washington, Inc. TN Puget Sound Hospital
NAHC of Wyoming, Inc. TN Lander Valley Medical Center
</TABLE>
<PAGE> 1
EXHIBIT 23
The Board of Directors and Shareholders
New American Healthcare Corporation
We consent to incorporation by reference in the registration statements of New
American Healthcare Corporation on Form S-8 (Nos. 333-73323 and 333-81189) of
our reports dated May 14, 1999, relating to the consolidated balance sheets of
New American Healthcare Corporation and subsidiaries as of March 31, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
March 31, 1999, and related schedule, which reports appear in the March 31,
1999 annual report on Form 10-K of New American Healthcare Corporation.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Nashville, Tennessee
June 28, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 5,971
<SECURITIES> 0
<RECEIVABLES> 49,991
<ALLOWANCES> 10,005
<INVENTORY> 3,824
<CURRENT-ASSETS> 54,287
<PP&E> 130,376
<DEPRECIATION> 8,177
<TOTAL-ASSETS> 219,764
<CURRENT-LIABILITIES> 27,649
<BONDS> 0
0
0
<COMMON> 176
<OTHER-SE> 81,667
<TOTAL-LIABILITY-AND-EQUITY> 219,764
<SALES> 0
<TOTAL-REVENUES> 171,840
<CGS> 0
<TOTAL-COSTS> 170,715
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 13,878
<INTEREST-EXPENSE> 6,716
<INCOME-PRETAX> 1,125
<INCOME-TAX> 463
<INCOME-CONTINUING> 662
<DISCONTINUED> 0
<EXTRAORDINARY> 134
<CHANGES> 0
<NET-INCOME> 528
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
